IRS - Excess Business Holdings of Private Foundation
governmentIRS guidance on private foundation excess business holdings rules; not directly relevant to AI safety but may be referenced in contexts discussing nonprofit governance and compliance for AI safety organizations.
Metadata
Summary
This IRS resource defines excess business holdings for private foundations, which occur when a foundation's ownership stake in a business enterprise exceeds permitted thresholds. Generally, private foundations may hold up to 20% of a corporation's voting stock (reduced by disqualified persons' holdings), with exceptions allowing up to 35% if third parties maintain effective control, or permitting up to 2% holdings without restriction. The guidance also covers special rules for sole proprietorships, nonvoting stock, and attribution rules for determining ownership percentages across different entity structures.
Cited by 1 page
| Page | Type | Quality |
|---|---|---|
| OpenAI Foundation | Organization | 87.0 |
Cached Content Preview
[Skip to main content](https://www.irs.gov/charities-non-profits/private-foundations/excess-business-holdings-of-private-foundation-defined#main-content)
# Excess business holdings of private foundation defined
### More In File
The **excess business holdings** of a foundation are the amount of stock or other interest in a [business enterprise](https://www.irs.gov/charities-non-profits/private-foundations/business-enterprise-excess-business-holdings-of-private-foundations "Business enterprise - Excess business holdings of private foundations") that exceeds the permitted holdings. A private foundation is generally permitted to hold up to 20 percent of the voting stock of a corporation, reduced by the percentage of voting stock actually or constructively owned by [disqualified persons](https://www.irs.gov/charities-non-profits/private-foundations/disqualified-persons "Disqualified persons"). There are two exceptions to this rule.
1. If one or more third persons, who are not disqualified persons, have effective control of a corporation, the private foundation and all disqualified persons together may own up to 35 percent of the corporation's voting stock. Effective control means the power, whether direct or indirect, and whether or not actually exercised, to direct or cause the direction of the management and policies of a business enterprise. It is the actual control which is decisive, and not its form or the means by which it is exercisable.
2. A private foundation is not treated as having excess business holdings in any corporation in which it (together with certain other related private foundations) owns not more than two percent of the voting stock and not more than two percent of the value of all outstanding shares of all classes of stock.
Nonvoting stock (or capital interest for holdings in a partnership or joint venture) is a permitted holding of a foundation if all disqualified persons together hold no more than 20 percent (or 35 percent as described earlier) of the voting stock of the corporation. All equity interests which are not voting stock shall be classified as nonvoting stock.
## Interest in sole proprietorships
A private foundation is not permitted any holdings in sole proprietorships that are business enterprises unless they were held before May 26, 1969, or [acquired by gift or bequest thereafter](https://www.irs.gov/charities-non-profits/private-foundations/reducing-private-foundation-excess-business-holdings-additional-time-to-dispose-of-large-gifts-or-bequests "Reducing private foundation excess business holdings: Additional time to dispose of large gifts or bequests").
## Attribution of business holdings
For determining the holdings in a business enterprise of either a private foundation or a disqualified person, any stock or other interest owned directly or indirectly by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. (Thi
... (truncated, 6 KB total)b85a6c317febe716 | Stable ID: N2ZjZTExM2