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The proscription against private benefit corresponds to a
similar proscription in the law of charitable trusts. “A trust
is not a charitable trust if the property or the income therefrom
is to be devoted to a private use.” 2 Restatement, Trusts 2d,
sec. 376 (1959). An organization’s property may be impermissibly
devoted to a private use where private interests have control,
directly or indirectly, over its assets, and thereby secure
nonincidental private benefits.
For instance, in est of Hawaii v. Commissioner, 71 T.C. 1067
(1979), several for-profit ‘est’ organizations that had no formal
structural control over the nonprofit entity in question
nevertheless exerted "considerable control" over its activities.
The for-profit organizations set fees that the nonprofit charged
the public for training sessions, required the nonprofit to carry
on certain types of educational activities, and provided
management personnel paid for and responsible to one of the for-
profits. Under a licensing agreement with the for-profits, the
nonprofit was allowed to use certain intellectual property for 10
years, and at the end of the licensing agreement, all copyrighted
material, including new material developed by the nonprofit, was
required to be turned over to the for-profits. The nonprofit was
required to use its excess funds for the development of ‘est’ or
related research. The for-profits also required that trainers
and local organizations sign an agreement not to compete with
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