Foundation Credit Cards—Watch Out for Personal Expenses!

by: Kyle Anderson
July 9, 2022
Credit cards in a stack

Ensuring compliance with IRS regulations is crucial for family foundation insiders to maintain the integrity of their organizations. One area where utmost caution is required is the use of foundation credit cards for personal expenses. Even accidental or temporary misuse can have significant consequences, triggering penalties under the self-dealing regime.

The IRS maintains strict guidelines when it comes to self-dealing, considering any personal use of a foundation credit card by a disqualified person as a loan, regardless of repayment. Even accidental or unintended transactions are subject to penalties under the self-dealing regime. It is imperative for foundation insiders to exercise diligence and avoid any missteps.

The first-tier penalty levied by the IRS is an unavoidable 10% of the transaction amount, even if the repayment is made promptly. However, if the transaction remains unresolved beyond a year, the penalty increases by an additional 10% each subsequent year until the issue is rectified. In the unfortunate event that a foundation fails to self-correct and the IRS identifies the violation, a hefty penalty of 200% may be imposed if the amount is not promptly rectified. Notably, these penalties can accumulate rapidly, especially when the initial expense involves significant amounts, such as airfare or extensive travel costs.

Given the potential repercussions of accidental or improper use of foundation credit cards, it is imperative for foundation insiders to exercise caution and implement preventive measures. Employing unique and easily distinguishable credit cards specifically designated for foundation-related expenses can greatly reduce the risk of confusion. Additionally, when credit cards are not frequently used, storing them in a securely locked drawer rather than carrying them in a wallet or purse further minimizes the possibility of inadvertent misuse.

By adhering to these preventative practices and being mindful of the IRS regulations, foundation insiders can ensure compliance and safeguard the reputation and mission of their organizations. Maintaining strict adherence to the self-dealing rules not only protects against penalties but also upholds the trust and confidence of stakeholders in the foundation's operations.

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