New PRI Regulations Released by Treasury
As our readers well know, last summer the Treasury Department announced their intention to finalize new regulations for program-related investments (PRIs). This week, it published nine new examples of permissible PRIs. Treasury responded to continued requests of the philanthropic community, which recognized that the existing regulations did not represent the full diversity of investment opportunities available to foundations. The Council on Foundations, with the Council of Michigan Foundations, Mission Investors Exchange, the National Advisory Board on Impact Investing, and others, provided input on the new regulations.
The new examples make clear that PRIs are an applicable tool in advancing all charitable purposes. The original regulations describe PRIs mainly as a tool to support economic development. Today, foundations are looking to use them to support programs in science, technology, education, arts, and the environment. The examples further clarify that PRIs can be used to support for-profit enterprises, individuals, and international recipients.
The final regulations track closely to the proposed regulations. In response to comments from the field, Treasury broadened three of the examples (11, 13, and 15).
A complete analysis of the final regulations will soon be available on the Council’s website. This announcement comes in the wake of previous announcements around the permissibility of mission-related investments by private foundations and the ability of ERISA fiduciaries to apply ESG criteria to invested assets. Each action has the goal of removing barriers to impact investing and promoting the use of this emerging tool among foundations and other institutional investors.
For more information on this, please contact our Associate Director for Social Innovation, John Cochrane, at firstname.lastname@example.org.
Senate Finance Committee to Hold Hearing on Tax Reform
The Senate Finance Committee is set to hold a hearing next Tuesday, April 26th on “navigating business tax reform.” For those of our readers in the DC-area, this hearing will be held in room 215 of the Dirksen Senate Office Building at 10am ET.
As many of you know, Senate Finance Committee Chairman Orrin Hatch (R-UT) has been working to develop a proposal for corporate tax reform, which he plans to unveil in the coming months. Though there is no legislative text yet, there has been some speculation that this proposal could include provisions that might impact unrelated business income tax (UBIT) or investment income for endowments. The Council is keeping a close eye on this developing proposal to identify any items that may impact philanthropy.
Artist-Museum Partnership Bill Introduced in the House
Last week, the Association of Art Museum Directors (AAMD)—a group we work with closely as part of the Charitable Giving Coalition—celebrated a win as Representatives John Lewis (D-GA) and Vern Buchanan (R-FL) introduced the Artist Museum Partnership Act (H.R. 4948 and Senate Bill S. 931).
This legislation would allow artists to take an income tax deduction for fair market value when they donate their artwork to “collecting institutions,” such as museums and libraries. Since 1969, when this deduction was revoked, gifts by artists have fallen off dramatically.
Christine Anagnos, the Executive Director for AAMD, noted: “Most museums do not have the funds to compete in the art market, and without a tax deduction, most artists cannot afford to donate. This legislation would benefit the public by giving them access to the most exceptional art of our time. It would also restore fairness by treating artists similarly to collectors, who are able to claim a deduction for the fair market value of gifts.”
To learn more about this legislation, please contact Andy Finch, Director of Policy at AAMD, at email@example.com.
More Legislative Activity in the House
This week, a couple of bills were introduced in the House to address the same issues included in the Senate bill—Charities Helping Americans Regularly Throughout the Year (CHARiTY) Act—introduced recently by Senators John Thune (R-SD) and Ron Wyden (D-OR). These bills include:
- Strengthening Charities Through Transparency Act (H.R. 4990). This bill was introduced by Representative Dina Titus (D-NV), and would 1) require nonprofits to electronically file the Form 990, 2) require Form 990 data to be made available for the public in machine-readable format, and 3) require states to keep public lists of all charity officials who have been convicted of fraud.
- Philanthropic Enterprise Act of 2016 (H.R. 5007). This bill was introduced by Representative Dave Reichert (R-WA), and would exempt private foundations from the tax on excess business holdings.
The introduction of these bills indicates that there is some momentum building in the House to address many of the same issues impacting our sector that are included in the CHARiTY Act bill.
Council Represents U.S. Philanthropy in Vienna
The Financial Action Task Force (FATF) held a Consultation and Dialogue Meeting with nonprofit organizations (NPOs) on 18 April 2016 in Vienna, Austria. Lara Kalwinski, Counsel and Director of National Standards, represented the Council on Foundations. The main objective of this meeting was an open dialogue with representatives from a variety of NPOs on the FATF’s ongoing work to revise its standards on non-profit organizations (FATF Recommendation 8 and its Interpretive Note).
The meeting was chaired by the President of the FATF, Mr. Je-Yoon Shin (Korea), and hosted by the United Nations Office on Drugs and Crime at their headquarters in Vienna. In total, 116 representatives of 21 FATF member and observer delegations, 26 NPOs and 37 private sector guests attended the meeting. The participants had an in-depth exchange of views on the following key issues:
- How NPOs play an important role in the fight against terrorism by helping to mitigate extremism;
- Ways in which the FATF standards protect NPOs from terrorist abuse and facilitate their access to financial services when implemented effectively;
- The need for countries to understand, as a starting point, their NPO sector and its potential vulnerabilities to abuse by terrorists, taking into account that the majority of NPOs may represent little or no risk at all;
- The importance of applying measures to protect NPOs from terrorist abuse, in line with the FATF’s risk-based approach, and proportionate with the risks identified, while at the same time respecting human rights, due process and the rule of law.
