IRC 4946 Disqualified Person: Substantial Contributors, Foundation Managers, 20-Percent Owners, and Family Attribution

Statutory Framework: IRC 4946(a)(1)

IRC 4946 identifies six categories of persons who are "disqualified" with respect to a private foundation. The term reaches both natural persons and entities. Because disqualified person status is foundation-specific -- determined by reference to that particular foundation's contributor and manager history -- a person may be a disqualified person for one private foundation and have no such status with respect to a separate foundation.

Each category is independent. A person who falls into any single category is a disqualified person, regardless of whether they also qualify under other categories. The practical consequence of the independence principle is that practitioners must check all six categories for every person or entity involved in a transaction with a private foundation before concluding that IRC 4941 does not apply.

The Six Statutory Categories

1. Substantial contributors -- persons who meet the IRC 507(d)(2) threshold (contribution exceeds $5,000 and exceeds 2% of total contributions received by the foundation).
2. Foundation managers -- officers, directors, trustees, and any individual who has similar powers or responsibilities (IRC 4946(b)).
3. 20%-or-more owners of voting power, profits interest, or beneficial interest in an entity that is itself a substantial contributor (IRC 4946(a)(1)(C)).
4. Family members of any person in categories 1 through 3: spouse, ancestors, lineal descendants (children, grandchildren, great-grandchildren), and the spouses of those lineal descendants (IRC 4946(d)).
5. 35%-or-more owned entities -- a corporation, partnership, trust, or estate in which disqualified persons collectively hold more than 35% of combined voting power, profits interest, or beneficial interest (IRC 4946(a)(1)(E)).
6. Government officials -- a narrow category defined at IRC 4946(c), primarily relevant to IRC 4941(d)(1)(F) grant agreements.

Substantial Contributor (IRC 507(d)(2) Cross-Reference)

IRC 4946 cross-references IRC 507(d)(2) for the definition of "substantial contributor." A person meets the threshold when two conditions are both satisfied: (a) the person's aggregate contributions or bequests to the foundation exceed $5,000, and (b) that aggregate exceeds 2% of the total contributions and bequests received by the foundation from its formation through the close of the taxable year in which the contribution is made.

Both conditions must be met simultaneously. A person who contributes $10,000 to a foundation that has received $2,000,000 in total contributions has contributed only 0.5% of total contributions -- well below the 2% threshold -- and is not a substantial contributor even though the $5,000 floor is satisfied.

The most operationally significant feature of substantial contributor status is its permanence. Once the thresholds are crossed in a given taxable year, the person is a substantial contributor indefinitely. Later contributions by others that dilute the person's percentage share do not retroactively eliminate the status already acquired. Foundation counsel performing an IRC 4941 analysis must examine the full contribution history from formation, not just recent donors.

Termination of Substantial Contributor Status

The Internal Revenue Code provides no time-based or amount-based mechanism to shed substantial contributor status. The only path is a voluntary or involuntary termination of the foundation's private foundation status under IRC 507. A termination under IRC 507(b)(1)(B) -- conversion to a public charity by satisfying the public support test for a 60-month period -- does eliminate the private foundation designation, but the process carries substantial tax and operational requirements. Consult the IRC 4940 private foundation excise tax guide for context on the broader private foundation tax framework.

Foundation Manager Definition (IRC 4946(b))

IRC 4946(b) defines a "foundation manager" as an officer, director, or trustee of the private foundation, or any individual who has similar powers or responsibilities. The statute also captures employees with authority to sign foundation checks or otherwise control significant transactions.

The foundation manager definition matters on two axes. First, a foundation manager is a disqualified person under IRC 4946(a)(1)(B), so any transaction between the foundation and a foundation manager is a potential act of self-dealing subject to IRC 4941. Second, foundation managers who knowingly participate in self-dealing are themselves subject to the 5% initial excise tax under IRC 4941(c)(1)(B), capped at $20,000 per act.

Function Over Title

The defining principle of the foundation manager category is that authority, not title, controls. An individual who holds no formal officer or director appointment but who exercises discretionary control over grants, investments, or other significant foundation decisions may nonetheless qualify as a foundation manager. Conversely, an individual with a ceremonial title but no actual decision-making authority is not automatically a foundation manager in the IRC 4946(b) sense.

20-Percent Owner Rule (IRC 4946(a)(1)(C))

A person who owns more than 20% of the total combined voting power of a corporation, more than 20% of the profits interest of a partnership, or more than 20% of the beneficial interest of a trust or estate is a disqualified person -- provided that the corporation, partnership, trust, or estate is itself a substantial contributor to the private foundation.

The 20% test is applied to the entity's ownership structure, not to the person's relationship to the foundation. A person can be a disqualified person under this category even if they have never made any direct contribution to, or served in any role with, the foundation. Their connection to the foundation runs through their ownership interest in a business entity that has contributed to the foundation.

Family attribution applies here as well. The family members (as defined in IRC 4946(d)) of a 20% owner are themselves disqualified persons under the category (4) family member rule, even if the family members hold no ownership interest in the substantial contributor entity.

35-Percent Entity Rule (IRC 4946(a)(1)(E))

A corporation, partnership, trust, or estate is a disqualified person if persons who are already disqualified -- under any of the other categories -- own, in the aggregate, more than 35% of the total combined voting power of the corporation, the profits interest of the partnership, or the beneficial interest of the trust or estate.

