Tucked quietly into the Bipartisan Budget Act of 2018 (signed by President Trump on Feb 9th) is the Philanthropic Enterprise Act of 2017.  The Act permits private foundations to own for-profit businesses if certain requirements are met.

The Act inserts into subsection (g) of §4943 of the Internal Revenue Code new language that defines six requirements for a private foundation to own a for-profit business.  The important ones are:

  • the business must be controlled by the private foundation through 100% percent ownership of the voting stock
  • the private foundation cannot be controlled by the family members of the original creator of the private foundation
  • all profits of the business must be distributed to the private foundation

The Act has quickly come to be known as the Newman’s Own Exception because the Newman’s Own Foundation has pushed for this for the better part of a decade.

Actor Paul Newman co-founded the food company Newman’s Own, Inc. in 1982 and on his death in 2008 left his entire interest in the company to his foundation.

Prior to passage of the Act the Newman’s Own Foundation would have had to divest itself of Newman’s Own, Inc. by November 2018.  With this new exception the business can continue to operate within the foundation with profits used to fund its charitable purposes.