In April 2016, under US President Barack Obama’s administration, the US Treasury Department and IRS finalized regulations that make it easier for private foundations to make Program-Related Investments (or PRIs). Through the finalized regulations, “foundations may prudently choose to make investments that provide both an impact charitably and a financial return without facing a tax penalty.”
Impact
The recent set of regulations is will make it easier for foundations to mobilize government and, indirectly, its taxpaying citizens, to increase commitments to create “safe communities, strengthen schools, and achieve other charitable goals that make our country a place where everyone has the opportunity to succeed,” without incurring a corresponding tax penalty.
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Today, the US Treasury Department and IRS finalized regulations that make it easier for private foundations to make Program-Related Investments (PRIs), which are investments – such as loans, loan guarantees, or equity investments – made primarily to accomplish a foundation’s charitable purposes, and not to generate financial returns.
PRIs are one example of such a financing tool that is not a grant, nor just an investment, but is in some ways like both.
Some private foundations have a long history of using PRIs to make charitable investments that are intended to produce significant charitable returns, but generally negligible financial returns. A private foundation’s PRIs count towards the annual distribution that the foundation must make each year and receive other tax-favored treatment. Therefore, PRIs have typically been treated as a part of a foundation’s grantmaking budget.
The PRI regulations, proposed in 2012 and finalized today, provide nine new examples illustrating how a foundation can use PRIs to advance its charitable purpose. Many foundations have had misperceptions of the rules governing PRIs and many believed that expensive processes, such as specific IRS approvals or legal opinions, were necessary to safely use this tool.
The new regulations, which closely follow the proposed regulations, illustrate the wide range of investments that might qualify as PRIs, including those accomplishing a variety of charitable purposes and utilizing a variety of financial arrangements.
More on the Whitehouse’s press release.
More details on the finalized regulations.
