TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 8/28/15

the hand of a young woman holding a signboard with the text womens equality written in it

Yesterday was Women’s Equality Day. Have a listen to Martina McBride’s This One’s for the Girls while perusing our curated nonprofit tweets of the week:

  • Council of Nonprofits: Let’s rethink board “training” http://buff.ly/1MTWNfP
  • Nonprofit Quarterly: TRENDING: Making Sense of “Sustainability” and Its Uses and Misuses in the Arts http://hubs.ly/H016pmM0
  • Mark Blumberg: Bill Cosby, Donald Sterling and Charities’ “Nightmare” Naming-Rights Problem Hollywood Reporter
  • Nonprofit Quarterly: The story everyone is talking about: Large university endowments and why they’re controversial. http://hubs.ly/H015qjx0
  • Stacy Palmer: Critics of wealthiest college endowments get louder: In NPR piece, Malcolm Gladwell seeks end to tax-exempt status http://n.pr/1I21k7R
  • Amy Sample Ward: Nonprofits and Technology: Highlights from my #NonprofitReady interview: #nptech
  • Fortune: Check out Fortune’s #ChangeTheWorld list of the 50 cos that are doing well by doing good http://for.tn/1TWvCzN
  • Harvard Business Review: Design thinking isn’t just for products. It’s for corporate culture, too: http://s.hbr.org/1PAtLzf @jkolko
  • Jed Emerson: How the Social Mission of Ben & Jerry’s Survived Being Gobbled Up, via NY Times
  • Gene: Had a wonderful meeting with @StanfordPACS. Many thanks to @KimMeredith1! http://pacscenter.stanford.edu  #philanthropy #civilsociety

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 8/21/15

Flag of China. Downtrend stock diagram.

The U.S. stock market had its worst day in 18 months yesterday with worries over China identified as the catalyst for the losses.  Have a listen to Billy Bragg’s Tomorrow’s Going To Be A Better Day while perusing our curated nonprofit tweets of the week:

  • Joan Garry: How a CEO and Board Chair Can Build an Amazing Partnership #nonprofit #leadership http://bit.ly/1MyIRHH
  • Council of Nonprofits: The merit of going beyond #board orientation towards engagement: http://buff.ly/1E0FcQ2 How does your #board demonstrate its engagement?
  • MagnifyGOOD: 21 ways for #nonprofits to get creative http://ow.ly/R1tsa @Tech_Impact #NPTech
  • Sebastian St. George: Tax Extenders: For Sale To The Highest Bidder? http://dlvr.it/Btcl2J #Forbes
  • Lucy Bernholz: “Crowdfunding for Public Goods and Philanthropy
  • Rob Reich: University endowments = tax-subsidized money hoarders, pay out more management comp than undergrad aid. @vicfleischer NY Times
  • CompassPoint: Racial and Ethnic Diversity in Arts Management: An Exposé and Guide: http://ow.ly/R3eBN From @HowlRound
  • Council of Nonprofits: Executive compensation – understanding the board’s role, tips, and tools http://buff.ly/1Phz1rz
  • Kimbia: This @GTak post about #crowdfunding laws has become a vital discussion in #nptech. #fundethics http://buff.ly/1No8nPl [Ed. 10 Takeaways from a discussion of crowdfunding on Nonprofit Radio.]
  • Fast Company: Despite what you’ve heard, the world IS getting better—but don’t get too complacent: http://f-st.co/ULCIuJW
  • BDO Nonprofit: IRS issues final regulations on charitable remainder trusts http://bit.ly/1JbQc99 via @AccountingToday
  • The Women’s Foundation: The rise of #ImpactInvesting with a #gender lens: NY Times @sullivanpaul
  • Caroline Preston: Larry Page to give his money to his company b/c he thinks it’ll accomplish more good than philanthropy Vox … via @voxdotcom [Ed. See my article A Prediction for the Nonprofit Sector in 2015.]

