Washington Snapshot - July 17, 2015

News from the Hill

The Council Visits the Hill

This past Monday, July 13^th, representatives from the Community Foundations National Standards Board (CFNSB) and the Council’s Public Policy and Legal Affairs Team met with congressional staff from the House Ways and Means Committee, the Senate Finance Committee, and the Joint Committee on Taxation.

The purpose of these meetings was to educate staff on the value, mechanics, and rigor of the National Standards for U.S. Community Foundations® accreditation program—which was launched more than a decade ago.

The meetings went very well, and the staff members were receptive and interested to learn more about the program. Randy Royster, President and CEO of the Albuquerque Community Foundation and President of CFNSB, remarked that “it was an exciting, informative, action-packed day in which we were able to… demonstrate to key Staffers on the Hill—both sides of the aisle—the value of National Standards for community philanthropy.”

Eileen Ellsworth, President of The Community Foundation for Northern Virginia and member of CFNSB noted that “as always, it was a privilege to support the efforts of the Council on Foundations and help spread the word with our elected officials on the value of National Standards for community foundations.”

The National Standards for U.S. Community Foundations® accreditation program ensures accountability and compliance with legal requirements and operational integrity. The establishment of this program stemmed from a recognition among community foundation leaders that policymakers were considering increasing regulation on foundations, and that community members had difficulty distinguishing community foundations from other types of foundations and nonprofits. Conversations about a voluntary, peer-driven regulation program began in the late 1990s, and started transitioning into a reality by the early 2000s.

The Council will continue efforts to educate lawmakers and staff about National Standards.

Senate Finance Committee to Markup "Tax Extenders" Next Tuesday

This morning, the Joint Committee on Taxation (JCT) published a description of the Senate Finance Committee markup on “tax extenders” scheduled for next Tuesday, July 21^st at 11:00 am.

The proposal for the IRA charitable rollover would extend the provision in its current state for a two-year period. The report also contains proposals for the provisions regarding contributions of food inventory and conservation easements—which would be extended on a two-year basis as well.

The Council thanks Chairman Orrin Hatch (R-UT) of the Senate Finance Committee for taking action to support charitable giving. We will continue to push for these important provisions to be made permanent and for the IRA charitable rollover to be expanded.

For more information about tuning-in to next week’s hearing for this markup, click here.

Executive & Regulatory News

Request for Comments on Form 990

On Tuesday, the Department of Treasury issued a request for comments on the Form 990. In particular, they are seeking input on Schedule A (not including private foundations) and Schedule B.

Our readers may recall that earlier this summer, the Advisory Committee on Tax Exempt and Government Entities (ACT) made recommendations to the IRS regarding revisions to the Form 990.

The Council is working on comments for Treasury. We welcome your input, and would be pleased to discuss with you issues that could be raised in our submission or in your own. Comments will be due on September 14^th. For more details, click here.

Trending in Legal Affairs

Charitable Organizations and the Private Benefit Rule

A community foundation contacted Legal Affairs with a question regarding the proposed operations of one of its grantee organizations. The foundation was assisting this organization, a nonprofit that focused on developing a childcare center, to create a fundraising plan that would support programs and offset tuition costs for low-income families.

The foundation was informed that the center would be run by a national, for-profit childcare provider. Through this fundraising plan, the nonprofit had secured funding to furnish the center’s space and to provide playground and other curriculum equipment.

The nonprofit’s director asked whether there were any IRS requirements that the for-profit provider pay a fee for the use of the equipment, given that it belonged to the nonprofit. Unaware of any such requirement, the foundation reached out to the Legal Team.

We advised the foundation that such an arrangement could violate the “private benefit” rule if fair value was not paid by the for-profit. The “private benefit” rule, which is in Treasury regulations, states that a nonprofit charitable organization may not use its assets to benefit a for-profit entity, unless fair value in cash or services are received in return. To that end, if equipment is owned by a charitable organization, a for-profit entity should pay fair value for its use or it could be viewed by the IRS as a “private benefit.”

