How should a foundation deal with a obvious self-dealing situation if it was set up by our legal counsel?
If a family foundation’s attorney designs an obviously self-dealing relationship on behalf of one of the foundation’s trustees, and with the awareness and participation of all of the other foundation trustees, does the foundation remain free of liability for taxation or penalty, simply because legal counsel designed and approved the relationship? Is there any legal accountability on the part of the counsel?
Self-dealing rules allow you to rely on a reasonable legal opinion that concludes that it’s not a self-dealing transaction. But, if you don’t have a legal opinion that is reasoned and that concludes that it’s not self-dealing, then the foundation and all the board members are liable. You don’t want your criminal lawyer or your real estate ruler giving you opinions about self-dealing rules. There are several publications and several IRS Private Letter rulings that highlight foundations that reasonably relied on legal expert familiar with self-dealing.