 

BOARDS / GOVERNANCE

A Board’s Role in Hiring the Executive

Executive Search concept with globe on blue world map background

On Nonprofit Radio this Friday, there will be a repeat broadcast of my conversation with Tony Martignetti on the subject of the board’s role in hiring the executive. In connection with the initial broadcast, I previously posted 10 Tips for Boards on executive succession. Here, I’d like to discuss further the 7th Tip:

Determine the qualities, expertise, experience, perspectives desired in the new executive. You may be looking for someone quite different from your current executive. Such determination should be made thoughtfully with lots of discussion. Don’t simply ask each director to prepare a list on her or his own and allow a consultant to collate the responses.

How does the board make the required determinations? What is required of the executive? What is desired in the executive? Of course, the answers to these questions depend upon several factors, including:

  • The particular priorities of the organization (e.g., expansion, contraction, collaboration, turnaround, program management/development, financial management, fundraising, team-building).
  • The specific role of the executive, particularly with respect to such priorities (e.g., Is the executive responsible for leading the fundraising or does she or he work with a fundraising manager/development director?).
  • The organization’s mission (but see The Trouble with “Passion for the Mission”, Blue Avocado).
  • The organization’s size, programs, and key stakeholders (experience managing 10 volunteers in a small animal rights organization with a 5-member rubber stamp board may not easily translate to managing 1,000 people in a nonprofit hospital with a 20-member contentious board).
  • The organization’s existing and desired culture (see Making the Right Hire: Assessing a Candidate’s Fit with Your Organization, Bridgespan Group).
  • The compensation package that can be offered to the executive.
  • Other attributes of the position and the organization that a candidate for the position may find attractive.
  • The immediacy of the need to fill the position (but consider the possibility of hiring an interim executive director – see Why and How to Hire an Interim Executive Director, N.C. Center for Nonprofits)

It’s often appropriate for the board to delegate such matters to a search committee, an HR committee, or other committee. But the hiring of an executive is such a core task for a board that I would recommend that input from all board members be actively solicited, and that all board members meet their duty of care in providing their input on what may be the most important decision made by the board.

There’s a helpful post from consultant Joan Garry that I recommend: The Five Attributes of a Great Executive Director

Often search firms and committees look for certain skills in hiring an Executive Director. This is a mistake. Attributes are more important.

Similarly, while experience may be one of the strongest indicators of ability, attributes can be a better indicator of potential. See Why You Should Hire for Potential, Not Experience (Fast Company). Again, how an organization weighs factors like experience and potential in making a hiring decision will depend on its own particular needs and circumstances.

The selection of an executive is likely far more important than the planning of an event or a particular fundraising strategy. Boards need to devote an appropriate amount of time and effort discussing what qualities/attributes, expertise, experience, and perspectives are desired in the new executive. They must also understand that it will almost certainly not find the perfect candidate with all the desired characteristics and will need to determine what characteristics would be most important to the organization, particularly over the next few years.

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 8/14/15

Old movie countdown with number 1

Straight Outta Compton is being released today, and Dr. Dre is donating royalties from the companion album Compton toward the construction of a community center in the neighborhood. Have a listen to Kendrick Lamar‘s HiiiPoWeR while perusing our curated nonprofit tweets of the week:

  • Perlman & Perlman: Faster but Tougher – #IRS #exemptorgs Review Focuses on Private Benefit and Commerciality @abromberger Social Enterprise & Nonprofit Law Blog
  • Gene: Hamstrung IRS allows big money donors to stay hidden NJ.com  … ht @IndSector “you get the government you pay for”
  • For Purpose Law: The Girl Scouts and the Return of the Completed Donation
  • Alice Korngold: The Role of the #Nonprofit Board: 4 Essential Factors for Effective Governance HuffPostImpact #corpgov
  • Philanthropy: Opinion: Make advocacy a part of every board member’s duty http://bit.ly/1UF7AeH
  • Bridgespan Group: 5 common traps #philanthropists should avoid. http://bit.ly/1ThhXbw
  • CompassPoint: “1/10 people in US work for an NGO”–Great ongoing list of #nonprofit facts from #NGOFacts: http://ow.ly/QON4P
  • Talent Philanthropy: Check out the incredible #storify of #ynpn15 @ynpn conference: http://sfy.co/i10W3 . We were a proud sponsor of this important gathering.
  • Eden Stiffman: I spent a weekend at Google talking with nerds about charity. I came away … worried. Vox … via @dylanmatt
  • Innov8social: Fantastic resource! Legal Help Guides by @UnLtd http://i8s.us/1Eniqg5 #socent #europe
INTERNATIONAL CHARITY

