Newman’s Own Tax Provision

I‘m pretty sure it was the salsa (mild, because my parents don’t do spice), though it may have been the ranch dressing (a break from our usual Hidden Valley Ranch), that introduced me to Paul Newman. It was only later that I fell in love with The Sting and Butch Cassidy and the Sundance Kid. First, though, came the Newman’s Own brand.

In the early 1980s, Newman started making and selling food. Initially, he wanted 100% of the company’s profits to go to charity. When he died in 2008, Newman left the stock in his for-profit company to the Newman’s Own Foundation, a private foundation (that, as I discussed yesterday, is the target of a lawsuit by two of Paul Newman’s daughters).

There was one problem with that: private foundations cannot own more than 20% (or, under certain circumstances, 35%) of a company without paying a significant penalty tax (significant enough that Foundation would basically be forced to divest the majority of the for-profit company).

The Newman’s Own Foundation got a temporary reprieve from the rule but, in 2018, it was running out of time. But with its lobbying might, it found sympathetic members of Congress, who included a relatively targeted provision in the TCJA. 

Section 4943(g) doesn’t mention Newman’s Own by name, but it was drafted specifically for the charitable foodmaker. It provides that the limitation doesn’t apply to a private foundation’s ownership of a for-profit company as long as the arrangement meets three criteria:

1. The foundation owns 100% of the business enterprise, and the private foundation didn’t purchase the business enterprise;
2. All profits from the business enterprise go to charity; and
3. The for-profit business is not run by substantial contributors to the foundation.

Because the exception was drafted for the Newman’s Own Foundation, it meets these requirements and continues to own 100% of Newman’s Own.

Samuel D. Brunson