Next Thursday, November 12th marks the beginning of Community Foundation week! CF week has been celebrated every November 12th-18th since 1989 to raise awareness of the critical role of community philanthropy in supporting thriving communities across the country.
Leading into and throughout CF week, the Council will be releasing several resources for community foundations that will help to highlight the value and impact of your work.
Stay tuned for more information!
Brady Selected as New Ways and Means Chair
On Wednesday, Representative Kevin Brady (R-TX-8) was chosen by the House Republican Steering Committee to become the next Chairman of the Ways and Means Committee over Representative Pat Tiberi (R-OH-12).
Today’s Wall Street Journal Washington Wire offers a Q&A with Chairman Brady that illuminates some of his tax reform plans for the coming year. Brady offers familiar tax reform themes, including simplification, pro-growth, lower rates, global competitiveness, and attention to the middle class. “Republican-driven tax reform is not only going to be good for the economy and for growth. It’s going to be good for middle class Americans.”
"The Council would like to congratulate Congressman Brady for being selected by his colleagues as the next Chairman of the House Ways and Means Committee,” said Council President and CEO, Vikki Spruill. “He has voted in favor of legislation to advance the field and is seen as a supporter of the charitable sector. We look forward to working with the Chairman."
Though Speaker Paul Ryan (R-WI-1), former Chairman of the powerful tax-writing committee, did not publicly support either candidate leading up to this decision, some sources cite his influence as a key factor in Brady’s victory. To fill the vacant seat left by Ryan, the House Republican Caucus selected Tom Rice (R-SC-7) to serve on the Committee.
What's Next for Tax Extenders
Now that Representative Kevin Brady has been selected as the Ways and Means Chairman, we’re paying close attention to the next steps for tax extenders.
Three of the 50-plus tax extenders directly address issues important to philanthropy and charity—the IRA charitable rollover, contribution of conservation easements, and donations of food inventory. As of today, all tax extenders are EXPIRED because last December’s Congressional action only renewed the provisions for one year, retroactive to January 1, 2014.
The Council is working closely with Members, Congressional staff and colleagues in the field to reach the best possible outcome on these provisions. We are also seeking two important enhancements:
- Expansion of the IRA Charitable Rollover to allow distribution to donor advised funds, and
- Simplification of the private foundation excise tax to a single rate.
We’re making progress on these issues, and remain optimistic that we can continue to advance these measures.
What can you expect in the coming weeks?
Shortly after accepting the Chairmanship, Brady announced that his first priority as leader of this committee will be to make permanent “key provisions in the temporary [tax] extenders.” The chairman’s commitment to tax extenders is good news and consistent with the direction of the Ways and Means Committee chairmen over the past two years.
That said, we anticipate that the final outcome will be temporary, short-term renewal of tax extenders, not permanence. The Senate and White House have been reluctant to support making these tax provisions permanent. Current discussion on the Hill points to a two-year bill (one year retroactive, one year forward through the end of 2016), but nothing is resolved and we continue to advise Congressional staff to not repeat last year’s frustrating one year, retroactive extenders bill.
We are also pushing for the bill to include some additional changes to the current extender provisions so that we can successfully move the IRA Charitable Rollover expansion to DAFs. And, if the process allows for other types of tax provisions (that is, provisions that are not among the current extenders), we continue to press for simplification to the private foundation excise tax.
Update from FASB on Nonprofit Accounting Standards
Late last week the Financial Accounting Standards Board (FASB) announced that tentative decisions were made regarding the proposed updates to accounting standards for not-for-profit entities.
As our readers will recall, FASB—an organization designated by the Securities Exchange Council (SEC) as the authoritative entity responsible for establishing financial accounting standards for nongovernmental organizations—released a proposed update to current standards in April, for which comments from the sector were accepted through late August.
During the board meeting last week, FASB discussed a summary of the sector’s feedback and comments on the proposed changes and made tentative decisions on changes to the standards—though, none of the decisions will take effect until official decisions are reached following further rounds of deliberation among the Board.
The Council is working with representatives on FASB to plan a webinar for our members to shed greater light on this topic. Stay tuned for further details!
Can a Non-DAF Transfer Funds to a DAF?
Recently, the Legal Affairs team received an inquiry from a community foundation about the restrictions for transferring the funds from one of its existing designated funds to a donor advised fund (DAF). The foundation explained that the fund’s purpose had become impractical, and therefore, was becoming increasingly difficult to administer.
The Legal team has previously written on the limitations for converting a non-DAF into a DAF, but has not written to distinguish the differences between that scenario and transferring fund.
In response to this question—can the foundation transfer funds from a designated fund to a DAF?—the Legal team concluded that this was a permissible action (in contrast with the conclusion that converting funds is not permissible).
The Legal team advised that, in transferring monies from the designated fund, it was extremely critical that the community foundation ensure the designated fund’s purpose be preserved. For example, if the purpose of the designated fund from which the monies are being transferred is to support education, this same purpose can be preserved in the granting of those funds through a DAF.
However, if the purpose of the designated fund was to grant scholarships, a transfer to a DAF would be forbidden because the Pension Protection Act of 2006 prohibits grants to individuals from a DAF—therefore, forcing the purpose of the original designated fund to change.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at firstname.lastname@example.org.
