7.2.5 Basic Quiz -- Jeopardy Investments

The trustee of a private foundation is very limited in his or her discretion when investing the foundation's assets.

True False

An investment is said to be too risky if it jeopardizes the private foundation's exempt purpose.

True False

Though a private foundation's organizing document prohibits certain low-risk securities investments, the state law where the foundation is organized allows these types of investments. Therefore, the trustee is permitted to in invest in these types of securities.

True False

"B" foundation, a private foundation, allows for investments in the automobile industry. State law where "B" is organized specifically prohibits private foundations from investing in this industry. "B" foundation may not invest in the automobile industry.

True False

Trustee of the "B" foundation, a private foundation, has been trading securities on margin. This is probably not an example of a jeopardy investment.

True False

The trustee of "Educate America," a private foundation, has made several low-interest loans to disadvantaged students who would not otherwise be able to attend college. This is a prohibited jeopardy investment.

True False

A "program-related" investment is an investment made to accomplish the personal wishes of the foundation's board of directors.

True False

The "B" foundation has been trading securities on margin for months now. When discovered by the IRS, "B" foundation will be subject to a 10% excise tax on the amount invested.

True False

The trustee of "B" foundation has knowingly invested $300,000 of the foundation's assets in commodities futures. The trustee is subject to an excise tax of $30,000 (10% of $300,000) on the investment.

True False

If the amount invested in commodities futures investments is not subsequently removed from jeopardy, another excise tax will be imposed on the foundation and the trustee, both at a rate of 25% of the money invested.