Washington Snapshot - May 29, 2015

Global Policy Update

This past Wednesday, the Council on Foundations and the International Center for Not-for-Profit Law (ICNL) hosted a conference call on China's Draft Law on Management of Overseas NGOs and its potential impact on U.S. funders and other organizations working in and with China. The call featured nonprofit experts, as well as a funder working in China, and participants discussed a range of possible concerns with the proposed Chinese legislation.

The proposed legislation would:

• Require foreign NGOs to register with Chinese public security authorities prior to conducting activities
• Mandate NGOs to be sponsored by professional supervisory organizations—a branch or entity of the Chinese government, or an organization authorized by the government to serve this function
• Give Chinese public security authorities much discretion and a wide range of tools to oversee NGOs and ensure compliance with reporting requirements on NGO activities in the country
• Allow for considerable discretion in implementation by public securities authorities at the central and provincial levels
• Require agreement on annual work plans in advance of activities taking place—which could make it difficult for foundations and NGOs to be responsive to unpredictable situations like natural disasters

The Council on Foundations is finalizing comments on the draft legislation, which will be shared with members of the Council for their input before submission. Both ICNL and the Council will be tracking this law moving forward, including conducting extensive research and developing reports about the law and its implementation. Before changing their procedures and/or programs, foundations and other NGOs are encouraged to “wait and see” the final law and the implementation regulations in order to best understand how they may be impacted.

You can download the full conference call recording here.

Executive & Regulatory News

IRS Taxpayer Data Compromised

Earlier this week, the IRS experienced a security breach in which the personal information of 104,000 taxpayers was compromised. The hackers are believed to have gained access to this information through the IRS’s online “Get Transcript” application using previously obtained personal identifiers to clear the first several authentication steps of the process. Of the hackers’ 200,000 attempts to file fraudulent tax returns, they succeeded in having nearly 15,000 of these returns processed—costing the IRS around $50 million.

IRS Commissioner, John Koskinen, expressed his confidence that “these are not amateurs but organized crime syndicates that not only we, but others in the financial industry are dealing with” at a press conference on Tuesday. The FBI announced that it is launching an investigation to “determine the nature and scope of this matter,” and will “aggressively pursue” the individuals responsible for this security compromise.

This breach comes most recently in a series of incidents involving suspicious tax filings this year—though they are not thought to be connected at this point. The IRS is in the process of notifying taxpayers whose information was accessed.

OMB Agency Rule Agenda Released

The White House Office of Management and Budget (OMB) agency rule list for this year was released last week. The list is comprised of rules that federal agencies plan to issue a proposed or final rule on within the next 12 months. Included in the list for the Department of the Treasury are several IRS rules that would impact foundations, including:

• Excise Taxes Relating to Donor Advised Funds. The proposed rule will provide guidance on provisions regarding donor advised funds enacted in the Pension Protection Act of 2006 (PPA). The notice of this proposed rulemaking will be released in December 2015. For years now, the Council has formally asked Treasury and the IRS to complete this rulemaking to clarify these DAF provisions from the PPA. We are pleased to see this rulemaking included on the agenda for this year.
• Guidance for Tax-Exempt Organizations on Political Campaign Intervention. Expected out in June, these proposed regulations will provide guidance under section 501(c) relating to political campaign intervention. As our readers will recall, the IRS issued a rulemaking on 501(c)(4) political activity in 2013 that received a record-breaking number of public comments, many opposed the rule as written. In our own comments to the IRS, the Council expressed concern about how an evolving regulatory environment for nonprofit political activity would impact 501(c)(3) organizations. This new proposed rulemaking is an effort to address the public comments, and is expected to regulate the political activity of all 501(c) organizations. We anticipate that this rule will directly address 501(c)(3) activity, and will be closely scrutinizing it and preparing to respond.
• Donee Substantiation Under Section 170(f)(8). This proposed rule will provide guidance only on the timing by which a recipient organization must report contributions of $250 or more. The notice of proposed rulemaking for this will be released this June. Proposed rulemaking for guidance on the manner of filing this information has not yet been determined.
• Additional Requirements for Type III Supporting Organizations. This proposed rule, also stemming from PPA changes, will provide additional guidance relating to qualification requirements for Type III supporting organizations. The notice of this proposed rulemaking will be released in December 2015.

As is standard in the rulemaking process, OMB will accept public comments. The Council plans to submit comments, and will share those when finalized.

Trending in Legal Affairs

Gift of Life Estate vs. Bequest

A prospective donor approached a community foundation about donating his home at death. The donor indicated he was contemplating either a life estate or a bequest through his will, and sought the foundation’s trusted opinion. They reached out to Legal Affairs for guidance.

The Council’s legal team advised that in a retained life estate, a donor gives property, usually a home, to a charitable organization now and, effectively reserves the right to remain on the property for the remainder of his/her life (or for a fixed term of years). The donor would still be responsible for the ongoing maintenance of the property as well as paying the taxes and insurance. The charity will receive ownership of the property the day it is gifted, but the right to possess the property commences at the end of the life estate or fixed term.

This type of gift agreement is irrevocable. In executing the life estate, the donor deeds the property to the foundation now and reserves the life estate on the face of the deed. In deeding the property, the donor would also be entitled to a current income tax deduction for the value of the foundation’s remainder interest in the home.

In the alternative, the legal team advised that the donor may leave his home to the foundation by will or revocable living trust. The distinction is that the donor would not be able to take an income tax deduction through a bequest, and the donor could revoke the gift.

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

Impact of Philanthropy on Public Policy Over the Years

This past week in The Chronicle of Philanthropy, our colleagues at The Philanthropy Roundtable were featured in a piece highlighting key ideas from their monograph—A Wise Giver’s Guide to Influencing Public Policy. The publication examines 107 efforts throughout American history to influence public policy via philanthropy, and draws insight from this review that is useful to consider in forming strategy for current public policy efforts.

Our readers who joined us at Philanthropy Week may already be familiar with this publication. For those who were not able to join, a free PDF version was recently made available for download.