In this case, the for-profit childcare provider would save money on the furnishings and playground that it would otherwise have had to pay for. Therefore, we concluded, if the nonprofit childcare center did not charge a fee for the use of its playground and equipment, the for-profit would likely receive a “private benefit” as a result of the arrangement, which would be in contravention of the nonprofit childcare’s exempt purposes.

For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.

Council Legal Team Hosts Inaugural Call for Legal Lunch Series

Yesterday, Council attorneys Suzanne Friday and Bryan Del Rosario kicked off the first “Legal Lunch” webinar in a series. Our “Legal Lunch” series will be a regular, quarterly program.

The topics discussed included grant reporting, withholding obligations related to scholarships, the legal requirements of grants to a private foundation from another private foundation, grantmaking from donor advised funds, and the intricacies of private operating foundations.

The “Legal Lunch” series is intended to address some of the current legal issues our members are addressing. Members are encouraged to send Suzanne and Bryan topics to include on the quarterly agenda. And, participants can submit questions during the webinar.

The next webinar in this series is scheduled for October 2015. Stay tuned for further details!

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.

Happening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

Budget Standoffs Causing Uncertainty for Nonprofits

Budget vetoes and lingering policy disputes are creating considerable uncertainty in the nonprofit community and are preventing several states from beginning their fiscal year with a balanced budget in place.

Florida’s Governor issued a surprise veto of funding for several human services programs, forcing numerous health clinics, homeless shelters, and educational programs to struggle to make up the difference or cut the number of people they serve.

Pennsylvania started its fiscal year on July 1^st with limited spending capabilities after the Governor vetoed the legislature’s budget plan; many nonprofit leaders worry that the budget impasse between the Governor and legislature may continue into October like a similar impasse did in 2009.

In Illinois, the Governor vetoed most of the spending bills, due in part to a $6 billion funding shortfall. It is unclear whether he will sign a one-month appropriations bill passed by the House and Senate this week which would maintain funding for essential programs such as Meals on Wheels, child protective services, and programs for the mentally ill and developmentally disabled.

Nonprofits in several states do not know whether they will be paid for services performed on behalf of the governments while these budget battles wage. In Illinois, the Department of Human Services has told nonprofits not to expect contract payments until after a budget is negotiated. Working through Donors Forum in Illinois, foundations and nonprofits are actively advocating for a fair and adequate budget.

Some Pennsylvania nonprofits are also worrying about how long their own reserves will be able to subsidize government by paying for costs until contract payments are resumed. In 2011, Minnesota’s government experienced a shutdown, and this memorandum from the Minnesota Council of Nonprofits provides important insights and lessons learned on how the state association and nonprofits responded to the funding challenges.

Philanthropy News and Op-Eds

New Report Released on Human Rights Funding

Yesterday, the Foundation Center and International Human Rights Funders Group published the 2015 edition of Advancing Human Rights: Update on Global Foundation Grantmaking. This report provides information on international grantmaking by issue, population, and regional focus.

The analysis is based on a survey of 774 foundations from 45 countries that gave a total of $1.8 billion in grants to support human rights issues across the globe. For more information on this report, click here.

Clarification from Last Week

We would like to clarify a statement from last week’s edition of Snapshot regarding the Department of Labor’s proposed changes to the Fair Labor Standards Act (FLSA). We wrote that the “DOL’s proposed change would raise the minimum weekly salary to $970 in order to classify as exempt ($50,440 per year). Ultimately, this would make fewer professional, or ‘white collar,’ nonprofit employees eligible to receive overtime compensation.”

To clarify, the proposal would tighten the qualifications for the “white collar” exemption, decreasing the number of employees who qualify for the exemption—or, in other words, the number of those who are ineligible for overtime. Ultimately, however, the eligibility to receive overtime pay would be expanded to include a greater number of nonprofit employees overall, with the salary threshold expanded to span a wider range of employees.

We apologize for any confusion this may have caused!