Nonprofits – International Charity Activities

International law systems, justice, human rights and global business education concept with world map on a school globe and a gavel on a desk on blue background.

A 501(c)(3) organization may advance its “charitable” purpose through international activities. But there is much that needs to be considered when operating in a foreign country, including –

Registration

It is very common for a country, state/province, and/or city/municipality to require a foreign nonprofit to register with a governmental agency and be subject to its regulations. Operating without proper registration can result in a warning, a fine, or, in a worst case scenario (as might be the case in Egypt), imprisonment.

It makes sense that a country would want some identification of and control over foreign organizations operating within its borders. It also makes sense that a nonprofit would want to look into applicable requirements of operating in a foreign country and be compliant with such requirements.

For foreign nongovernmental organizations (NGOs) operating in the United States, there are multiple levels of qualifications, registrations, and other filings to be considered. For example, in California, a foreign charitable NGO would need to (1) qualify to do business in the state by filing with the Secretary of State, (2) register with the Attorney General’s Registry of Charitable Trusts, and (3) register with the city or county, as required under local laws. If it wanted tax-exemption, it would need to apply for recognition of exemption from both the IRS and California Franchise Tax Board. But if it wanted to be able to receive deductible charitable contributions, it would be out of luck. Only domestic 501(c)(3) organizations are eligible to receive deductible charitable contributions. So, it may make sense for a foreign NGO to set up a domestic “friends of” organization instead of operating itself in the United States.

One big problem with complying with foreign registration requirements is the difficulty in finding then deciphiring the requirements in a particular country at various levels. And in some countries, it may be incredibly burdensome and time-consuming to complete all of the registration requirements, if it’s even possible. The NGO Law Monitor on the website of the International Center for Not-for-Profit Law (“ICNL”) serves as a good introductory resource for what may be required in various countries.

Licenses and Permits

For certain activities like the provision of education or healthcare, charities operating abroad must consider the applicable licensing requirements. Simply setting up shop and operating a school or health clinic without proper licensing may result in harsh consequences for the charity and its staff and volunteers.

Anti-Terrorism

U.S. Executive Order 13224, which President Bush issued shortly after the 9/11 terrorist attacks, blocks property and prohibits transactions with persons and entities who commit, threaten to commit, or support terrorism (“Prohibited Persons”). Donations of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering are included among the prohibited transactions with Prohibited Persons, who include those on the Specially Designated Nationals List regularly updated by the Office of Foreign Assets Control (“OFAC”). But strict compliance is challenging particularly where there is somebody on the SDN List who has a very common name.

The USA Patriot Act was signed into law shortly after Executive Order 13224 “to deter and punish terrorist acts in the United States and around the world, to enhance law enforcement investigatory tools, and for other purposes.” As described by the Center for Effective Government:

The Patriot Act gives the executive branch largely unchecked power to designate any group as a terrorist organization. Once designated, a group can have all of its materials and property seized and its assets frozen, “pending an investigation.” Assets can be taken even if the organization faces no criminal charges. Once all assets are seized and frozen, an organization can be denied access to evidence (the organization’s computers, files, documents, etc.) that might prove its innocence; the government has authority to withhold this information for “national security” reasons.

In response to concerns of charities and foundations on how to comply with the anti-terrorist laws, the Department of the Treasury issued Anti-Terrorist Financing Guidelines:  Best Practices for U.S.-based Charities first in 2002 and a revised version in 2006. A coalition of more than 40 nonprofit organizations led by The Council on Foundations vigorously objected to the original version and produced its own Principles of International Charity.

