Relevant Terms

(1) Disqualified Persons: Defined in Section 4946 as all substantial contributors

to the foundation, all foundation managers of the foundation, an owner of more than 20% of the total combined voting power of a corporation, the profits interests of a partnership or the beneficial interest of a trust or unincorporated enterprise which is a substantial contributor to the foundation, family members of disqualified persons, a corporation of which more than 35% of the total combined voting power is owned by disqualified persons, a partnership of which more than 35% of the profits interest is owned by disqualified persons, a trust, estate or unincorporated enterprise of which more than 35% of the beneficial interest is owned by disqualified persons, family members of disqualified persons. See Treasury Regulation (Treas. Reg.) 53.4946-1(a)(1).

(2) Substantial Contributor: Defined in Section 507(d)(2) as any person (within

the meaning of Section 7701(a)(1)), whether or not exempt from taxation under Section 501(a), who contributed or bequeathed an aggregate amount of more than $5,000 to the private foundation, if such amount is more than 2% of the total contributions and bequests received by the private foundation before the close of the taxable year of the private foundation in which a contribution or bequest is received by the foundation from such person. In the case of a trust, the term substantial contributor also means the creator of the trust. Such term does not include a governmental unit described in Section 170(c)(1). See Section 4946(a)(1)(A) and Treas. Reg. 1.507-6(a)(1).

(3) Related Person: With respect to any person, the term “related person” means

any other person who would be a disqualified person (within the meaning of Section 4946) by reason of his relationship to such person. In the case of a contributor which is a corporation, the term also includes any officer or director of such corporation. Section 507(d)(2)(C)(ii).

(4) Value of Assets: The value of the net assets shall be determined at whichever

time such value is higher: (1) the first day on which action is taken by the organization which culminates in its ceasing to be a private foundation, or (2) the date on which it ceases to be a private foundation. Section 507(e).

(5) Willful and Flagrant Act (or Failure to Act): An act which is voluntarily,

consciously, and knowingly committed in violation of any provision of Chapter 42 (other than Section 4940 or 4948(a)) and which would appear to be a gross violation to a reasonable person. Treas. Reg. 1.507-1(c)(2).

(6) Willful Repeated Acts (or Failures to Act): At least two acts or failures to act

both of which are voluntary, conscious, and intentional. Treas. Reg. 1.5071(c)(1).

(7) Knowing: Does not mean “having reason to know” an act or failure to act

constitutes a Chapter 42 violation. However, evidence showing that a foundation manager has reason to know of a particular fact or particular rule is relevant in determining whether he had actual knowledge of such fact or rule. Thus, for example, evidence showing that a foundation manager has reason to

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know of sufficient facts so that, based solely upon such facts, an expenditure would be a taxable expenditure is relevant in determining whether he has actual knowledge of such facts. See Treas. Reg. 53.4945-1(a)(2)(iii).