Greater Assurance for Impact Investors
Four years after the Internal Revenue Service issued proposed regulations regarding program-related investments by private foundations, the regulations were finalized and published in the Federal Register on April 25, 2016. The final regulations contain nine new examples of permissible program-related investments (PRIs) to for-profit businesses, individuals, and nonprofit organizations, adding to the nine examples that existed previously. For a definition of a PRI, see Section 4944(c) of the Internal Revenue Code and my journal post published on 12/31/12.
To read the text of the Regulations, see this Internal Revenue Bulletin.
The new examples of PRIs provide assurance to private foundations that a wider range of investments can qualify as PRIs. Furthermore, the examples reduce the perception that PRIs are perilous, expensive, and appropriate only for the largest foundations that have significant resources and investment professionals and lawyers on staff. As a consequence, we will likely see a rise in the number of smaller foundations (note that the majority of California foundations have $1-5 million in assets) participating in social enterprise funding transactions structured as PRIs. This should come as good news for for-profit social entrepreneurs seeking funding, as impact investing represents a bridge to philanthropic funders.