Office equipment and supplies may always be shared if the parent company provides the foundation with the equipment or supplies free of charge. It is also possible for the parent company and the foundation to share the cost of equipment and supplies, but great care needs to be taken to structure the arrangement in a manner that does not violate the prohibition against self-dealing.
Background. 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 parent company is virtually always a substantial contributor and thus a disqualified person in relationship to the company foundation.
Sharing Equipment and Supplies. It is not always necessary for the company foundation to buy their own pens and paper or lease their own photocopiers. As mentioned above, if the parent company is supplying equipment and/or supplies free of charge, the equipment and supplies can be shared without concern. But, due to the prohibition against the self-dealing rules, the parent company may not charge the foundation for the use of goods and services even at below cost rates.
How can the parent company and foundation share the costs of equipment and supplies without violating the prohibition against self-dealing? According to several Private Letter Rulings issued by the IRS, two key factors in sharing equipment and supplies appear to be (1) maintaining detailed records of each entity's usage so that the private foundation only paid for its own usage and (2) paying for the services or supplies used directly to a third-party vendor (who is not a disqualified person). For example, one Private Letter Ruling held that it was not self-dealing if the private foundation, following the guidelines above, shared supplies such as refreashments and postage. While the Private Letter Ruling only applies to the parties who requested it, this and similar rulings suggest that there are methods to share equipment and supplies without violating the self-dealing rules. When comtemplating sharing office equipment or supplies, it is always advisable to have an attorney, familiar with all the details of the proposed arrangement, examine the situation to ensure no inadvertent violations of the self-dealing rules.
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