One provision of the Internal Revenue Code has a significant impact for some NIH employees who conduct outside activities with private foundations. Specifically, the statute imposes a tax on each act of "self-dealing" if conducted by specified individuals. The tax, or fine, may be as much as twice the amount received in the act of "self dealing." This rule applies to Government officials who are identified as "disqualified persons" in the statute. "Disqualified persons" within the scope of this restriction include: elective officials, Presidential appointees, Schedule C employees, and individuals compensated at or above the SES Level 1 basic pay (excluding locality adjustment), regardless of their appointment mechanism (GS, Title 42, SBRS, Commissioned Corps). "Disqualified persons" also includes the personal or executive assistants and secretaries of any of the above disqualified persons, regardless of the salary or pay mechanism of the assistant or secretary. As a result, these NIH employees are effectively prohibited from receiving compensation from a private foundation for activities such as teaching, writing, and consulting. For more details, see the following Office of the General Counsel, Ethics Division opinions regarding receipt of compensation from private foundations: June 2, 2000 and February 7, 2002.
To assist NIH employees in determining which foundations are private (as defined in 26 USC Sec. 509), and thus whether the employee is affected, it is recommended that when the status of a particular foundation is unknown, the employee will obtain a letter from the foundation's counsel which indicates the status of the foundation, or check IRS Publication 78 (see web instructions below). In addition, Deputy Ethics Counselors must consider the compensation level of the employee, or the employee's supervisor in some cases, and the tax code provision when reviewing outside activity requests for activities with private organizations.
Whether a foundation meets the definition of private according to 26 USC Sec. 509(a) can best be determined by contacting the foundation’s counsel. It is strongly recommended that employees paid at or above the SES-I level verify the status of any foundation prior to commencing an outside activity with that foundation. Because the designation as private or not-private is determined by the IRS, there is no attempt here to provide criteria for making that determination. The following foundations' status has been verified with the foundation.
The following foundations have been verified as "not private" as defined in 26 USC Sec. 509(a). Therefore, those employees ("disqualified persons") identified above may conduct compensated outside activities with these foundations:
American Health Assistance Foundation, Washington, DC
American Psychiatric Association, Washington, DC
Aplastic Anemia & MDS International Foundation, Annapolis, MD
(formerly the Aplastic Anemia Foundation of America)
Best Friends Foundation, Washington, DC
Elizabeth Glaser Pediatric AIDS Foundation
Foundation for Advanced Education in the Sciences (FAES), Bethesda, MD
Foundation for the National Institutes of Health (FNIH), Bethesda, MD
Friends of the Clinical Center, Bethesda, MD
Howard Hughes Medical Institute, Bethesda, MD
International Life Sciences Institute - North America (ILSI-NA)
National Biomedical Research Foundation (NBRF), Washington, DC
Oklahoma Medical Research Foundation, Oklahoma City, OK
Susan G. Komen Foundation, Dallas, TX
The following foundations have been verified as "private" as defined in 26 USC Sec. 509(a). Therefore, those employees identified above would be subject to a fine by the IRS if they conduct a compensated outside activity (an act of "self dealing") with any of these foundations.
Bill and Melinda Gates Foundation, Seattle, WA
Burroughs Wellcome Fund
Doris Duke Charitable Foundation, Somerville, NJ
John E. Fetzer Institute, Kalamazoo, MI
Passano Foundation, Baltimore, MD
Whitaker Foundation, Rosslyn, VA
The following list includes foreign private foundations from which NIH employees may receive payments that would not be subject to the self-dealing penalty.
Welcome Trust, UK (2/2009)
The IRS Publication 78 is available on the IRS web site as a searchable source for checking the status of foundations. Please go to the IRS search web page and search for the organization to determine its status.
For additional information, contact your IC's Deputy Ethics Counselor or your Ethics Coordinator.
Updated: 4/5/10
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