The Accounting Practices Committee meets once a month via conference call to discuss current accounting and tax issues facing community foundations. If you have any questions, please feel free to contact any member of the committee.

2008 Standard Mileage Rate Increased July 1

In response to increased fuel prices, the IRS has released Announcement 2008-63, increasing the standard mileage rate to use for operating a vehicle for business use, and for medical or moving purposes. The rates beginning July 1, 2008 are as follows:

• 58.5 cents per mile for business miles driven;
• 27 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations.

The new rate for business miles compares to a rate of 50.5 cents per mile for the first six months of 2008. The new rate for medical and moving purposes compares to 19 cents in the first six months of 2008. The rate for miles driven in service of charitable organizations has remained the same.

Agency Endowments-Frequently Asked Legal Questions

Council on Foundations legal staff has prepared an online document addressing Agency Endowment Frequently Asked Legal Questions. The document is available at: http://www.cof.org/action/content.cfm?itemnumber=13807.

Revised Form 990 Highlights

The IRS has released the revised Form 990 that is effective for the current reporting year. Although the final instructions have not yet been released, you should begin preparing now to address some of the new questions on the form, particularly those questions about policies and procedures in place for the current year, and those questions that will require you to capture new details not previously reported on the Form 990. The Accounting Practices Committee has highlighted on the attached document some of the changes and new questions you should be aware of.

FASB Staff Position 117-1 Update

On August 6, the FASB issued FASB Staff Position FAS 117-1, the final version of the guidance on endowments & UPMIFA. The link to the document on the FASB’s website is as follows: http://www.fasb.org/pdf/fsp_fas117-1.pdf. A subgroup of the Accounting Practices Committee is currently working on reviewing the guidance, understanding current practice and legal versus accounting implications. We hope to have guidance out to the field within the next couple of months.

Alternative Investments – Transfer of Cash to a Foreign Investment

Preliminary results from the 2007 Investment Performances and Practices Survey indicate that just over half of community foundations had investments in hedge funds, be it direct investment or through fund of funds. If your foundation has made an investment in a foreign entity, most commonly seen in this asset class, you may be subject to filing requirements with respect to your initial and subsequent investments.

Form 8865, Return of U.S. Persons with respect to Certain Foreign Partnerships, is generally required when an investor owns at least a 10% interest in the venture or the value of the transfer exceeds $100,000. This would appear to impact only the largest among us. Form 5471, Information Return of U.S. Persons with respect to Certain Foreign Corporations, requires significant ownership in the investment to trigger filing, without the threshold of $100,000. Again, many of us should not be required to file.

Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, relates to transfers of property, or cash, to a foreign corporation resulting in at least a 10% interest in the entity or the investment exceeds $100,000. The penalty for failure to file is 10% of the investment, capped at $100,000. Accordingly, it is prudent for all foundations to seek tax advice with respect to their specific situation to ensure they are in compliance.

In contacting your tax advisor, you will need the following key information with respect to your investments:

• Foreign entity form in which you are investing;
• Dates and dollar amount of investments made; and
• Your percentage ownership in the foreign entity.

Other potential implications of investments in a foreign entity include Unrelated Business Income, state tax filing issues, and Reportable Transactions. You are encouraged to contact your tax advisor to determine if any of these issues apply to your particular situation.

Accounting Practices Committee

IRS Revised Form 990

As you are aware by now, the IRS has released a revised Form 990 that is effective for this reporting year (for calendar year-end foundations, unless extended, the new Form 990 will be due May 15, 2009). While the IRS has yet to release the final instructions, you should begin reviewing (and planning for) pertinent parts of it now.[1] This is especially important as there are questions on the new Form 990 that ask about policies and practices you have in place during the reporting year. Some organizations are even planning on preparing a mock-up of their most-recently filed Form 990 in the new format so that they can be prepared for the new requirements in advance.

