The Secret Ingredient: How Newman’s Own Changed Foundation Law

You’ve probably seen Paul Newman’s face in just about every aisle of the grocery store for as long as you can remember, and you probably don’t give it much thought.[1] It’s easy to forget just how radical of a concept the brand was at the time of its inception: taking a huge star like Paul Newman, leveraging his fame to drive a brand, and donating all the profits to charity.[2] Since its inception in 1982, Newman’s Own has donated more than $600 million to charity.[3] However, after Newman’s death in 2008, Newman’s Own had to lobby for federal tax law to be changed in order to keep this model alive.[4] While the law was changed in 2018, this ownership structure remains unusual.[5]

I. The Excess Business Holdings Problem

After his death, Newman left his for-profit company to the Newman’s Own Foundation.[6]  This presented an issue because, under § 4943 of the Internal Revenue Code, a private foundation’s excess business holdings are subject to an excise tax.[7] Under the old rule, business holdings greater than 20% of the voting stock in a business held by a foundation holds in a business enterprise were considered excess, which were then subject to the excise tax calculated at 10% of the value of the holdings.[8] Additionally, if after the initial tax of 10% is levied the foundation still carries those holdings at the end of the taxable period, it is subject to a tax equal to 200% of the value of the excess holdings.[9] This rule was originally brought into existence to limit “individuals’ ability to retain control of a business enterprise by setting up a private foundation (PF) and transferring substantial ownership of that business enterprise to the PF.”[10] This rule addressed these concerns but also effectively barred private foundations from owning stakes in businesses long term.[11]

II. A Newman’s Own Exception

Facing a deadline that would essentially force the sale of the company to avoid a massive tax bill, Newman’s Own Foundation spent years lobbying Congress for a narrow exception to the excess business holdings rule.[12] Those efforts paid off on February 9, 2018, when President Trump signed the Philanthropic Enterprise Act into law as part of the Bipartisan Budget Act of 2018.[13] The Act added § 4943(g) to the Internal Revenue Code, which exempts “philanthropic business holdings” from the mandated excise tax.[14] In order to qualify for the exemption, a private foundation must own 100% of the voting stock of the business, and it must have acquired the stake by bequest or gift rather than by purchasing it.[15] Additionally, all the profits must go to charity; 100% of the company’s net operating income must be distributed to the foundation (minus a reasonable reserve of working capital); the business must run independently of the donors to the foundation; and a majority of the foundation’s board must be independent of both the business and substantial donors to the foundation.[16] The result of this exception for Newman’s Own was that the foundation no longer needed to sell off the company and the company was free to continue operating as it had since Paul Newman founded it in 1982.[17]

III. What it Means for Founders

For founders planning their exits who still want to accomplish a charitable mission, § 4943(g) gives them options not available pre-2018.[18] This opportunity has not gone unnoticed by entrepreneurs either; a growing number are looking for a way to get their company’s profits to charity.[19] However, this exception comes with costs that founders may find difficult to accept.[20] The biggest is control, because the statute requires that the business run independently of the donor once the foundation which takes ownership.[21] These tradeoffs may explain why entrepreneurs are hesitant to take advantage of this exception if they are still willing and able to manage the company’s operations and direct its profits.[22]  Additionally, a foundation is still subject to restrictions like an additional tax on self-dealing and income distribution requirements.[23] If the founder can accept taking a step back, the new exception presents them with a powerful tool to ensure their company is funding positive change, just like Newman’s Own is.[24]

Paul Newman built a company on the idea that business could be both successful and charitable, and his foundation fought tooth and nail to make sure that idea lived on after him.[25] Through its lobbying efforts, the Newman’s Own Foundation has solved not only its own issue, but presented a valuable tool (Philanthropic Enterprise Act) to entrepreneurs looking for a way to give their business away while continuing to effect change.[26]  Concerns about control of their company may prevent more founders from taking advantage of this option and they may instead gravitate towards other means of succession planning such as a purpose trust.[27] However, for those ready to step away, § 4943(g) offers a way to keep their company intact and direct its profits to charity indefinitely.[28] As more founders plan exits from their companies in the coming years, Newman’s Own may stop being one of a kind and instead be a blueprint for founders looking to do good long after they’re gone.[29]

[1] See DB Kelly, The Untold Truth of Newman’s Own, Mashed (Aug. 10, 2017), https://www.mashed.com/79646/untold-truth-newmans/.

[2] See id.

[3] See Newman’s Own, About Us https://newmansown.com/about-us/ (last visited Oct. 24, 2026).

[4] See Thalia Beaty, Newman’s Own Invites More Companies to Donate 100% of Their Profits to Charities, NBC New York (Jan. 23, 2025), https://www.nbcnewyork.com/news/national-international/newmans-own-invites-more-companies-to-donate-100-of-their-profits-to-charities/6119065/.

[5] See id.

[6] See Justin Zaremby, Newman’s Own Law, Patterson Belknap Webb & Tyler LLP (Feb. 27, 2018), https://www.pbwt.com/publications/newmans-own-law.

[7] See id.

[8] See 26 U.S.C. § 4943 (a)(1), (c)(1).

[9] See 26 U.S.C. § 4943(b).

[10] IRC Section 4943: Taxes On Excess Business Holdings, Internal Revenue Service, (Jun. 28, 2026), https://www.irs.gov/charities-non-profits/irc-section-4943-taxes-on-excess-business-holdings.

[11] See id.

[12] See Beaty, supra note 4.

[13] See Perlman & Perlman, Newman’s Own Gets a New Life (Feb. 12, 2018), https://perlmanandperlman.com/newmans-owns-gets-a-new-life-philanthropic-enterprise-act/.

[14] See id.

[15] See id.

[16] See id.

[17] See id.

[18] See Beaty, supra note 4.

[19] See id.

[20] See Perlman & Perlman, supra note 14.

[21] See 26 U.S.C. § 4943(g).

[22] See Perlman & Perlman, supra note 14.

[23] See 26 U.S.C. §§ 4941, 4942.

[24] See Beaty, supra note 4.

[25] See Newman’s Own, supra note 3.

[26] See Beaty, supra note 4.

[27] See Yvon Chouinard, Earth is Now our Only Shareholder, Patagonia (Sep. 14, 2022), https://www.patagonia.com/ownership/.

[28] See 26 U.S.C. § 4943(g).

[29] See Beaty, supra note 4.