Self-Dealing, Excise Taxes, and the Compliance Rules Every Private Foundation Board Should Understand
- BryMar Crew
- Jul 20
- 5 min read
Updated: 6 days ago
Private Foundation Governance & Compliance
For many families, entrepreneurs, and philanthropists, a private foundation represents something deeply meaningful. It's more than a charitable vehicle—it's a way to create lasting impact; support causes that matter and build a legacy that reflects personal values.
Foundations are often closely connected to the individuals and families who established them; questions naturally arise about how personal, business, and charitable interests intersect. That's where understanding self-dealing rules is important.
Self-dealing is one of the most commonly misunderstood areas of private foundation compliance. Many violations occur not because anyone intended to do something wrong, but because foundation leaders weren't aware, a transaction required additional review.
The good news is that with the right governance practices, board education, and professional guidance, self-dealing concerns can often be identified and addressed before they become compliance issues.
At BryMar CPA, we believe strong governance starts with understanding the rules well enough to make confident decisions. When board members understand what to watch for, they can focus less on uncertainty and more on advancing their foundation's mission.
Why Self-Dealing Is Receiving Increased Attention
Private foundation compliance has received renewed attention over the past year as conversations surrounding nonprofit oversight, excise taxes, and fiduciary responsibilities have increased.
While recent legislative discussions brought additional focus to the excise tax framework governing private foundations, they also served as a reminder of something many boards already know - governance matters.
For family-led and entrepreneur-founded foundations in particular, maintaining clear boundaries between personal, business, and foundation activities is becoming increasingly important. As foundations grow and operations become more complex, board members benefit from periodically revisiting the rules and evaluating whether existing policies still support sound decision-making.
Rather than viewing compliance as a burden, foundations can view it as part of responsible stewardship—protecting both the organization's resources and the charitable mission those resources support.
Understanding Self-Dealing
Under Internal Revenue Code Section 4941, self-dealing generally refers to certain financial transactions between a private foundation and individuals or entities that have a significant relationship with the foundation.
The IRS refers to these individuals and entities as "disqualified persons."
The definition often extends further than board members realize and may include:
Foundation trustees and directors
Officers and key employees
Significant contributors to the foundation
Certain family members of those individuals
Businesses or organizations controlled by those individuals
Note, the rules are broad; even routine transactions can warrant review before moving forward.
The key takeaway for boards is simple: When a transaction involves someone closely connected to the foundation, it's worth pausing and evaluating whether additional guidance is needed.
Common Situations Boards Should Review Carefully
Compensation for Services
One of the most common questions foundations ask is whether a board member, family member, or related party can be compensated for services provided to the foundation.
In certain circumstances, compensation may be permissible when the services are necessary, properly documented, and reasonable in amount. However, these arrangements should be reviewed carefully and supported by appropriate board documentation.
Good governance includes documenting:
Why the services are needed
How compensation was determined
Comparable market information
Board approval and recusal procedures
Property and Lease Arrangements
Transactions involving real estate, equipment, or other assets often create questions for private foundations.
Even when terms appear fair and reasonable, transactions involving disqualified persons can trigger self-dealing concerns. Before entering into any purchase, sale, or lease arrangement, foundations should consult their accounting and legal advisors to ensure compliance requirements are fully understood.
Vendor and Service Provider Relationships
Family foundations frequently work alongside businesses, advisors, and service providers connected to board members or founders.
While these relationships may be entirely legitimate, they should be reviewed through the lens of foundation compliance. Annual vendor reviews can help boards identify potential conflicts before they become issues.
Use of Foundation Resources
Foundation assets should always support the foundation's charitable mission.
Whether it's office space, technology, vehicles, or other resources, boards should ensure foundation property is being used appropriately, and that personal benefit concerns are addressed before they arise.
Governance Is Your Best Protection
The most effective way to reduce self-dealing risk is not simply understanding the rules—it is creating a governance structure that encourages transparency and thoughtful decision-making.
A strong conflict-of-interest policy can help foundations:
Identify potential conflicts early
Establish consistent review procedures
Promote transparency among board members
Document decision-making processes
Strengthen accountability and oversight
When implemented consistently, these policies help create a culture where questions are raised early and addressed constructively.
Five Practices Strong Foundations Follow
Foundations that successfully navigate self-dealing requirements often share several governance habits:
They review conflict-of-interest disclosures annually.
They evaluate vendor and service provider relationships regularly.
They thoroughly document compensation decisions.
They seek guidance before entering into potentially sensitive transactions.
They educate new trustees on governance and compliance expectations.
These practices are not simply about avoiding penalties. They're about building confidence in the boardroom and supporting long-term organizational health.
The BryMar Perspective
Private foundation boards carry an important responsibility: safeguarding resources that exist to create meaningful charitable impact.
Self-dealing rules are designed to support that responsibility by encouraging transparency, accountability, and sound governance practices.
At BryMar CPA, we work alongside private foundations to strengthen financial oversight, support compliance efforts, and help boards navigate complex questions with confidence. Our role isn't simply to help foundations meet requirements—it's to provide clarity, insight, and practical guidance that supports long-term success.
Whether your foundation is preparing for an audit, reviewing governance policies, filing Form 990-PF, or evaluating a transaction that raises questions, our team can help you understand the considerations involved and make informed decisions.
Partner With BryMar CPA
Strong governance doesn't happen by accident. It is built through consistent oversight, informed leadership, and trusted advisory relationships.
BryMar CPA partners with private foundations to provide:
Audit and assurance services
Financial statement preparation
Form 990-PF preparation and review
Bookkeeping and financial reporting support
Our goal is simple: help foundation leaders focus on their mission while maintaining confidence in their financial and governance practices.
If your board is evaluating governance policies, preparing for an upcoming audit, or simply looking for a trusted advisor to support your foundation's financial stewardship, we'd welcome the opportunity to start a conversation.
Sources
Self-Dealing by Private Foundations: Use of Foundation Income or Assets | IRS.gov
Private Foundation Excise Taxes and the Unique Problems Facing Entrepreneurs | KJK Law (May 2026)
Six Excise Taxes Every Private Foundation Needs to Know | Exponent Philanthropy
Self-Dealing Rules for Private Foundations — 2026 Guide | Uncle Kam
New Tax Law Provisions for Endowments and Foundations | CAPTRUST
Navigating the One Big Beautiful Bill Act | Foundation Source
BryMar CPA is a public accounting firm specializing in nonprofit organizations, private foundations, audits, bookkeeping, and financial reporting. We are committed to helping mission-driven organizations operate with financial integrity and long-term confidence.