The Foreign Corrupt Practices Act (FCPA) generally makes it unlawful for persons (including employees, officers, and directors of nonprofits) to make, or to offer to make, payments to foreign government officials to assist in obtaining or retaining business. In other words, it’s unlawful to bribe foreign officials. According to BDO’s Nonprofit Standard:

Violations can result from:

 

• Making improper payments to obtain government licenses, registrations, special tax or custom treatment which allow a company to do business in a foreign country (i.e., broad application – not just limited to those activities that directly influence the acquisition or retention of government contracts)
• Inappropriate activities conducted by third parties acting on behalf of the company that the company may be deemed to have (or deemed as should have had) knowledge of
• False characterization of improper payments on a company’s books and records – this includes books or records ultimately consolidated for financial reporting purposes

A Resource Guide to the U.S. Foreign Corrupt Practices Act is the Department of Justice’s and Securities and Exchange Commission’s detailed compilation of information about the FCPA.

Sanctioned Countries

OFAC administers a number of different sanctions programs. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. Among the countries subject to certain sanctions are Burma, Cuba, Iran, Libya, North Korea, Somalia, Sudan, Syria, and Zimbabwe. See Sanctions Programs and Country Information. American nonprofits must be careful not to violate any restrictions against the transfer of assets to a sanctioned country or operation in a sanctioned country without an appropriate license from OFAC where it is necessary. See Guidance Related to the Provision of Humanitarian Assistance by Not-For-Profit Non-Governmental Organizations (OFAC).

Foreign Bank Accounts

For American nonprofits that maintain foreign bank accounts, it is critical to meet the annual filing requirement of the Report of Foreign Bank and Financial Accounts (“FBAR”). The Pro Bono Partnership / Atlanta has a good resource on FBAR reporting requirements:

An FBAR must be filed annually by each United States person having an interest in, or a signature authority over, any financial account in a foreign country if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. FBAR reports are due by June 30 of the year following the year which the account holder meets the $10,000 threshold.
If your organization meets the requirements above, then at least one FBAR must be filed on behalf of the organization. In addition, one FBAR must be filed for each person with signature authority over the organization’s foreign account(s).

Political Activities and Lobbying

The absolute prohibition against political intervention activities applicable under 501(c)(3) applies regardless of whether the election involves candidates for public office in the United States or in any other country. Furthermore, permissible political activities in the U.S., such as nonpartisan voter registrations and get-out-the-vote drives, may not be permissible in another country and could even constitute a crime. American charities must be careful and make sure they know the rules around political activities and lobbying in the context of the laws of each country in which they are thinking about engaging in such advocacy.

Trademarks

American charities operating in foreign countries must be aware that the trademarks they use domestically (including their name and logo) may be infringing on another person’s or entity’s rights in another country. Having trademark rights in the United States does not mean that a charity has such rights in another country. Accordingly, before using a trademark abroad, charities should find out if such trademark is available and, if it is, how it can be protected.

Insurance

Insurance must also be considered as operating in a foreign country may not be a covered activity, particularly if operating without the required registrations. An American nonprofit should anticipate in advance the risks of an employee or volunteer getting hurt, getting arrested, and/or creating legal obligations for the nonprofit in the foreign country.

Partnering

A nonprofit may advance its charitable goals in another country by supporting the work of a local NGO qualified to operate there. Such a partnership may be merely a collaborative effort memorialized in a memorandum of understanding or more of a formal joint venture or legal partnership.

There may also be a governance connection created between the nonprofit and foreign NGO. For example, the governing documents of a foreign NGO might provide an American nonprofit with the right to select one or more board members of the NGO. For an American nonprofit that desires the strongest level of governance control over a foreign NGO, a parent-subsidiary structure could be created with the American nonprofit having the right to select all of the board members of the NGO.

