Foundation Credit Cards—Watch Out for Personal Expenses!
If a disqualified person (foundation insider) uses their foundation credit card to pay for a personal expense it is a big no-no! The IRS considers this a loan even if the credit card holder quickly pays the amount back. It does not matter if the use was accidental as the IRS will still apply the self-dealing regime penalties.
The IRS is very strict when it comes to self-dealing. The first-tier penalty is an unavoidable 10% of the transaction amount—this applies even if the amount is paid back right away. If the transaction is paid back within the first year the penalty remains at 10% but it increases by an additional 10% each year the problem is not corrected. If the foundation does not ever self-correct and the IRS catches the foundation red handed then a penalty of 200% can be applied if the amount isn’t promptly corrected. These amounts can add up very quickly if the original expense was for something substantial like airfare or other traveling expenses.
Clearly, foundation insiders should avoid the accidental use of foundation credit cards. As a preventative measure it is a good idea to order unique looking credit cards that are difficult to mistake for personal cards. Further, if foundation credit cards are not used very often, they should be kept in a locked drawer rather than in a wallet or purse.
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