Washington Snapshot - April 10, 2015
The Council’s legal team advised that a donor advised fund may make a distribution to another donor advised fund, without limitation and without the need to exercise expenditure responsibility. The technical explanation for the Pension Protection Act explicitly states: “A taxable distribution does not in any case include a distribution to (1) an organization described in section 170(b)(1)(a) (other than to a disqualified supporting organization); (2) the sponsoring organization of such donor advised fund; or (3) to another donor advised fund . . .”
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.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.
Philanthropy News and Op-Eds
Charitable Deduction Battle Continues in Vermont
As we’ve reported to you over the past couple of weeks, nonprofits and foundations in Vermont are currently fighting a proposed cap on charitable deductions in their state. The Council of Nonprofits reported this week that “the Vermont House overwhelmingly passed a tax-hike package that would cap all itemized deductions at 2.5 times the state’s standard deduction (setting the cap at $15,500/individual; $31,000/couple).” The Senate has yet to consider the bill and the Governor has expressed concern about the package.
We know from experience in Hawaii and Michigan that proposals like this can be extremely harmful to nonprofits by significantly reducing charitable giving within a state. If you live in Vermont, we urge you to contact your state legislators and Governor to ask them to vote “no” on this bill. We’ll continue to keep you updated on what is happening in Vermont.
Knight Foundation and Nonprofit Media
The John S. and James L. Knight Foundation released a new report this month called Gaining Ground: How Nonprofit News Ventures Seek Sustainability. This report, the third of a series of reports on nonprofit media, found that:
- The revenue for nonprofit news organizations increased by an average of 73 percent between 2011 and 2013;
- The organizations generated 23 percent of revenue through earned income in 2013 compared with 18 percent in 2011;
- The most growth in earned income has occurred through sponsorships and in-person events;
- Spending remains highly concentrated in editorial expenses;
- And, sites grew Web traffic by an average of 75 percent from 2011 to 2013.
In an article covering the study the Nonprofit Quarterly writes, “Knight has… done the right thing in not only analyzing the field’s financial patterns but in supporting infrastructure in the form of the Institute for Nonprofit News (formerly the Investigative News Network). But local foundations must understand the long horizons on the establishment of these valuable civic newcomers to help the local nonprofit news field move toward maturity.”
The Council has long partnered with Knight to elevate the unique challenges that nonprofit media organizations face, and you can read more about it on our website.
1023-EZ Controversy
In an update two weeks ago we reported to you about the effects of the implementation of the IRS’ Form 1023-EZ, which became available for use last summer. An article in the Chronicle of Philanthropy reported that nonprofit tax-exempt approvals had doubled over the past year that the form was in use.
This week an in-depth report on the impact of the Form 1023-EZ was published in The New York Times by Patricia Cohen. Cohen tracked the criticism that this new form has generated, namely that it is too simple and could open the door for fraud. The article quoted Marc Owens, a D.C. lawyer with Loeb & Loeb and former director of the IRS’s Exempt Organization Division, saying “There is no real reporting to the IRS on the front end or on an annual basis… It puts an extraordinary amount of faith in taxpayers playing by the rules. Most will, but how many do you need creating scams before it becomes a problem? History shows people will take advantage of it.”
The new form has allowed the IRS to more quickly navigate their backlog of applications for tax-exempt status, though concerns about the Form’s potential to allow for abuse of nonprofit status persists.
IRS Comment on UBIT
In an April 8th webinar, an IRS tax law specialist discussed the subject of unrelated business income and the concept that a business conducted by a charitable organization must “contribute importantly” to the organization’s exempt purpose. It has been a long-standing rule that just because a charitable organization uses the income from an unrelated business to further its charitable purposes, it doesn't mean the activity is not taxable as unrelated business income.
The IRS explained that the size and extent of the activity in relation to the overall exempt function will also be considered in determining whether UBIT will apply, and if the activity is conducted on a larger scale than is necessary to accomplish the exempt purpose, some or all of the income may be unrelated business income.
More and more foundations are considering unrelated business activity as a way to raise funds, and the Council legal team is available to discuss the potential for UBIT in any unrelated activity.
Events of Interest at Annual Meeting
Executive Leadership Preconference: Philanthropy and Public Policy—Executive Challenges, Leadership Opportunities
Designed for executive-level foundation leaders (CEOs, Executive Directors, C-suite executives, board members and trustees), this interactive two-day preconference from Friday, April 24th at 12:00 pm through Saturday, April 25th at 12:45 pm will explore three current challenges to philanthropy in the public policy sphere, equipping foundations with strategies to implement and navigate their own mission-driven advocacy efforts in today’s evolving policy arena.
Beginning with an exploration of philanthropy’s historic role in public policy and our significant contributions to civil society, we will explore three current challenges to philanthropy continuing to play the role.
Challenge #1 – The Current Strains on Our Democratic Process and the Implications for Philanthropy
As our regulatory and legislative processes seem strained, as civil discourse continues to polarize, and as citizens feel less connected to their governments, what does this mean for our efforts? What role might philanthropy play to rebuild our democratic process?
Challenge #2 – In the Halls of Legislatures: Challenges for Philanthropy and Reframing Our Message
Second, we’ll explore threads of scrutiny in philanthropic giving, including questioning “what should be considered charitable,” limiting incentives for individual giving, and questioning the value of endowed/long term funds to society. How could this scrutiny affect future investments by philanthropy in public policy?
Challenge #3 – Challenges to Deploying a Policy Agenda
Finally, we’ll turn the lens inward to your organization with an interactive exercise to give and take advice from peers. As foundations invest in public policy, what are the internal opportunities and challenges?
Evolution of American Philanthropy: Saturday breakouts
Join us on Saturday, April 25th from 1:00pm-5:00pm as we explore the many ways philanthropists can create positive impact beyond grantmaking. Two to Tango: New Forms of Giving in Philanthropy and New Forms of Grantees to Meet Your Mission are back-to-back breakout sessions that will allow philanthropic leaders to explore how foundations are using an array of incentives, investment vehicles, and innovative funding strategies to achieve their missions. The discussions will also involve leaders from emerging hybrid institutions that are utilizing financial capital for social entrepreneurship and business solutions to tackle some of the world's toughest challenges.
Six discussants offering different perspectives and experiences will share opportunities and challenges in learning how to work in the current environment of sophisticated program funding as well as “mixed mission” hybrid organizations. Three discussants will join the discussion from the foundation community, one each from corporate, private and community foundations. In addition, three other discussants will share their work in founding .com and .org entities seeking new forms of capital and other support to help them meet their social mission goals. The sessions will be presentations and facilitated discussion to capitalize on the shared goals of community impact by foundations and grantees alike. Expect provocative comments and questioning from all participants as we explore this new terrain.
These sessions are part of the Council on Foundation’s new Evolution of American Philanthropy initiative, focusing on “Emerging Forms of Philanthropy”.
Global Dinner on Monday
On Monday, April 27th from 6:30pm-8:30pm, join the Council for our annual Global Philanthropy Reception and Dinner as part of our 2015 Annual Meeting in San Francisco. We hope you can join us for substantive conversation about the Sustainable Development Goals and network with peers who undertake cross-border philanthropy around the world. Our global reception is also an opportunity to learn more about the work of conference attendees coming from more than 15 countries.
Find out more and register here.
