SEPTEMBER 20, 2020




Why might a wealthy taxpayer start a section 501(c)(3) foundation?

Reason #1  He can donate some of his wealth to the foundation and take a tax donation for the transfer and still have some control over the funds.  If he donates to the Cancer Drive, the cancer society decides how to spend the money, but his Foundation can hire his grandson, a college student facing high tuition costs, and pay him a generous salary to “work” for the Foundation.  The donor can also hire his daughter to be “President and CEO” of the Foundation at a handsome, though limited by reasonableness, salary – just something fitting for the president and CEO of a large enterprise.  Finally, nothing, one supposes, prevents the foundation from buying a large tract of land creating a nature preserve adjacent to the donor’s vacation home.

The law governing 501(c)(3) charities limits this behavior, but the limits tend to be generous, and their enforcement minimal.

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