The 35% entity rule is the mechanism that sweeps family-controlled businesses and investment entities into disqualified person status. A private foundation whose substantial contributor founded a manufacturing company, then passed shares to a spouse, children, and grandchildren, may find that the company is itself a disqualified person based on the combined family holdings -- even if no single family member individually holds more than 35%.

Family Attribution Rules (IRC 4946(d))

IRC 4946(d) defines "family" for purposes of the entire IRC 4946 framework. Family members of a disqualified person are themselves disqualified persons under IRC 4946(a)(1)(D). The statutory list is:

• Spouse
• Ancestors (parents, grandparents, great-grandparents)
• Children
• Grandchildren
• Great-grandchildren
• Spouses of children, grandchildren, and great-grandchildren

Two critical limitations define the edges of the family attribution rule. First, the list is exclusive -- only the relationships enumerated are covered. Nieces, nephews, aunts, uncles, and cousins are not family members under IRC 4946(d). Second, and most practically significant, siblings are not family members. A substantial contributor's brother or sister is not a disqualified person by reason of that relationship alone.

Interaction with IRC 4941 Self-Dealing

IRC 4946 is the definitional gateway to IRC 4941. The six categories of self-dealing under IRC 4941(d)(1)(A) through (F) apply only to transactions between the private foundation and a disqualified person. Without a disqualified person counterparty, no act of self-dealing exists under the statute.

The corollary is that an incorrect IRC 4946 determination cascades through every downstream analysis. A practitioner who fails to identify a historical substantial contributor will not flag a lease between that person and the foundation as a potential IRC 4941(d)(1)(C) furnishing of goods, services, or facilities. A practitioner who incorrectly excludes a business entity from disqualified person status under the 35% entity rule may miss a significant investment transaction that triggers IRC 4943 excess business holding concerns. The IRC 4946 analysis is the threshold analytical step, not an afterthought. For a detailed treatment of the six categories of self-dealing and the applicable excise tax structure, see the IRC 4941 self-dealing rules guide.

IRC 4946 also interacts with IRC 4942 minimum distribution requirements and IRC 4945 taxable expenditures because grants to disqualified persons generally cannot constitute qualifying distributions and may themselves constitute taxable expenditures requiring expenditure responsibility.

Government Official Category (IRC 4946(c))

The government official category under IRC 4946(c) is the narrowest of the six statutory categories. It covers elected officials of federal, state, or local government; certain executive branch and judicial officers; officers or employees with authority to exercise significant governmental power; and members of Congress and their employees holding certain positions. Family members of covered government officials are disqualified persons under the IRC 4946(d) family attribution rules.

The government official category is primarily relevant in the context of IRC 4941(d)(1)(F), which makes it per se self-dealing for a private foundation to agree to make a payment to a government official. The exception under IRC 4941(d)(2)(F) permits an agreement to employ a government official -- but only for services beginning after the official's government service terminates. Grants to government officials also implicate the IRC 4945 expenditure responsibility framework, which practitioners should analyze in conjunction with the IRC 4945 taxable expenditures guide.

OBBBA 2026 and Donor-Advised Fund Structures

The One Big Beautiful Budget Act (OBBBA) of 2026 enacted new excise tax provisions applicable to donor-advised funds under new IRC 4966. While IRC 4966 addresses DAF-specific transactions and distributions, OBBBA did not directly amend the IRC 4946 definitions. However, OBBBA created new planning considerations for integrated philanthropic structures in which a single family or family office maintains both a private foundation and a DAF at the same sponsoring institution.

Whether employees of a DAF sponsoring organization, or members of an investment committee shared between a DAF and a related private foundation, qualify as IRC 4946 disqualified persons with respect to the related private foundation is an open question for certain structures. The analysis proceeds through the standard IRC 4946 categories: do those individuals qualify as foundation managers (function-over-title analysis), as 20% owners of a substantial contributor entity, or as family members of a disqualified person? There is no blanket inclusion or exclusion for DAF personnel.

A combined disqualified person mapping exercise at the family-office level is best practice before any related-party transaction in structures where a single investment committee or management team serves multiple philanthropic vehicles. Practitioners should also consider whether shared personnel create foundation manager status that was not present before the integrated structure was established. This is an emerging area -- verify current IRS guidance at IRS.gov before advising clients on any position that depends on DAF-related IRC 4946 status.

Relationship to IRC 4958 Intermediate Sanctions

IRC 4946 is distinct from the "disqualified person" definition used in IRC 4958 intermediate sanctions, which applies to public charities and social welfare organizations described in IRC 501(c)(3) or (c)(4) rather than to private foundations. The two regimes use similar terminology but different definitions and different threshold tests.

A private foundation is not subject to IRC 4958. Conversely, if a private foundation converts to a public charity through the IRC 507(b)(1)(B) process, transactions that would have been analyzed under IRC 4941 and IRC 4946 are thereafter analyzed under the IRC 4958 framework -- with a different definition of disqualified person, a different excise tax structure (25% initial tax plus 200% additional tax rather than 10%/200%), and a rebuttable presumption of reasonableness available where IRC 4941 provides no equivalent.

IRC 4946 Disqualified Person Reference Table

Compliance Traps

Beyond the red-flag risks noted in the statutory sections above, practitioners should be alert to two additional operational pitfalls. First, the function-over-title principle for foundation managers means that outside service providers -- attorneys, investment advisors, family office employees -- who exercise discretionary decision-making authority over foundation grants or assets may be foundation managers even without a formal appointment. Any service arrangement involving such a person should include an IRC 4946(b) functional analysis before work begins. Second, disqualified person status is not portable across foundations.

Frequently Asked Questions