Overview
Today, the Treasury Department and IRS adopted final regulations under section 4944, providing additional examples of program-related investments (PRIs) that will not be jeopardizing investments if entered into by a private foundation.
Section 4944(a) imposes an excise tax on a private foundation that makes an investment that jeopardizes the carrying out of its exempt purposes (a “jeopardizing investment”). Section 4944(c), however, provides that investments that are PRIs are not jeopardizing investments. PRIs are defined as investments that: (1) have the primary purpose of accomplishing one or more exempt purposes; and (2) have no significant purpose in the production of income or the appreciation of property. PRIs are also provided with other favorable tax treatment, such as qualification as qualifying distributions, exclusion from excess business holdings, and exclusion from the assets that a foundation must take into account in determining its distributable amount.
On April 18, 2012, Treasury and the IRS released proposed regulations providing nine additional examples of investments that would qualify as PRIs.
The final regulations adopt the proposed examples, with some modifications. For instance, in the proposed regulations, Example 11, which involved a private foundation’s investment in a subsidiary of a drug company for the development of a vaccine to prevent a disease that predominantly affects poor individuals in developing countries, stated that the subsidiary was required by the investment agreement to distribute the vaccine to the poor individuals in developing countries at a price that is affordable to the affected population. The final regulations modify this example to clarify that the subsidiary can also sell the vaccine to those who can afford it at fair market value prices. The preamble also describes certain changes to the proposed examples, or entirely new examples, that were suggested by commenters but were not adopted by Treasury and the IRS in the final regulations.