Grantmaking

Making grants to foreign NGOs is likely the most common way American nonprofits advance their charitable goals in another country. Private foundations must either exercise expenditure responsibility or obtain an equivalency determination in making such grants. While public charities are not subject to the same requirements, their boards are responsible for exercising reasonable care in making grants in part to ensure that the grants are not diverted from their charitable purpose. Accordingly, many lawyers representing public charities advise that they also follow the private foundation rules when making grants to foreign NGOs. The anti-terrorism and political activity issues described above should also be considered in a charity’s grantmaking policies.

Operational Support

While grantmaking may be the most common way American nonprofits support a foreign NGO partner, many also provide operational support to their partners with technical assistance and staffing. In such case, the American nonprofit may be operating in the foreign country and consequently may need to consider all of the above issues, including registration.

In order to avoid operating in a foreign country and triggering the accompanying requirements, an American nonprofit may want to simply maintain a grantmaking relationship with a foreign NGO and supplement the funding with staff and volunteers who will work for the foreign NGO as agents of the NGO (not as agents of the American nonprofit). This distinction must be clear to protect such individuals from penalties for working without due authorization (which of course presumes that the foreign NGO is properly qualified and authorized). One disadvantage to take into account with this structure is the lack of protection that the American nonprofit may be able to provide through insurance where individuals are not acting as agents of the nonprofit, but as agents of a partner NGO.

Concluding Thoughts

Many nonprofit 501(c)(3) organizations provide funds, goods, and/or services to communities outside of the United States in furtherance of their respective charitable missions. Such work is important on so many levels and is widely understood to benefit our country through the goodwill created internationally. Nevertheless, not all countries’ governments view such assistance as friendly, particularly where it supports advocacy or strengthens individuals that might oppose the status quo. American nonprofits operating abroad must be careful to understand the laws of each country in which they operate, how to comply with such laws, the risks of noncompliance, and how to best protect their employees and volunteers on the ground. We hope this general overview serves as a helpful introduction to such matters. The advice of qualified legal counsel in a foreign country will be invaluable in helping American nonprofits operate there safely.

References

Principles of Accountability for International Philanthropy, Council on Foundations

Overseas Operations: What Every Nonprofit Should Know Before Crossing U.S. Borders, Venable LLP

Travel Safe: Managing the Legal Risks that Arise from International Operations, Nonprofit Risk Management Center

Deterring Donors: Anti-Terrorist Financing Rules and American Philanthropy, The International Journal of Not-for-Profit Law, vol. 6, issue 2, February 2004

Schedule F, Statement of Activities Outside the United States, Form 990

Canada

Foreign Charities Operating in and from Canada, Mark Blumberg

Mexico

Mexico, Council on Foundations

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 8/7/15

A Climate Change Concept Image. Landscape of a green grass and extreme dry drought land

This week, President Obama announced the Clean Power Plan – a historic and important step in reducing carbon pollution from power plants that takes real action on climate change. Have a listen to Sam PhillipsBlack Sky while perusing our curated nonprofit tweets of the week:

  • Rolling Stone: The worst impacts of climate change are starting to happen — and much faster than climate scientists expected http://rol.st/1IkSe9S
  • Eric DolanJon Stewart tells viewers to call out lying lawmakers: ‘The best defense against bullsh*t is vigilance’
  • Mary Winkler: @IndSector’s Diana Aviv lays out priorities for 2016 presidential contenders. High on the list is #communityservice http://bit.ly/1HoA5Us
  • NYT National News: Senate Report Cites I.R.S. Mismanagement in Targeting of Tea Party Groups http://nyti.ms/1DvF1fo
  • Foundation Center NY: Introducing the Nonprofit Legal Audit Checklist http://ow.ly/OaQ7n
  • Gene: Does your #nonprofit work or support causes overseas? Read this LinkedIn – #international
  • For Purpose Law Group: Who Would Run Away from a Big Gift?: You Should … Sometimes
  • AAPIP: We featured in @latimes today: ‘Giving circles’ plant seeds of Philanthropy in Asian American Communities. http://lat.ms/1hffkFY
  • Nonprofit Times: It’s Out! The 2015 NPT Power & Influence Top 50. The leaders of the nonprofit world.
  • Nonprofit Quarterly: There has been a huge shift in public opinion over #racial #injustice. http://hubs.ly/H012wj60
  • Rebecca Hamburg Cappy: Good coverage of #SF #lobbyist ballot measure. Check out my @AFJBeBold blog re more concerns: http://bit.ly/1P4FzKx
  • Aspen Institute: “Business ought to be used as a force for good.” The story behind @BCorporation. http://as.pn/17y #AspenAction
  • Robert Esposito: My latest article on #socent regulation is available on the @NYUJLB website
EVENTS

