Washington Snapshot - March 18, 2016
News from the Hill
Hearing on Tax Reform Proposals Set for Next Week
Chairman of the House Ways and Means Subcommittee on Tax Policy, Charles Boustany (R-LA) announced the first in what will be a series of hearings on potential approaches and proposals for tax reform.
The hearing is scheduled for Tuesday, March 22nd at 2:30pm ET, and will focus on cash-flow and consumption-based approaches to tax reform. The committee will hear testimony from Members of Congress who have either introduced or co-sponsored tax reform proposals or legislation that follows one of the aforementioned approaches.
Executive & Regulatory News
Machine-Readable Forms 990 Soon to be Available to Public
At this week’s Washington Non-Profit Legal and Tax Conference, attended by the Council’s Senior Counsel Suzanne Friday, the acting director of the IRS’s Exempt Organizations division told conference participants that Forms 990 will soon be available to the public in machine-readable format on a DVD.
With more organizations e-filing these 990s, the automated redaction process has made it possible to make these forms more readily available in a searchable format. We will provide our readers with more information as it becomes available!
Trending in Legal Affairs
Correcting a Fund Agreement
Fund agreements are established between community foundations and donors to memorialize the rights, liabilities, and intentions related to the management of that particular fund. So, what (if anything) can be done to correct a mistake in a fund agreement?
This was an inquiry received by our legal affairs team recently. In that case, a miscommunication between a donor and the community foundation led to the mistake of establishing a designated fund instead of the intended donor advised fund (DAF). Years after realizing the mistake, the donors contacted the community foundation about amending the agreement.
The legal team advised that this fund amendment could be amended to switch the designated fund to a DAF. Given the honest misunderstanding of the situation, it is not necessary for the foundation to exercise variance power—the foundation’s Board would just need to vote to approve the correction to the fund agreement. As a best practice, the legal team also advised that the foundation should create and archive a file with correspondence that demonstrates the mistake and the corresponding action to correct it for their records.
If this were not a simple mistake, and the donor wished to retroactively convert a designated fund to a DAF, this would present a much greater challenge. Check out our previous Trending contribution from April 2015 to read more about this scenario.
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.
Happening in the States
Exclusive from our colleagues at the National Council of Nonprofits.
The Challenges of State Budget Crises on Foundations, Nonprofit Missions
Current state budget crises from Alaska to Wyoming and many of the states in between are likely to result in cuts to vital programs, emergency appeals for financial support, and demands for payments in lieu of taxes, any of which can affect the ability of foundations and nonprofits to advance their missions.
The challenges in Connecticut present the clearest picture of the consequences as policymakers confront deficits of $266 million in the current fiscal year and nearly $900 million next year. This week, the Governor announced more than $78.8 million in rescissions of previously appropriated funds, most of which target the services provided by community nonprofits. In addition to those immediate cuts, the Legislature reportedly is considering cutting municipal aid, potentially creating greater pressure on nonprofit landowners to divert resources to help close local government budget deficits. The Legislature had already curbed the property tax exemption for some nonprofits last year and several current bills would impose new costs on other nonprofits.
These approaches follow a pattern set in Maine last year, where the Governor sought (unsuccessfully) to reduce revenue sharing from the state, but to empower localities to charge some nonprofits service fees to recoup the lost revenue. Cuts in revenue sharing are also likely to result in demands by local governments that nonprofit and foundation property tax owners make payments in lieu of taxes (PILOTs).
Lessons Learned When a Nonprofit Closes its Doors
A year after the largest human services provider in New York City suddenly collapsed and closed its doors after 80 years, valuable lessons applicable across the country can be learned from two “post-mortem” reports.
The first, from a Commission of experts assembled by the Human Services Council (the HSC report), analyzed the systemic contracting problems leading to the bankruptcy of the Federal Employment & Guidance Service (FEGS). The Commission found, among many other things, that larger organizations with government contracts were more likely to be in financial distress because “government contracts dominate provider budgets but pay only about 80 cents or less of each dollar of true program delivery costs, leaving budget holes that private funders cannot, or should not, fill.” The Commission strongly recommended that “contracts and grants must fully cover the costs of their administration,” citing the OMB Uniform Guidance on payment of indirect costs, quoting the “Letter to Donors of America” on the “overhead myth,” and highlighting the awareness of foundations to “the threat posed by inadequate indirect rates.”
The second analysis (the Risk Management report) focuses on financial risk management, highlighting the financial instability of many nonprofits and offering recommendations to nonprofit board members on taking greater responsibility and managing risks. Both reports provide helpful analyses of the broader context of why such an important provider of mental health, disability, housing, homecare, and employment services, for over 120,000 households and individuals, was unable to survive. Read the blog posting from the National Council of Nonprofits on what nonprofits of all size and their funders can learn from the closure of FEGS.
Philanthropy News and Op-Eds
Foundations and Social Movements
In a Forbes op-ed this week, head of the consulting practice at the Bridgespan Group, William Foster, discussed the ability of foundations to make an impact in social movements across the globe.
Foster observes that, in addition to making grants for something tangible like a museum space, foundations can—as they have throughout history—play a role in social movements where the goals are lofty and the outcomes are not always immediately visible.
He shares recent research from the Bridgespan Group that found 70% of social movements in history have received large gifts of $10 million or more—noting examples such as the Green Revolution of the 1940s-60s, the rejuvenation of conservatism in the 70s-80s, and the LGBTQ movement of the last decade. Specifically, these gifts are found to be most significant in supporting infrastructure, lending credibility to the movement, and providing leaders of the movement with more time over which to create change.
