May a company and its private foundation share employees?
Yes, so long as any arrangement between the private foundation and the sponsoring company is structured in a way that does not violate the prohibition against self-dealing.
Corporate foundations and their sponsoring company may share staff using a variety of arrangements. The most common arrangement is to have the sponsoring company donate the services of shared employees; in these cases, the shared employees are paid by the sponsoring corporation and participate in the corporate benefits program. A variation on this arrangement is when the foundation reimburses the company for shared employees time and benefits. An alternative is to have parallel compensation and benefits systems for shared employees.
All sharing arrangements must comply with the self-dealing rules. The self-dealing rules prohibit private foundations including company foundations from entering into a range of financial transactions with disqualified persons. Among those considered disqualified persons are substantial contributors to the foundation. The sponsoring company is virtually always a substantial contributor and thus a disqualified person in relationship to the company foundation. Typically the payment or reimbursement of expenses by a private foundation to a sponsoring company is self-dealing. However, an exception to the self-dealing rules permits payment to be made by the foundation to a disqualified person (the company) for personal services that are reasonable and necessary to carrying out the foundation's charitable purposes. The term personal services is defined narrowly, but is generally believed to include legal, accounting and investment services as well as the foundation's executive staff services.
Donated Services.Where the company donates services of employees working on foundation matters, there are no self-dealing complications. While the company cannot receive a charitable deduction for the expenses, the company may be able to take a business deduction.
Expense Reimbursement. Where the sponsoring company is reimbursed for the portion of expenses of a shared employee's salary and benefits attributable to time spent exclusively on foundation matters, the arrangement must be carefully structured not to violate the prohibition against self-dealing. Shared staff will need to keep accurate records of their time so salary and benefit expenses can be allocated appropriately between the corporation and the foundation. Also, no interest may be charged to the foundation for the time period the company awaits reimbursement. Finally, whenever a private foundation is making any payments to the sponsoring company knowledgeable legal counsel should be consulted before entering into the transaction.
Parallel Systems. Parallel systems under which one employee is separately employed and compensated by both the foundation and company are permissible but such parallel systems are uncommon and potentially unwieldy. Counsel should be consulted prior to setting up such systems.