Washington Snapshot - May 1, 2015

Call to Action!

We need you — foundation leaders on the ground in your communities — to reach out to your Senators today and encourage them to support community investments now. As a constituent, your voice is invaluable!

You can send an email to your Senators to urge the Senate Finance Committee to take up the America Gives More Act (H.R. 644) today so that it can go to the Senate floor for a vote as soon as possible!

Or, Tweet about the America Gives More Act using the hashtag #Act4Good. Our colleagues at the National Council of Nonprofits have created several sample tweets you can send your Senators:

Find your Senators' Twitter handles and tweet one of the following @ them (along with a photo):

@_____ Vote Yes on #HR644 the America Gives More Act; #Act4Good and help the people in need in our communities

@_____ #Act4Good and [insert a few words about who you serve]; pass #HR644 today!

@_____ #Act4Good by supporting the work of nonprofits; support the America Gives More Act #HR644

@_____ Help our communities and the nonprofits that serve them: pass the America Gives More Act #Act4Good #HR644

@_____ Communities served by #nonprofits deserve better; #Act4Good and pass the America Gives More Act #HR644

@_____ No Excuses for delaying passage of the America Gives More Act, #HR644 #Act4Good

You can find more information on our website regarding the legal considerations for foundations engaging in lobbying. Council members can also contact our Legal Affairs team at legal@cof.org.

Council Comments on IRS Priority Guidance Plan

Today, the Council submitted to the Department of Treasury and the Internal Revenue Service (IRS) an outline of issues important to our members that we’d like them to prioritize for the coming year.. Each year, the Priority Guidance Plan identifies and prioritizes tax issues that the agency aims to address through regulations or revenue rulings, revenue procedures, notices, and guidance throughout the upcoming year.

The Council’s public policy and legal team has a strong working relationship with IRS decision-makers, and we seize every opportunity to communicate the priorities of our members and the philanthropic field to regulators. Our comments, which are separated into domestic regulatory priorities and international grantmaking priorities, ask the agencies to include the follow issues in their Priority Guidance Plan for 2015-2016:

• Guidance on the statutory provisions related to donor advised funds, which became law in the Pension Protection Act of 2006 (PPA);
• Guidance on the standards IRS officials employ to recognize nonprofit media organizations as exempt under Section 501(c)(3);
• Clarification on whether foundations may apply the three-part test for program-related investments to their mission-related investments, for assurance that they will not face an unexpected tax burden such as a tax on jeopardizing investments on their mission-related investments;
• Guidance on economic development as a charitable activity as applied to foundation-sponsored student loan forgiveness programs in addition to or in replacement of scholarship programs;
• Updated guidance regarding economic development as a charitable activity generally, including a more definitive test and/or examples of acceptable charitable activities that reflect the current needs and economic climate in many communities;
• An update to Revenue Procedure 92-94, which governs equivalency determinations for charities overseas;
• Guidance on grants to Mexican charities in light of a new U.S.-Mexico Treaty; and
• A modification of the Foreign Account Tax Compliance Act (FATCA) that will simplify the cross-border grantmaking efforts of many of our members.

News from the Hill

More than 1,400 Public Comments Released by Senate Finance Committee Working Groups

We reported recently that the Council submitted comments to the Senate Finance Committee (SFC) Individual and Business working groups. And, we weren’t alone . . .

The working groups received over 1400 comments over five issue areas. This week, SFC made the comments public. Senators Orrin Hatch (R-UT) and Ron Wyden (D-OR) stated: “these submissions have equipped us with the ability to better evaluate how reforming the tax code will affect both American families and business of all kinds. As our bipartisan groups work towards producing substantive recommendations on how to reform the tax code, they will now be able to consider these valuable ideas.”

New Social Impact Bond Legislation Introduced

SFC Chairman Hatch and fellow committee member Senator Michael Bennet (D-CO) introduced legislation this week which would set aside $300 million to support “social impact bonds” at the state and local levels (S.1089). The bill is similar to one introduced last month by Representatives Todd Young (R-IN-9) and John Delaney (D-MD-6).