Ethical Dilemmas of Nonprofits

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On Tuesday, August 18th, Santa Clara University and Focus Business Bank are hosting Ethical Dilemmas of Nonprofits-Challenges facing Leaders. Looks like it will be a great discussion.

The panelists are:

  • Rick Williams, CEO, Sobrato Family Foundation
  • Mark Parnes, General Counsel at Wilson Sonsini, Goodrich & Rosati
  • Ann Skeet, Director of Leadership Ethics at the Markkula Center for Applied Ethics
  • Ervie Smith, Focus Business Bank (moderator)

 

EVENTS   STARTING A NONPROFIT

MyLawCLE: Forming a Nonprofit & Applying for Exemption

nonprofit101_Book

Erin is presenting Nonprofit 101: Forming a Nonprofit & Applying for Tax Exemption Under IRS Code Section 501 (c)(3) for MyLawCLE in Miami on August 20, 2015. You can attend the live broadcast or on-demand. Here’s the description from MyLawCLE:

In this Level 101 session, we’ll be discussing the basic legal considerations applicable to nonprofits. We’ll start with a discussion of the current environment for nonprofits, as well as the process for forming a nonprofit and applying for tax exemption under Internal Revenue Code Section 501(c)(3). We’ll cover the fundamentals of nonprofit governance and the duties that directors of a nonprofit owe to the organization. We’ll also discuss some of the other rules applicable to Section 501(c)(3) exempt organizations, including those pertaining to earned income and the unrelated business income tax (UBIT), executive compensation, and lobbying and advocacy activities. Finally, we’ll briefly cover a few alternatives to forming a nonprofit that may be used to achieve an individual’s charitable goals.

This will be a great program for attorneys who occasionally represent nonprofits or who serve on nonprofit boards.

Live Broadcast | August 20, 2015
Eastern 3:00 pm – 5:00 pm
Central 2:00 pm – 4:00 pm
Mountain 1:00 pm – 3:00 pm
Pacific 12:00 pm – 2:00 pm

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 7/31/15

2014-05-10 10.32.09

It’s been a warm summer week here and in many parts of the country. Have a listen to Ella Fitzgerald sing Heat Wave while perusing our curated nonprofit tweets of the week:

INTERNATIONAL CHARITY   IRS & FEDERAL TAX ISSUES   PRIVATE FOUNDATIONS / PHILANTHROPY

International Grantmaking: Expenditure Responsibility

flags

Private foundations in the United States are often interested in funding promising organizations and projects that are based outside of the country. When doing so, these foundations are required to follow certain rules and procedures promulgated by the IRS to help ensure that the foreign grantees are properly using those funds for charitable purposes. Currently, when a private foundation engages in international grantmaking, it has two options for complying with these rules: exercising expenditure responsibility or conducting an equivalency determination.

What is Expenditure Responsibility?

Expenditure responsibility (also referred to colloquially as “ER”) means that the foundation exerts all reasonable efforts and establishes adequate procedures:

  1. To take certain precautions to ensure that the grant funds will be spent for proper purposes (in connection with this requirement the foundation must conduct a pre-grant inquiry concerning potential grantees and make all its grants subject to a certain type of written grant agreement with the grantee);
  2. To obtain full and complete reports from the grantee on how the funds are spent; and
  3. To make full and detailed reports to the IRS on the expenditures.

