What special rules apply to investments by a private foundation?
In addition to state corporate or trust law, and UPMIFA or UPIA, private foundation investments are also subject to federal tax law regulations. Federal tax law provides that certain risky investments or investment strategies may constitute “jeopardizing investments” that subject the foundation to private foundation excise taxes. The “prudent trustee” standard under federal tax law emphasizes the need to consider the current and future needs of the foundation, investment risks and the importance of diversification. The regulations also list several categories of investments that will be subject to “close scrutiny” by the IRS, including trading in securities on margin; trading in commodities futures; investments in working interests in oil and gas wells; purchase of puts, calls and straddles; warrants; selling short; junk bonds; risk arbitrage; hedge funds; derivatives; distressed real estate; and international equities in developing countries. Private foundations are also subject to “e
