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September 10, 2021

IRS updating 'no-rule' list to include certain self-dealing transactions

The IRS has announced (Revenue Procedure 2021-40) it will not issue private letter rulings (PLRs) on whether certain transactions constitute self-dealing under IRC Section 4941(d). This announcement represents an addition to the Service's "no-rule list" published in Revenue Procedure 2021-3.


Generally speaking, IRC Section 4941(d) prohibits a private foundation and any disqualified person from entering into any direct or indirect (1) sale, exchange or lease of property, (2) lending of money or other extension of credit, (3) furnishing of goods, services or facilities, (4) payment of compensation, (5) transfer of assets, or (6) transfer of payment to a government official.

On occasion, donors may try to circumvent these rules by entering into a transaction with a limited liability company that, by itself, does not meet the definition of a disqualified person. For example, a potential donor may provide assets, including promissory notes, to an LLC in exchange for a nonvoting interest in the LLC, and then gift or bequeath the same nonvoting interest to a private foundation. By providing the private foundation with nonvoting rights, the donor can essentially avoid a negative outcome as the private foundation would lack the "control" element necessary for self-dealing. Because of the specific facts and circumstances involved in these transactions, many organizations would preemptively seek a ruling from the Service that the transaction was not an indirect self-dealing transaction.

Revenue Procedure 2021-40

Under Revenue Procedure 2021-40, the IRS will not issue PLRs on whether an act of self-dealing occurs when a private foundation, or other entity subject to IRC Section 4941, owns or receives an interest in a limited liability company (LLC) or other entity that owns a promissory note issued by a disqualified person. Revenue Procedure 2021-40 explains that the IRS is "currently reviewing its prior ruling position on [these] transactions."

The new revenue procedure applies to all PLR requests pending in or received by the IRS on or after September 3, 2021. Pending requests will be closed and user fees will be returned.


The fact that the IRS is adding particular scenarios to the "no-rule" list is often viewed as a negative inference with regard to the transaction in question. By adding this transaction to the "no-rule" list, private foundations (and other affected entities) will no longer be able to obtain and rely upon fact-specific PLRs to take the position that an ownership interest in an LLC that holds a promissory note from a disqualified person does not constitute self-dealing. Rather, the burden (and risk) for supporting such a position will now fall squarely on the private foundation and tax practitioners. The private foundation should thoroughly document all of the pertinent facts and work with its tax advisory professionals to clearly articulate the support for its position, as this documentation may be needed to satisfy any IRS inquiries.



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Contact Information
For additional information concerning this Alert, please contact:
Exempt Organization Tax Services
   • Terence Kennedy (
   • Melanie McPeak (
   • Vickus DeKock (
   • Regina Vasilopoulos (