When is an Expenditure Responsibility Required?

ER is generally required whenever a private foundation makes a grant to an organization other than (i) a public charity described by Internal Revenue Code (IRC) §509(a)(1) or (2); (ii) a pubic charity described by IRC §509(a)(3) – or supporting organization – other than a non-functionally integrated Type III supporting organization; and (iii) an exempt operating foundation described in IRC §4940(d)(2), which has been publicly supported for at least 10 years. Accordingly, ER is required when a private foundation makes a grant to:

  • a foreign nongovernmental organization (NGO), unless an equivalency determination is conducted;
  • a private foundation (other than an exempt operating foundation);
  • a 501(c)(4) social welfare organization, 501(c)(5) labor union, or 501(c)(6) business league; or
  • a non-tax exempt (for-profit) business (for exclusively charitable purposes).

Pre-Grant Inquiry

The pre-grant inquiry should concern itself with matters such as:

  • the identity, prior history, and experience of the grantee and its managers; and
  • whether the grantee has a history of compliance or noncompliance with the terms of previous grants, and any knowledge concerning the management, activities, and practices of the grantee.

The scope of the pre-grant inquiry will vary in each case depending on —

  • the size and purpose of the grant;
  • the period over which it will be paid; and
  • any prior experience the grantor has had with the grantee.

The Internal Revenue Service Manual provides that “[o]rdinarily, no further pre-grant inquiry is necessary where a grantee has properly used all prior grants and filed the required reports.”

The grant agreement for an ER grant must include the following:

  • the grant purposes, which can include contributing to capital endowment, purchase of capital equipment, specific program or series of programs, or general support of the grantee, provided that neither the grants nor the income thereof may be used for a non-501(c)(3) purpose or for testing for public safety;
  • a provision indicating that the grantee must repay any funds not used for grant purposes;
  • a covenant that the grantee must submit annual reports on the use of funds (unless the grant is to a private foundation for endowment or other capital purposes, in which case other rules apply – see Treas. Reg. 53.4945-5(c)(2));
  • a covenant requiring complete records of receipts and expenditures to be maintained, and made available to the grantor;
  • a covenant not to use any funds (1) to influence legislation, (2) to influence the outcome of elections or carry on voter registration drives, (3) to make grants to individuals for travel, study, or other similar purposes by such individual, unless such grant satisfies the requirements of IRC §4945(g), (4) to make grants to other organizations except as provided in IRC 4945(d)(4) (it’s generally okay for the grantee to regrant to any organizations the private foundation can grant to, subject to the same conditions), or (5) to undertake any activity for any purpose other than a 501(c)(3) purpose (but not for testing for public safety).

Reports from Grantee

Reports from the grantee must be required annually and after all the grant funds have been expended (though an annual report may suffice as a final report if the grant funds are fully expended in a single year). Such reports should address the following:

  • the use of the funds;
  • compliance with the terms of the grant; and
  • the progress made by the grantee toward achieving the purposes for which the grant was made.

Reports to the IRS

Reports to the IRS from the grantor (made in its Forms 990-PF) must include the following information:

  • The name and address of the grantee;
  • The date and amount of the grant;
  • The purpose of the grant;
  • The amounts expended by the grantee (based upon the most recent report received from the grantee);
  • Whether the grantee has diverted any portion of the funds (or the income therefrom in the case of an endowment grant) from the purpose of the grant (to the knowledge of the grantor);
  • The dates of any reports received from the grantee; and
  • The date and results of any verification of the grantee’s reports, but only if undertaken pursuant to and to the extent required because the grantor had reason to doubt the accuracy or reliability of such reports.

Additional Resources

Grants to Organizations from Private Foundations: Is Expenditure Responsibility Required? – Council on Foundations

Office of Chief Counsel IRS Memorandum No. 200504031 – IRS

Expenditure Responsibility – A Primer & Ten Puzzling Problems – Adler & Colvin

IRC §4945 – Taxes on Taxable Expenditures

Treasury Reg. §53.4945-5 – Grants to Organizations