Both bills would give clarity to the federal government’s role in promoting these types of programs which are initially paid for through private investments. Investors are repaid if the program achieves predetermined measures of impact, and they can earn further financial returns if the government realizes additional cost savings in other areas. Notably, the Hatch-Bennet bill provides a more restrictive definition of savings than the House bill by barring evaluators from including indirect savings from increased income, employment, output, or other economic measures external to the specific outcome metrics.

“The Hatch-Bennet Social Impact Partnership Act will spur innovation and teamwork within the public and private sectors while making a positive impact on social and public health programs,” according to Hatch. “This bill will keep control in the hands of local leaders, reduce the federal bureaucracy, and help improve outcomes for those who use the services and the taxpayers that pay for them.”

“These public-private partnerships represent a shift to a model of government where results matter and where we pay for competence,” said Bennet. “Supporting targeted early interventions will help improve outcomes in health care, education, job training, child care, homelessness, and a range of other government services.”

Senate Finance Committee Releases Report on S.909

This week, SFC released a new report on S.909, the Philanthropic Enterprise Act of 2015. The legislation would “amend the Internal Revenue Code of 1986 to exempt private foundations from the tax on excess business holdings in the case of certain philanthropic enterprises which are independently supervised, and for other purposes.”

Trending in Legal Affairs

Maintaining Records for Supporting Organizations

Supporting organizations (SO) are formed by charities, including community foundations, to serve both business and legal purposes. SOs can provide an alternative to forming a private foundation, and can be part of the decision-making process around grants, investments and other SO policies and practices. At the risk of over-simplifying, one requirement of all SOs is that they have a carefully structured relationship with the organization it supports (relationship test).

A community foundation recently inquired: What records does the foundation need to keep in regards to the SO?

The Council’s legal team noted, depending on the type of SO (I, II or III), the foundation’s documentation should demonstrate that the SO is responsive to the supported organization. The purpose of the relationship requirement is to ensure that a SO has a sufficiently close tie to one or more publicly supported organizations such that the SO will be accountable to a broader public constituency. Records must show that the SO is either raising funds for the foundation or carrying out programs the foundation would normally engage in itself.

Furthermore, the legal team recommends that supported organizations keep copies of the following:

• The SO’s organizational documents, including its articles of incorporation and bylaws;
• The SO’s determination letter and its application for tax exemption;
• Copies of all the IRS Form 990s the SO files;
• Lists of board members, including the members the supported organization appoint and those individuals who were not appointed;
• Board meeting minutes showing the attendance of those members the supported organization appointed;
• Grant records for grants the foundation makes to the SO (including purpose);
• Any agreements whereby the foundation provided administrative services, office space and/or shared employees; and
• Records of distributions the SO made to the foundation (if the mission of the SO was to raise funds for the foundation).

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.

Council Joins Nonprofits from 28 Countries to Encourage Revision of FATF Guidelines

The Council continues to advocate on behalf of our members for needed revisions to global counter-terrorism financing standards by the Financial Action Task Force (FATF). On April 24, the Council joined 70 other nonprofit organizations from 28 countries to sign joint comments requesting revisions to FATF’s updated draft.

The comments urge FATF to better engage globally with nonprofit actors before finalizing new guidance for regulation of the nonprofit sector. It also requests that FATF guidance more clearly advise governments to use risk assessment of nonprofits, not a one-size-fits all approach to regulation, which often leads to restrictive policies and regulations that discourage cross-border philanthropy and disenable local civil society.

The Council continues to work with other nonprofits such as the International Center for Not-For-Profit Law, European Foundation Center, and the Charity and Security Network to engage with FATF as their new guidance is finalized this year.

Philanthropy News & Op-Eds

Value of Reserved Funds in a Crisis Situation

An opinion piece by Howard Husock in The Chronicle of Philanthropy today illustrates the important role that donor advised funds can play in disaster response. Husock cites that donor advised funds quickly channeled significant aid to the Nepal earthquake relief efforts.

Husock writes, “a handful of umbrella organizations holding reserves of charitable funds for thousands of donors were able to direct that money to recommended relief organizations at the online direction of donors, with no checkbooks involved.”