Last month the Treasury Department and IRS issues an Advanced Notice of Proposed Rulemaking which would modify the Treasury Regulations to provide new examples of program-related investments (PRIs) for private foundations. This is a welcome development as these examples provide further clarity with respect to the breadth of PRIs.
While foundations generally accomplish their charitable purposes (and satisfy their payout requirement) by making grants to public charities, the rules are actually much broader and include (among other qualifying distributions), the making of PRIs. PRIs are an alternative form of financing to flow capital to charitable programs, a form that allows for (and anticipates) repayment thereby enabling reinvestment of that same capital and other charitable programs. A program-related investment is an investment that has a primary purpose of accomplishing one or more charitable purposes, no significant purpose of producing income or appreciation of property, and no purpose to accomplish prohibited political purposes. The Treasury Regulations have for the past 40 years provided ten examples of program-related investments. Because these examples have not necessarily kept pace with the changes in forms of financing and opportunities for the making of PRIs, the new examples were needed. These additional examples demonstrate the use of PRI’s in other contexts (including international contexts) and with other forms of financing (loans, equity investments, credit enhancement, etc.). The flexibility of PRIs and their allowance for reinvestment and recirculation of capital make PRIs an attractive complement to a foundation’s standard grantmaking activities.
The new examples (which can be relied upon now) can be found at this link. For a more detailed discussion on the rules related to program-related investments see the my paper on PRI’s presented in August 2011 at the State Bar of Texas’s Governance of Nonprofit Organizations Course.