Newman’s Own Scores a Win

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Newman’s Own Foundation, which has donated over $500 million to charities over 35 years, has been fighting to change the law that requires private foundations to divest themselves of certain investments.

Private foundations are prohibited from owning “excess business holdings” (IRC Section 4943). An “excess business holding” is an ownership interest of more than 20% in a for-profit company. A private foundation owning excess business holdings for a period of more than five years will be subject to an extremely prohibitive excise tax of 200% of the value of the holdings in excess of the 20% threshold. Under certain circumstances, companies can request and receive a five year extension to own excess business holdings before the excise tax applies.

Newman’s Own Foundation is a private foundation that owns 100% interest in No Limit LLC.  The LLC is a for-profit company that produces and sells the Newman’s Own-branded line of salsas, dressings, and other food products.

For Newman’s Own Foundation, the five-year deadline to divest itself of No Limit LLC expired in 2013.  However, the Foundation was able to get a five year extension, requiring it to divest itself of No Limit LLC by the end of 2018.

In February, the Bipartisan Budget Act of 2018 which included the Philanthropic Enterprise Act of 2017, or what most refer to as “the Newman’s Own Exception,” became effective, ending the Foundation’s long struggle to avoid the impending 200% excise tax.

The Newman’s Own Exception states that the tax on excise business holdings no longer applies to private foundations owning a for-profit business if the business meets certain ownership rules, it distributes all profits to the parent private foundation, and it operates independently of the foundation.  Because No Limit LLC meets these requirements, Newman’s Own Foundation will be allowed to retain its ownership in the Newman’s Own brand.

While not extremely common, there are a number of business owners who wish to donate their businesses to charitable organizations after their passing.  With the new law in place, we expect to see a growing number of businesses being run by private foundations.

About the Authors

Laura Hoexter

As chair of the firm’s estate planning and probate group, Laura Hoexter’s practice focuses on wills, trusts and estates. She works with individuals to help them establish foundational documents, such as tax-saving wills and living trusts, financial and health care powers of attorney, and health care directives. She addresses complex issues that may arise, including non-citizen status, retirement benefit planning and life insurance arrangements. Laura has significant experience helping clients meet their more advanced estate planning goals, including the formation of charitable trusts and private foundations, as well as all types of irrevocable trusts such as life insurance trusts, special needs trusts, and qualified personal residence trusts.

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