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Foundation's Aggressive Estate Tax Avoidance Strategy Shot Down

Saul Brenner, CPA, J.D., LL.M. 09.08.2015 | eVisor

The title of the foundation was an attention-getter: "Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc." Set up by the estate of a wealthy individual, the foundation was an attempt to eliminate any estate tax, but it went too far.1

At first, the IRS approved the foundation's application for tax-exempt status. However, the scholarships awarded by the foundation went to direct descendants of the deceased individual. This raised eyebrows at the IRS which challenged the tax exempt status of the foundation. The foundation argued that the scholarships were open to all eligible descendants of Hungarian immigrants. However, the foundation never made any attempt to advertise their availability to the general public.

The IRS revoked the foundation's tax exempt status because it did not operate exclusively for an exempt purpose and instead served private interests. The District Court supported the IRS noting that the foundation operated in a manner that benefitted one family which precluded it from having tax-exempt status.

1 Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc. Plaintiff, v. United State of America, Defendant. United State District Court for the District of Columbia.

Questions? Contact your Berdon advisor or Saul Brenner, CPA, J.D., LL.M.  at 212.331.7630 | sbrenner@berdonllp.com