Most foundations don’t set out to break the rules. In fact, many self-dealing violations occur in situations that seem entirely reasonable: saving money, supporting a grantee, or simply making things easier to manage. But when it comes to private foundations, the rules around self-dealing are intentionally strict, and often counterintuitive. As Exponent Philanthropy’s How to Avoid Self-Dealing primer explains, these rules exist to ensure that foundation assets are used exclusively for charitable purposes, not for private benefit.
Understanding Private Foundation Self-Dealing
At the center of these rules is a key concept: disqualified persons. Disqualified persons include foundation managers (like trustees, officers, and key staff), substantial contributors, their family members, and any entities they control. In other words, the very people most closely connected to your foundation.
Why Even “Reasonable” Decisions Can Be Prohibited
And here’s the part that trips many funders up: The rules are absolute. It doesn’t matter whether a transaction is below-market, well-intentioned, or even beneficial to the foundation. If a disqualified person receives a financial or tangible benefit, directly or indirectly, it may be considered self-dealing.
That’s why this topic can feel, as the primer puts it, “tricky” or even “counterintuitive.” The good news: once you start to see the patterns, it becomes much easier to spot risk early. Below are five common ways self-dealing can quietly creep into a foundation’s day-to-day work—and what they reveal about how easily lines can blur.
1. When a Good Deal Isn’t Actually Allowed
A foundation leases office space from a trustee at a below-market rate. Or hires a family member at what seems like a fair salary. These situations often feel prudent, even responsible. But under self-dealing rules, fair market value doesn’t make a transaction acceptable. In fact, many transactions with disqualified persons are prohibited outright, regardless of price. The takeaway: “good deals” with insiders are still deals, and that’s where risk begins.
2. When Shared Resources Blur Boundaries
To save time and money, a foundation shares office space, staff, or services with a family business or related entity. This is incredibly common and incredibly risky. The primer makes clear that foundations generally cannot pay disqualified persons for space, goods, or most services, even as part of a shared arrangement. Even well-structured cost-sharing can cross into self-dealing if not handled carefully.
3. When Personal and Foundation Decisions Overlap
A trustee makes a personal pledge to a nonprofit, then later asks the foundation to fulfill it. Or commits support informally, assuming the foundation will follow through. In both cases, the line between personal and foundation action has blurred. But the rule is clear: a foundation cannot satisfy a personal obligation of a disqualified person. Even when the mission aligns, the source of the commitment matters.
4. When Benefits Are Indirect—but Still Real
A foundation makes a grant that ends up benefiting a trustee, perhaps by increasing the value of their property, supporting an organization they’re financially tied to, or providing access or perks. No money changes hands directly. But the benefit exists. Self-dealing rules explicitly prohibit doing indirectly what cannot be done directly. That includes situations where foundation funds create a tangible or economic benefit, even if it’s one step removed.
5. When Small Expenses Add Up
Covering travel for spouses without a formal role. Using foundation credit cards for personal purchases and reimbursing later. Accepting event tickets that extend beyond foundation business. Individually, these may seem minor. But the primer highlights that even short-term or small extensions of benefit, like a brief loan or reimbursed expense, can qualify as self-dealing. There’s no “too small to matter” threshold.
What These Scenarios Have in Common
None of these examples involves bad actors. They reflect real decisions foundations make every day, often in the spirit of efficiency, generosity, or common sense. That’s what makes self-dealing so challenging. It’s not about avoiding obvious misconduct. It’s about recognizing that when disqualified persons are involved, the rules shift, and the margin for error disappears.
One practical way to catch risk early is to pause and run through three simple questions before moving forward:
- Does this involve a disqualified person?
- Is this type of transaction prohibited?
- If so, does a specific exception apply?
If the answer to that last question is no, the transaction is prohibited.
Learn More: Build Your Self-Dealing Radar
If these scenarios feel familiar, you’re not alone. This is one of the most common and most misunderstood areas of foundation governance.
To go deeper:
- Read our primer: How to Avoid Self-Dealing offers a clear, practical guide to the rules, exceptions, and how to safeguard your foundation.
- Explore more real-world scenarios in our members-only resource, 10 Ways Self-Dealing Can Creep Into a Foundation’s Work.
Together, these resources can help you spot risks early, ask the right questions, and stay focused on what matters most: your charitable mission.