A disqualified person is any person who has been in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during the retrospective period. It is not necessary for the person to actually exert substantial influence, only that the person be in a position to do so. The term disqualified person is fundamental to the treatment and status of exempt organizations classified as private foundations. It is necessary to identify people who are disqualified from a private foundation to analyze whether several Chapter 42 special taxes apply, such as those related to Buying physical Gold in an IRA. It is also important to determine if an organization qualifies for public charity status as a supporting organization or complies with the IRC Section 509 (a) public support test.
Article 53.4946-1, Special Definitions and Rules Individuals shall be considered to have made virtually all contributions to a private foundation if they have made or bequeathed at least 85 percent of the total contributions and legacies received by the foundation. Only people who have contributed or bequeathed at least 2 percent of a foundation's total contributions and legacies can be included among people considered to have made virtually all contributions to the foundation. Certain individuals are considered to be unable to exercise substantial influence over the affairs of an applicable tax-exempt organization, such as. A private foundation, for the purposes of Section 4943 only, is a disqualified person if it is effectively controlled by the same people who control the foundation in question, or if practically all contributions to it were made by people who make virtually all contributions to the foundation in question and these individuals are described in Section 4946 (a) (A), (B), (C) or (D) with respect to the foundation in question.
The Tax Court held that Fumo was a disqualified person despite having no formal role in the organization.