The FATF will discuss the input received through this meeting and consult further with NPOs, with a view to finalizing the revisions to FATF Recommendation 8 and its Interpretive Note in June 2016.
The Council on Foundations will continue work with the Global NPO Coalition on FATF to provide input as the process continues. If you are interested in providing input, you can find more information and details on the FATF website about submitting comments.
China to Review International NGO Legislation
Last year, the Council and the International Center for Nonprofit Law (ICNL) convened a group of foundations to discuss how a draft Foreign NGO law in China might impact their work. The Council also submitted formal comments about concerns with this law to the Chinese government. Last month, China approved the long-awaited domestic charity law, following more than ten years of work with governments, non-profits, and donors to strengthen regulation of non-profits in China.
This week, China announced that they will review adoption of a new Overseas NGO law during the April 25-28 meeting of the parliament’s standing committee. Last year, the Council flagged concerns with several sections of the previous draft law, including that it was difficult to understand exactly how foreign NGOs operating in China would be affected once the law is implemented. The law as written applied equally to any non-mainland Chinese organization working on nonprofit or charitable activities in China – including foundations, universities, and other types of non-profits – and defined “activities” very generally.
There were concerns about proposed registration and local sponsorship requirements, and the move of the regulation of NGOs under the security arm of the government. As written last year, the proposed registration would make it more time-consuming and complex for NGOs, foundations and other organizations, potentially including universities, to fund partners, run programs, and or collaborate on projects in China.
The Council is working with our partners to closely track the Overseas NGO legislation developments in China and will be holding a conference call on Tuesday May 10th at 3:00PM EST to discuss the law and its implications with foundations and other organizations working in China. To receive information for this call, please email our Member Relations Director for Global Philanthropy, Natalie Ross, at firstname.lastname@example.org.
Related Use Rule: To Accept Johnny Cash Artwork, Foundation Must "Walk the Line"
Recently, a community foundation was approached by a potential donor who wanted to gift a rare and valuable painting of Johnny Cash to set up a donor advised fund (DAF). The foundation contacted Legal Affairs and inquired whether such a transaction was legally permissible. If so, how would the foundation assess the value of the painting?
The legal team informed the foundation that, unfortunately, using the painting to establish a DAF may be considered an “unrelated use” because ultimately, the foundation would need to sell the painting to set up the fund.
The related use rule applies to gifts of tangible personal property that are contributed to a charitable organization. It requires that the use of the donated object be related to the purpose or function constituting the basis for the organization’s charitable purpose. As such, it must be of a type normally retained or received by the charity. In this particular case, since the foundation did not normally retain, exhibit or was in the business of selling artwork, the gift of the Johnny Cash painting was probably unrelated to the foundation’s mission.
As an alternative, the legal team recommended that the foundation suggest to the donor to compare gifting the painting versus selling it himself and then making a cash donation to set up the DAF. It is possible that a cash donation may result in a larger tax deduction for the donor.
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.
State Budget Crises Spawn Bad Policy Proposals
State budget deficits this year are reaffirming two truths that impact the work of foundations and nonprofits. First, no policies are sacred when legislators face severe revenue shortfalls. Second, revenue-raising ideas cross state lines as politicians look for new ways to fill budget gaps.
Both principles were on display in Louisiana last month when the Legislature approved two laws that suspend until 2018 sales tax exemptions and exclusions for hundreds of items, including sales of Girl Scout cookies and membership dues and fees paid to some nonprofits. The Louisiana Association of Nonprofit Organizations and other infrastructure groups are seeking to limit the negative impact of the new taxes by hosting a series of briefings on the new taxes, addressing compliance concerns, and promoting responsible solutions to the state’s budget crisis.
Connecticut likewise is facing a significant budget deficit, which is causing legislators to consider numerous proposals to divert revenues from nonprofit missions. While several taxing bills remain active, legislators reportedly have rejected a proposed tax on Yale University’s endowment earnings, property taxes on nonprofit hospitals that pay high salaries, and a City of Hartford bailout plan that would have imposed a tax levy on the property of the “largest tax-exempt organizations in the city,” i.e., foundations and nonprofits. All three of these topics –endowments, executive compensation, and payments in lieu of taxes (PILOTs) – are under active consideration by numerous other jurisdictions and by Members of Congress, and could always be revised in Connecticut in this and subsequent sessions.
Many states, including Kansas, Kentucky, and Oklahoma this year, address budget gaps by resorting to arbitrary, across-the-board spending cuts that tend to disproportionately affect individuals served by social programs and other services provided by nonprofits pursuant to government contracts. In Arkansas, the Governor is seeking to prevent a government-wide budget cut of three percent by tapping federal funds to pay for healthcare subsidies in a new “Arkansas Works” program, which ties health insurance to work. The state’s current Medicaid expansion program under the Affordable Care Act expires at the end of this year and federal subsidies will be lost without a replacement program, thus potentially triggering the across-the-board cuts. The Arkansas Nonprofit Alliance is leading advocacy efforts for the healthcare and budget solution “to ensure that nonprofits around the state will not have to do even more with far fewer resources.”