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.
LA County Transforms Debate on Costs and Collaboration
Los Angeles County raised the bar for collaboration between governments, nonprofits, and foundations on Tuesday by approving a motion to ensure that nonprofits must be paid the full cost of the services that the county contracts with them to provide. By unanimous vote, the Board of Supervisors instructed the county executive and others to work with local nonprofits and foundations to develop recommendations on how the county will implement the provisions of federal grants reforms mandating that nonprofits providing services on behalf of governments must be reimbursed for their reasonable indirect costs when federal funds are part of the funding stream.
County Supervisor Hilda Solis, former U.S. Representative and Secretary of the U.S Department of Labor, explained her motivation for sponsoring the Motion this way: “By ensuring we are covering the full and reasonable cost for [nonprofit-provided] services, we can in turn help our nonprofit partners better serve their constituents and fulfill their important and irreplaceable missions.”
The “action by the Los Angeles Board of Supervisors ultimately will increase the effectiveness of nonprofits and ensure that public money has the greatest, most positive impact in our communities,” according to Jan Masaoka, President and CEO of the California Association of Nonprofits (CalNonprofits). Speaking from the foundation perspective, Fred Ali, President and CEO of the Weingart Foundation, wrote: “Philanthropy, government and the nonprofit sector all share a common commitment to making the most of scarce resources to produce the best possible outcomes for the people and communities we serve. Moving toward, full-cost funding and implementation of the Guidance are goals we should all support.”
Tim Delaney, President and CEO of the National Council of Nonprofits, put the LA County action in context: “Research shows that for too long, governments at all levels that hire nonprofits to perform services have been shortchanging nonprofits, forcing foundations and individuals to subsidize the funding gaps when governments fail to pay their fair share.” Delaney continued, “The most populous county in America has declared that nonprofits must be considered and treated as key partners with government in implementing programs that provide critical services to the public, such as health care, human services, and housing-related services.”
The OMB Uniform Guidance went into effect on December 26, 2014. It requires governments at all levels – local, state, tribal, and federal – that hire nonprofits to deliver services to reimburse nonprofits for the reasonable indirect costs (sometimes called “overhead” or “administrative” costs) they incur on behalf of governments when federal dollars are part in the mix. The motion by the LA County Board of Supervisors both embraces this new requirement and makes a strong statement about the partnership between governments and nonprofits that work together to serve the same constituents in the same community.
Academics and Philanthropic Stakeholders Debate Donor Advised Funds
The Council is constantly keeping a pulse on current issues and trends among community foundations, as well as potential issues and trends in the future. As key issues that affect community foundations continue to bubble, the Council is listening closely to the voices of community foundations through the conversations that occur on the Exchange, and the thoughts of those who serve on our numerous committees.
We encourage community foundations to reach out to us and share your thoughts with us on these issues.
Two recent gatherings demonstrate that the academic conversation on how donor advised funds (DAFs) are regulated continues to build. These conversations also highlight the Council’s concerns over a broader trend of the questioning of endowed philanthropy—which could lead to real policy threats from Capitol Hill down the road.
Boston College of Law School Forum on Philanthropy & the Public Good
On October 23rd, several members of the Council’s policy and legal team attended a one-day academic conference hosted by the director of the Forum, Ray Madoff, entitled, “The Rise of Donor-Advised Funds: Should Congress Respond?”
The morning kicked off with academics discussing their research on the historic roots of donor-advised funds and behavioral economics perspective on charitable giving through DAFs. A mid-day Congressional panel was asked what policies Congress might have in the works that would impact DAFs. While staffers could not point to any imminent policy threats to DAFs, the conversation highlighted concerns some Members and top Congressional staff have over how much control DAF donors continue to exercise after the fund’s creation. This questioning of donors and the level of control they maintain after making a gift and receiving a donation embodies what the Council refers to as “skepticism about the individual.”
The afternoon included two debates: should Congress further regulate DAFs, and if so, should they distinguish between commercial DAFs and DAFs managed by community foundations? These are the very questions we are seeing raised by skeptics of donor-advised funds—and all endowed funds—more broadly. The questioning of endowed funds, “skepticism of institutions,” becomes a real threat in proposed policies such as a DAF payout or restrictions on when and how endowments must be spent.
Additional information about the Forum on Philanthropy and the Public Good can be found here.
Urban Institute Tax Policy & Charities Initiative
In his latest publication for Urban Institute’s Tax Policy and Charities Initiative, Gene Steuerle and his colleague Ellen Steele summarize another DAF conversation hosted by Urban Institute this past June, “Donor Advised Funds: How Have They Changed Philanthropy?” The purpose of the June discussion was not to hone in on new Congressional regulations, but to discern policy issues surrounding DAFs, explore how these issues differed from those surrounding endowments in general, and identify research opportunities moving forward.
Department of Education Clarifies Financial Aid Provision
Recently, the U.S. Department of Education (ED) provided clarification on implementing the Ability to Benefit (ATB) provision in response to concerns and recommendations from many institutions and advocates.
The ATB provides an entry point into higher education for low-skilled adults by allowing access to federal financial aid to students who lack a high school diploma (or equivalent) so long as they are able to either complete six hours of credit or pass an exam while enrolled in a career pathway program.