New Guidance on Mission-Related Investing
This week, the Treasury Department released long-awaited guidance on mission-related investments (MRIs), which the Council requested this year in our 2015-16 Treasury Priority Guidance Plan comments. The Council, along with the Council of Michigan Foundations and Mission Investors Exchange, continued to engage with key Treasury officials on this issue following our comment submission, and are pleased that they acknowledged the importance of this much-needed clarity for foundations.
The guidance recognizes that foundations are increasingly aligning their investment decisions with their charitable purposes, and clarifies that this alignment can be part of a prudent investment policy. Under Internal Revenue Code Section 4944 and its accompanying regulations, a private foundation investment is not considered “jeopardizing” if the foundation managers exercise ordinary business care and prudence in providing for the long-term and short-term financial needs of the foundation.
The new guidance clarifies that foundation managers are not limited to choosing investments that offer the highest rates of return, the lowest risks, or the most liquidity. They can consider “all relevant facts and circumstances” as long as they take careful and prudent steps to ensure their investment decisions support, not jeopardize, the foundation's charitable purposes. For example, the guidance states that:
“a private foundation will not be subject to tax under section 4944 if foundation managers who have exercised ordinary business care and prudence make an investment that furthers the foundation’s charitable purposes at an expected rate of return that is less than what the foundation might obtain from an investment that is unrelated to its charitable purposes.”
“The Council and our partners have long been calling for this kind of clarity from Treasury as foundations are increasingly looking to understand the rules governing MRIs. A growing movement of foundations who are using MRIs to leverage internal resources should find the guidance useful to their work,” states Council on Foundations President and CEO, Vikki Spruill, in reaction to this announcement.
For questions, please contact Policy Director & Counsel, Katherine LaBeau.
Council Submits Comments on Form 990
The Council submitted comments to the Department of Treasury regarding the Form 990. These comments highlighted elements of the Form that our Legal Affairs team receives inquiries about most often, and that we’ve found to create issues for participants of our National Standards for U.S. Community Foundations® program.
The deadline to submit comments was this Monday, September 14th. To view the Council’s submission, please click here.
New Regulations Proposed for Charity Gift Reporting
The Department of the Treasury gave notice of a new proposed rule that could potentially impact the way charities report information about contributions they receive to the IRS. Currently, under § 170(f)(8) of the Internal Revenue Code (IRC), donors who make contributions of $250 or more are required to obtain “substantiation,” or proof, of the gift in the form of written acknowledgement from the charity in order to claim a tax deduction.
In the past, there have been instances where donors did not have written acknowledgment of their gift from the charity. In order to claim the deduction on their taxes, then, they have requested the charity file an amended Form 990 that provides detailed information regarding the donor’s contribution to use as “substantiation.” However, the IRS has indicated that this method is not sufficient for an individual to claim the charitable deduction for his or her gift.
Instead, the IRS is proposing the creation of a new, separate form that a charity would need to complete and file—in the absence of written acknowledgment of a donor’s gift—in order for that donor to receive a deduction. This proposal is the matter on which the IRS will be accepting comments.
The changes proposed under this rule could impact the way charities, such as community foundations, conduct business when it comes to fundraising and donor stewardship. Comments will be accepted until December 16th of this year.
Senate Dems. Express Concern Over Further IRS Budget Cuts
As our readers will recall, the IRS faces further potential budget cuts as the 2016 federal budget negotiations continue. On Monday, five Senate Democrats expressed concerns about risks associated with further cutting the budget of the IRS in a letter to the Secretary of Treasury, Jack Lew.
Members of the Senate Finance Committee, Senators Sherrod Brown (D-OH), Ben Cardin (D-MD), and Bob Casey (D-PA), along with Senators Dianne Feinstein (D-CA) and Patrick Leahy (D-VT), asked that, “As Congress prepares to enact funding legislation for [fiscal year] 2016,” Secretary Lew “provide details of how taxpayer services could be improved should Congress fund the IRS at levels consistent with [his] FY 2016 budget request, and how those services could be compromised should Congress enact the levels proposed in current funding legislation.”
The IRS has struggled with a $1.2 billion budget cut from last year, and current proposals from the House and Senate would impose further cuts of $838 million and $470 million, respectively.
Can Grants from DAFs be Made to Non-Charities for Lobbying?
The Legal Affairs team received a question from a community foundation about whether a grant could be made to a 501(c)4 organization from a donor advised fund (DAF) for the purpose of supporting lobbying efforts. In the interest of risk-aversion, the Legal team advised against this.
Congress has stated that lobbying to influence legislation is an acceptable activity for public charities, including community foundations, to engage in—so long as it is not a “substantial part” of their overall activities or expenditures. However, with respect to distributions from DAFs to non-charitable organizations—including, 501(c)4s—the Internal Revenue Code (IRC) treats these the same as grants made from a private foundation.
When grants are made from a private foundation to a non-charitable organization, “expenditure responsibility,” as set forth under §4945(h) of the IRC, must be exercised. This means, the foundation must perform due diligence and meet several criteria to ensure that the grant, though not being made to a charitable organization, still serves a charitable purpose. One of those criterion that must be met in order for the grant to be permissible, however, is that it does not “attempt to influence legislation.”
Therefore, the Legal team infers that a grant from a DAF to support the lobbying efforts of a 501(c)4 organization is not a permissible distribution.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
Exclusive from our colleagues at the National Council of Nonprofits.
One State Breaks Budget Logjams, Others Remain
North Carolina nonprofits and foundations score significant victories today as Governor McCrory signs a long-delayed budget that preserves important deductions and exemptions that support work in communities across the state. The Senate had tried throughout the legislative session to add charitable donations to an existing cap on itemized deductions and to limit sales-tax exemptions for nonprofits. Neither provision made it into the final budget which passed early this morning, thanks to strong opposition in the House and effective advocacy by the North Carolina Center for Nonprofits and many others.
The budget news elsewhere is less promising for the work of nonprofits. Pennsylvania lawmakers are considering whether to enact a short-term funding bill to sustain operations during the budget impasse. The Governor has stated that he would only sign a stopgap plan if a general budget agreement is in place. The Pittsburgh Post-Gazette strongly endorsed the short-term solution in a recent editorial, stating, “A stopgap budget is not ideal, but it is preferable to having schools, charities and other agencies suffer while elected officials and their employees do not.” At least two food distribution centers reportedly have had to close until state funding resumes. The Pennsylvania Association of Nonprofit Organizations is hosting weekly calls among nonprofits to provide updates, share experiences, and coordinate advocacy efforts.
The months-long impasse in reaching a budget agreement in Illinois is creating a significant backlog of payments to nonprofit service providers and for-profit vendors. The Illinois Comptroller told nonprofits and foundations on a call this week hosted by Donors Forum that she expects the state will owe $8.5 billion by end of year if a balanced budget is not enacted, as she is currently only able to pay bills required under court orders, consent decrees, or statutory continuing appropriations. Many of the services being provided by charitable nonprofits are not covered by those mandates and are not being paid. In a news release last week Comptroller Munger stated, "We will continue to do everything in our power to keep the state and our human service organizations afloat, but to be clear—our office performs triage every day simply to ensure the State of Illinois lives up to its core commitments.”