Abstract
This article delineates guidelines to clarify the legal haze that seems to dissuade many tax-exempt organizations (TEOs) from engaging in programme-related investments (PRIs) in the USA. In specific, this article analyses the legal constraints on investments in private commercial ventures by private foundations and public charities. The article reaches the following main conclusions: TEOs may purchase debt or equity securities in a private commercial venture if its activities further the mission of the charity. PRIs may count towards the distribution requirement of a private foundation under certain conditions. PRIs are not subject to the limits in the excess business holdings rule, but must be consistent with diversification requirements. Investment income from a PRI will generally not be subject to unrelated business income tax. TEOs should not invest in ventures controlled or managed by officials closely related to the TEO. Investment in PRIs through professionally managed pools can increase diversification and help avoid conflict rules, but the pools must be designed carefully to work for all parties.
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