Acts of Self-Dealing: Prohibited Compensation from Private Foundations
- Employees may obtain a letter from the foundation’s counsel which indicates the status of the foundation.
- Employees may use the IRS Publication 78 Select Search function on the IRS web site. Use the search instructions (pdf format) and go to the IRS search web page and search for the organization to determine its status.
One provision of the Internal Revenue Code has a significant effect for some NIH employees who wish to conduct an outside activity with a private foundation, or who will receive an award with cash prize from a private foundation. Specifically, the rule prohibits compensation by private foundations to certain Government employees and prohibits agreements to make payments of money or property to such employees. The receipt of compensation or cash prize is termed an “act of self-dealing.” This rule applies to Government officials who are identified as "disqualified persons" in the statute.
"Disqualified persons" within the scope of this restriction include: elective officials, Presidential appointees, Schedule C employees, and individuals compensated at or above the lowest SES Level basic pay (excluding locality adjustment), regardless of their appointment mechanism (GS, Title 42, SBRS, Commissioned Corps). "Disqualified persons" also includes the personal or executive assistants and secretaries of any of the above disqualified persons, regardless of the salary or pay mechanism of the assistant or secretary. As a result, these NIH employees are effectively prohibited from receiving compensation from a private foundation for activities such as teaching, writing, and consulting via an approved outside activity. If an award with cash prize is presented or sponsored by a private foundation, employees may be prohibited from accepting the cash prize if the award is available to a limited pool of recipients. For more details, see the following HHS Office of the General Counsel, Ethics Division, opinions regarding receipt of compensation from private foundations: June 2, 2000 and February 7, 2002.
When employees know that they are subject to the prohibitions from this statute, employees will accomplish the relevant step(s) below to determine which foundations are private (as defined in 26 USC Sec. 509), and submit the documentation with their outside activity or award requests.
If it is discovered that the organization is a private foundation and the employee is the named recipient of an award from the private foundation, the employee must also provide evidence regarding whether the award is open to a wide range of people (the 'relevant public') or is more narrow, e.g., an employee may not accept an award available only for Government employees. This information is in addition to that required to determine whether the cash award meets the regulatory requirements for designation as bona fide, which permits NIH employees to accept the associated cash prize, and the conflict analysis for each employee recipient.
In addition, Deputy Ethics Counselors must consider the compensation level of the employee, or the employee's supervisor in some cases, and the tax code provision when reviewing outside activity requests for activities with private organizations.
Whether a foundation meets the definition of private according to 26 USC Sec. 509(a) can best be determined by contacting the foundation’s counsel. Because the designation as private or not-private is determined by the IRS, there is no attempt here to provide criteria for making that determination. For more detailed information, see the IRS web site documents regarding Private Foundations, Acts of Self-Dealing, Taxes on Self-Dealing, and Foreign Private Foundations.
The following foundations have been verified as "not private" as defined in 26 USC Sec. 509(a). Therefore, those employees ("disqualified persons") identified above may conduct compensated outside activities with these foundations. As noted above, acceptance of a cash award from one of these organizations is not automatic. The award itself must be analyzed to determine whether the pool of potential recipients is broad enough to permit the employee to accept the cash prize.
American Health Assistance Foundation, Washington, DC
American Psychiatric Association, Washington, DC
Aplastic Anemia & MDS International Foundation, Annapolis, MD
(formerly the Aplastic Anemia Foundation of America)
Best Friends Foundation, Washington, DC
Elizabeth Glaser Pediatric AIDS Foundation
Foundation for Advanced Education in the Sciences (FAES), Bethesda, MD
Foundation for the National Institutes of Health (FNIH), Bethesda, MD
Friends of the Clinical Center, Bethesda, MD
Howard Hughes Medical Institute, Bethesda, MD
International Life Sciences Institute - North America (ILSI-NA)
National Biomedical Research Foundation (NBRF), Washington, DC
Oklahoma Medical Research Foundation, Oklahoma City, OK
Susan G. Komen Foundation, Dallas, TX
The following foundations have been verified as "private" as defined in 26 USC Sec. 509(a). Therefore, disqualified employees could be subject to a fine by the IRS if they engage in an act of "self-dealing" with any of these organizations, including accepting compensation for engaging in an outside activity with these foundations, or accepting a cash prize associated with an award from any of these foundations.
Bill and Melinda Gates Foundation, Seattle, WA
Burroughs Wellcome Fund
Doris Duke Charitable Foundation, Somerville, NJ
John E. Fetzer Institute, Kalamazoo, MI
Passano Foundation, Baltimore, MD
Whitaker Foundation, Rosslyn, VA
The following list includes foreign private foundations from which NIH employees may receive payments that would not be subject to the self-dealing penalty.
Welcome Trust, UK (2/2009)