Proposed Regulations provide helpful new examples of “program-related investments”

by Proskauer - Not for Profit/Exempt Organizations

As repeatedly promised in its work plan, the IRS recently issued Proposed Regulations containing several new examples of investments that qualify as a “program-related investment” (a “PRI”) for purposes of avoiding potential characterization as a “jeopardizing investment,” which could result in the imposition of excise taxes on a private foundation and its managers under Section 4944 of the Code. The proposed regulations can be found at 77 F.R. 23429 (April 19, 2012).

Section 4944 imposes excise taxes on a private foundation that makes a “jeopardizing investment” and on the foundation managers who knowingly participate in the making of the investment. A jeopardizing investment is made when, based on the facts and circumstances at the time the investment is made, the foundation managers fail to exercise ordinary business care and prudence in providing for the long-term and short-term needs of the foundation to carry out its exempt purposes. An investment that qualifies as a PRI, however, will not be characterized as a jeopardizing investment and will not trigger the Section 4944 excise tax. A PRI is any investment made with the primary purpose of carrying out charitable, religious, educational or similar purposes as long as the production of income is not a significant purpose of making the investment and the attempt to influence legislation or participate or intervene in any political campaign is not any purpose of making the investment.

The current regulations (which were promulgated in 1972) contain nine examples of investments that would qualify as PRIs, but the investment examples are limited in scope and fail to address many current investment practices. The Treasury Department and the IRS stated in the accompanying notice that the nine new examples are not intended to modify the existing rules governing PRIs, but rather are intended to fill in the gaps left by the current examples. Importantly, private foundations will be permitted to rely on these new examples prior to their finalization. Specific gaps and ambiguities in the current examples that the new examples are intended to address include clarification that:

  • an activity conducted in a foreign country furthers a charitable purpose if the same activity would further a charitable purpose if conducted in the United States;
  • the charitable purposes served by a PRI are not limited to situations involving economically disadvantaged individuals and deteriorated urban areas (which happen to be the types of situations discussed in the current examples);
  • the recipients of PRIs need not be within a charitable class if they are the instruments for furthering a charitable purpose;
  • a potentially high rate of return does not automatically prevent an investment from qualifying as a PRI;
  • PRIs can be achieved through a variety of investments, including loans to individuals, tax-exempt organizations and for-profit organizations, and equity investments in for-profit organizations;
  • a credit enhancement arrangement may qualify as a PRI; and
  • acceptance by a private foundation of an equity position in conjunction with making a loan does not necessarily prevent the investment from qualifying as a PRI.

Notably, PRIs are also accorded preferential treatment under other provisions of the Code. For example, a PRI is excluded from the assets that a private foundation must take into account when determining the annual “distributable amount” for purposes of avoiding the excise tax imposed on a foundation’s undistributed income under Section 4942 of the Code. Further, PRIs do not constitute “taxable expenditures” and thus are not subject to the excise tax under Section 4945 of the Code as long as a private foundation exercises certain expenditure responsibilities. Accordingly, while the IRS notes in the accompanying notice that the discussion in the new examples is limited to the impact of Section 4944 on the facts described therein, the examples will be helpful to those in the private foundation community for purposes of determining whether an expenditure may qualify for preferential treatment under other provisions of the Code as well.

The proposed regulations do not address low-profit limited liability companies.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Proskauer - Not for Profit/Exempt Organizations | Attorney Advertising

Written by:

Proskauer - Not for Profit/Exempt Organizations

Proskauer - Not for Profit/Exempt Organizations on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.