- 26 -
Prior to 1969, sections 501(a) and 503(a), (b), and (d) had
imposed severe sanctions for transactions that resulted in the
diversion of funds to a creator or substantial contributor of a
tax-exempt organization. Further, in order to prevent tax-exempt
foundations from being used to benefit their creators or
substantial contributors, Congress had established a set of
arm's-length standards for dealings between the foundations and
these disqualified individuals. H. Rept. 91-413 (Part 1), at 21
(1969), 1969-3 C.B. 200, 214.
Nevertheless, Congress noted that abuses involving tax-
exempt organizations continued. Congress believed the abuses
resulted from the significant enforcement problems posed by the
arm's-length standards. Id. Therefore, section 4941 was enacted
as part of subchapter A of a new chapter 42 added to the Internal
Revenue Code by the Tax Reform Act of 1969 (the 1969 Act), Pub.
L. 91-172, sec. 101(b), 83 Stat. 487, 499.
One of the stated goals of the 1969 Act was to minimize the
need for an arm's-length standard by generally prohibiting self-
dealing transactions. Specifically, the 1969 Act prohibited the
following transactions between a foundation and a disqualified
person: (1) The sale, exchange or lease of property; (2) the
lending of money; (3) the furnishing of goods, services or
facilities; (4) the payment of compensation to a disqualified
person; (5) the transfer or use of foundation property by a
disqualified person; and (6) payments to Government officials.
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011