To help you plan, we have summarized some of the changes/questions in the new form that speak to policies/practices your organization has in place during the reporting year. This is not an all inclusive list of the changes in the new form. If you have not done so already, we strongly recommend that you go to the IRS website at www.irs.gov, print a copy of the new form and assorted schedules, and begin to review those in detail.

Governance:

Core Form, Part VI asks:

[Question 8] - Does the organization keep contemporaneous documentation of the meetings held or written actions undertaken during the year by:

1. the board;
2. each committee authorized to act on behalf of the board?

[Question 10] - Was a copy of the Form 990 provided to the organization’s governing body before it was filed? (a yes/no answer is required). Regardless of that answer, the organization must describe the process the organization uses to REVIEW the Form 990.

[Question 12] - Does the organization have a written conflict of interest policy? (Note that the current Form also asks this.) Those who answer “yes” must then answer two further questions:

1. Are officers, directors, trustees and key employees required to annually disclose their interests that could give rise to conflicts?
2. Does the organization regularly and consistently monitor and enforce compliance with the policy? If “Yes,” describe how this is done.

[Question 13] - Does the organization have a written whistleblower policy?

[Question 14] - Does the organization have a written document retention and destruction policy?

[Question 15] - Describe the process for determining compensation of the organization’s CEO as well as of officers or key employees of the organization. Yes/no questions ask if the process for determining those individuals’ compensation included review by independent persons, review of comparability data, and contemporaneous substantiation of the deliberation and decision.

Other Topics of Note:

1. Core Form, Part XI asks about relationships with those providing audit services (i.e., “independent accountants”). Question 2c asks “Does the organization have a committee that assumes responsibility for oversight of the audit . . . of its financial statements and selection of an independent accountant?”
2. Core Form, Part V asks if the organization disposed of tangible personal property for which it filed 8282. If that answer is “Yes”, 7d then must be completed to disclose the number of Forms 8282 the organization filed during the year?
3. Schedule G’s Part I requires disclosures by organizations that show expenditures to “professional fundraisers” totaling greater than $15,000 for the year:
   1. First, information is to be detailed on the ten highest paid professional fundraisers: name of individual or entity, activity, gross receipts from that activity, amounts retained by fundraiser versus organization, and whether the fundraiser had “custody or control of contributions”.
   2. Second, the organization must list the states in which the organization is registered or licensed to solicit funds or has “been notified” of being exempt from registration or licensing.
4. Schedule D’s Part I is required of organizations holding “donor advised funds”. This Part includes two new questions:
   1. Did the organization inform all donors and donor advisors in writing that the assets held in donor advised funds are the organization’s property, subject to the organization’s exclusive legal control?
   2. Did the organization inform all grantees, donors, and donor advisors in writing that grant funds may be used only for charitable purposes and not for the benefit of the donor or donor advisor?
5. Schedule D, Part IV asks the preparer to provide the text footnote in the organization’s financial statements that reports the organization’s liability for uncertain tax positions under FIN 48.
6. The public support test is now prepared on an accrual basis (“same method of accounting as books are kept”) and includes the current year in the calculation (thus yielding five years of data; use to be only four years.) Organizations are not required to recalculate prior years’ test results were those years’ inputs to have reflected the cash basis of accounting as the Form requested. Completion of the new Form does require the prior years’ revenues to be inputted using accrual basis even though the prior Form used cash basis.
7. Schedule I covers Grants and Other Assistance to Organizations, Governments and Individuals in the U.S. Part II will require listing the grantee-organization’s EIN and the “purpose of the grant or assistance” on each grantee who receives more than $5,000. If you are not capturing this information now, you will need to formulate plans for doing so.
   1. Note: This same information is required on Schedule F, Part II for grantees receiving more than $5,000 who are located outside the United States.

Notes

[1] IRS made a posting on its website on August 5 about what they intend to revise in the Redesigned 990's Instructions. They note too that the full revised instructions are anticipated to be posted by 8/15. http://www.irs.gov/charities/article/0,,id=185428,00.html