The law required the charity to sell the company that funded it, so the charity spent a decade getting the law rewritten instead

the problem

A structural legal rule threatened to force the sale of the exact asset that funded an otherwise-successful nonprofit's entire mission

background

what everyone would do

The straightforward way to comply was to sell down the company's ownership to meet the 20% cap on schedule — restructure the business to fit within the existing rule, which is what most organizations facing an unfavorable regulatory constraint end up doing.

what they saw

Forrester saw that restructuring to fit the rule would destroy the exact thing the rule was supposedly protecting against a different problem entirely — Section 4943 was written to stop wealthy families using a foundation as a tax shelter for a family-controlled company, but Newman's Own was the opposite case, with 100% of profits already going to charity and no family control or benefit involved at all. Rather than force-fit a mismatched rule, the fix was to spend the years needed to get the rule itself amended for situations genuinely unlike the abuse it was designed to prevent.

the move

Rather than restructure the company to fit within the existing ownership cap, foundation president and CEO Robert Forrester spent roughly a decade building legislative support for a targeted statutory exception. The resulting Philanthropic Enterprise Act of 2017 — nicknamed the 'Newman's Own Exception' — added Section 4943(g), letting a private foundation hold 100% of a business's voting stock indefinitely, provided the stock was acquired by gift or bequest (not purchase), all net profits are distributed to the foundation within 120 days, and the business is run independently of the donor family, with no substantial contributor or relative serving as an officer.

why it works

Because the underlying rule's purpose, preventing family tax-shelter abuse, simply didn't apply to Newman's Own's actual structure, building sustained legislative support over roughly a decade for a narrow, precisely targeted statutory exception — stock acquired by gift or bequest rather than purchase, all profits distributed within 120 days, no donor family involvement — created a carve-out scoped exactly to this situation rather than a general loophole. Because it didn't reopen the door to the abuse the original rule targeted, it was politically achievable to pass even though it required amending federal tax law, and the statutory deadline itself, a looming 200% excise tax, created real forcing pressure that pushed the legislation through Congress before the punishing tax could take effect. Once passed, the exception created a permanent, reusable legal pathway for any future founder in the same narrow situation, turning a decade of advocacy into a durable structural fix rather than a one-off workaround that would need repeating.

the payoff

After an earlier attempt to include the exception in the 2017 tax overhaul was stripped out under the Senate's Byrd Rule for being unrelated to the budget, the Philanthropic Enterprise Act passed as part of the Bipartisan Budget Act of 2018, signed into law 9 February 2018 — just ahead of the deadline that would otherwise have triggered a roughly 200% excise tax on the foundation's excess holdings; by that point Newman's Own had already donated over $500 million to charity across 35 years.

where it breaks

This approach requires the underlying rule to genuinely be a poor fit for a real, defensible edge case, not merely inconvenient, since that distinction is what makes a legislative carve-out look like a fix rather than special-interest rent-seeking. It also requires the resources, standing and time to sustain a multi-year legislative campaign, which very few organizations facing an unfavorable rule actually have — Newman's Own's decade of effort and its broadly trusted public brand gave it credibility and leverage a smaller or less visible organization wouldn't have. And the case's own legacy flags a real downstream risk: a narrowly targeted legal exception, once created, can potentially be stretched by future actors beyond its original intent, meaning solving the problem through legislative change carries a systemic risk a purely private restructuring workaround would not.

what came after

The Newman's Own Exception created a durable legal pathway for any founder wanting to permanently will an entire business to a charitable foundation without forced divestiture, and legal and nonprofit-sector commentators have since flagged it as both a genuine philanthropic innovation and a structure future donors or bad actors could potentially stretch beyond its original narrow intent, given the model's untested interaction with the separate 5% annual charitable-distribution requirement foundations still face.

references

1. [1]INSIGHT: 'Newman's Own' Exception to Excess Business Holdings Rule Allows Private Foundations to Own 100% of a Business EnterpriseBloomberg Tax, 2018news.bloombergtax.com
2. [2]The Newman's Own Philanthropic Exception Is Now Law—What Will the Consequences Be?Nonprofit Quarterly, 2018nonprofitquarterly.org

keep it

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