Can private foundations give cash prizes and other awards?
Although privatefoundations largely channel their philanthropic giving in the form of grants toIRS-recognized public charities, another option, though less common, is for foundationsto set up award programs. As with all foundation activities, the award program mustrelate to and advance the foundation’s charitable mission.
There are quite afew private foundations sponsoring award programs in the United States. Forexample, The World Food Prize is an international award recognizing theachievements of individuals who have advanced human development by improvingthe quality, quantity, or availability of food in the world. The prize has beenawarded annually since 1987, bestowing laureates with a diploma, acommemorative sculpture, and a large monetary award.
There are manyrules that foundations must abide by in structuring an award program. In orderto stay in compliance with IRS rules, the program should be structured as anaward for prior achievements and the winners should be free to use the prizemoney however they wish without restrictions. The foundation will run afoul ofthe rules if it tries to control the prize winner’s future actions or how theprize money is spent. Even so, award programs can be structured in such a way topromote the importance of a given field and provide an incentive for innovationin a specific area. The IRS requirements around these prize programs are somewhatdifficult to navigate and harsh penalties can be imposed for failing to followthe rules—so consulting with an experienced legal practitioner before settingone up is a wise idea.
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