September 20, 2001 | Read Time: 1 minute
A private foundation can compensate its trustees based on a percentage of the fund’s assets without violating tax laws that bar “self dealing” and excessive compensation, the Internal Revenue Service has decided in response to a query from the foundation.
The foundation had asked the tax agency for permission to pay its two trustees a fixed percentage of the value of the foundation’s assets. It told the IRS that the trustees manage the foundation’s assets and investments, as well as make and monitor the fund’s grants to charities.
The compensation plan the foundation proposed would be similar to fees charged by outside contractors for managing foundation assets. The foundation said it planned to pay its trustees a lower percentage than it would an outside contractor, based on an estimate the foundation received.
The revenue service ruled that the foundation’s compensation arrangement is permissible because it pays for work that falls under the category of “personal services” that are reasonable and necessary for the foundation to carry out its mission. The compensation is not excessive, the IRS said, because the foundation based its pay on the fees typically charged by institutions doing similar work (Letter Ruling 200135047).
