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Private Benefit Rules

A private foundation is subject to a myriad of rules that govern its grant making and other activities under the Internal Revenue Code, state law, and other applicable law(s). Grants made by a private foundation, such as the John D. and Catherine T. MacArthur Foundation, must serve a clear exempt purpose and benefit directly or indirectly a sufficiently large or indefinite group.

The 100&Change Competition is subject to many of these rules. Among the rules most relevant to the Competition are the following:

  • Lobbying rules
  • Rules prohibiting private inurement or private benefit
  • Expenditure responsibility rules
  • Rules against self-dealing.

Each of these sets of rules has their own complexities, and applicants should consult their own counsel to understand how these rules might impact an application.

The following is a general description of the private benefit rules. The information set forth herein is intended to be general in nature and does not constitute legal advice to any applicant. Applicants should consult with their own legal counsel regarding these requirements.

Private Benefit 

The Internal Revenue Code expressly prohibits the use of an organization’s assets or earnings in a manner that would give rise to “private inurement” to any insider of the organization. A derivative of the private inurement doctrine is the private benefit doctrine. 

The private benefit doctrine requires that any private benefit arising from charitable activities be “incidental” compared to the public benefit from such activities. Any private benefit must be both qualitatively and quantitatively incidental to the public benefits to be achieved. 

A private benefit is qualitatively incidental if it is “a necessary concomitant of the activity which benefits the public” in the sense that the “benefit to the public cannot be achieved without necessarily benefiting certain private individuals. The IRS has determined that benefits are qualitatively incidental to the public benefit where it would be impossible for an organization to accomplish its exempt purposes without providing the private benefits. PLR 9615030; GCM 37789.

Private benefit will be quantitatively incidental if it is insubstantial when compared with the public benefit conferred. PLR 201114036; PLR 9615030; GCM 39862. An acceptable amount of the private benefit will vary in each case “in direct relation to the degree of public benefit derived” GCM 39612; GCM 38459; GCM 38827. To the extent that there is more private benefit, it must be outweighed by more substantial public benefit.

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