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If a private foundation signs a letter or petition opposing a cabinet nominee, there is no expense involved. It would violate the no lobbyjng rule, but there could be no tax imposed. So how illegal is that?

Illegal enough to be not worth the risk.  It may be true that signing a petition would not entail a great deal of expenditures, but the IRS could allocate some of the salary of the foundation managers who read the petition and decided to sign, plus any cost to communicate that signature to others.  Whatever it is, it could be enough to put the foundation on the IRS radar screen. 

The foundation's risk is not so much having to pay a tax for the individual taxable expenditure.The ultimate risk is that the IRS has the power to impose a "termination tax" equal to the lower of the aggregate tax benefit realized by the foundation since day one or equal to its net assets in the case of willful and repeated acts, or "a willful and flagrant act," giving rise to the initial tax on a taxable expenditure.  In other words, the IRS has the power to put willfully bad actors out of business altogether. 

If you really want to find out how illegal it is to knowingly violate the foundation requirments, be my guest.  But I wouldn't recommend it.  --Don Kramer

 

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