Final IRS regulations released this spring offer private foundations guidance on program-related investments, and narrow the definition of “jeopardizing investments” that may subject the foundation to an excise tax. Program-related investments (PRIs) are largely meant to accomplish a private foundation’s charitable aims vs. generating financial returns. Under the final regulations, though, if an investment produces significant income or capital appreciation, that alone wouldn’t disqualify the investment from being a PRI.
The regulations add nine examples to the existing rules, updating the types of investments that qualify as PRIs. The existing regulations — in effect since 1972 — have nine examples that focus on domestic investments mainly involving economically disadvantaged individuals and deteriorated urban areas.
The new examples demonstrate that PRIs can accomplish a variety of other exempt purposes, fund activities in foreign countries and earn a potentially high rate of return. They also show that such investments can include an equity position when a nonprofit is making a loan or provide credit enhancements (for example, by guaranteeing a bank loan to an exempt organization). And private foundations can now provide loans or capital to individuals or entities that aren’t tax-exempt themselves as long as the recipients are the instruments through which the foundation accomplishes its exempt activities. For more information on the new regulations, visit