In our previous blog, No Strings Attached, we discussed the importance of unrestricted general operating support from grant makers. However, general operating support may not be the best – or only way – to assist every grantee organization. Instead of, or in addition to a grant, program-related investment (PRI) sometimes makes sense.

If you haven’t ventured into program-related investments, you may ask, “What is it?” The IRS defines it as investments in which:

  1. The primary purpose is to accomplish one or more of the foundation's exempt purposes,
  2. Production of income or appreciation of property is not a significant purpose, and
  3. Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose.

The most common program-related investment that I have seen thus far is in the form of low-interest or interest-free loans to a public charity. This provides the grantee organization the immediate unrestricted cash they need while giving them time to either realize the potential for generating income or to obtain traditional financing to repay the loan. If successfully collected, the grant maker can recycle the fund for other charitable purposes.

However, it may be interesting to know that PRIs can be made with for-profit entities, and it can even be in the form of equity investments. In April 2016, the Internal Revenue Service and Treasury Department issued final regulations regarding PRIs, 26 CFR 53.4944-3, which added nine new examples of PRIs. Please click here for details.

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Stephanie Yan

Stephanie Yan, CPA, has more than 20 years of public accounting experience providing audit, accounting and general business consulting services. Before coming to GHJ in 2004, Stephanie spent three years working in corporate accounting for both privately held and public companies. Her industry…Learn More