Nonprofit Tweets of the Week – September 26, 2014

Photo credit – E.S. Lim

Summer turned into fall and New York City was the hub of social good events including the People’s Climate March, Social Good Summit, Clinton Global Initiative Annual Meeting, General Assembly of the United Nations and UN Climate Summit. Have a listen to Oscar Peterson‘s version of Autumn Leaves while perusing our curated nonprofit tweets of the week:

  • Liz Maw: Businesses making progress but to get real results need national policy on climate change & price on carbon says Henry Paulson #CGI2014
  • (RED): WOW “Women do 66% of work, produce 50% of food yet earn 10% of income & own less than 1% of land” @conniebritton: #2030NOW #SocialGoodSummit
  • Nell Edgington: Fascinating! New report from @TheEconomist How Gen X and Y are Transforming Philanthropy: #nonprofit
  • Tony Martignetti: A Board Member’s Guide to Nonprofit Overhead by @janmasaoka
  • For Purpose Law: “Is the Form 1023-EZ Too Easy? – Part III – The Applicant’s Decision” –
  • Politico: EXCLUSIVE: Lois Lerner: “I didn’t do anything wrong.”
  • Olive Grove Consulting: Did you catch today’s guest blog? Read “How Fiscal Sponsorship’s Shared Services Can Keep a #Nonprofit on Track”
  • Jan Masaoka: If you need this article, it’s awesome: Nonprofit #auctions: tax compliance guide from BlueAvocadoOrg
  • Fast Company Co.Exist: 5 secrets to engaging aspirational consumers.
  • Ellis Carter: Could a Bay Area news nonprofit take over some of its biggest newspapers?

International Grantmaking: Equivalency Determinations

equal sign

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.

Expenditure Responsibility

Expenditure responsibility requires that a foundation follow a number of oversight and monitoring procedures throughout the grantmaking process. This includes making pre-grant investigations, entering into a written grant agreement with the grantee, receiving written periodic reports from the grantee, and notifying the IRS in some detail as to each grant. It must be proven that the grantee intends to, and eventually does, use the grant funds to carry out activities that further the charitable purpose of the grantor.

Equivalency Determination

Alternatively, a foundation may conduct an equivalency determination to evaluate whether the foreign grantee is equivalent to a U.S. public charity. This involves a review of its organization (governing documents) and operations to ensure it meets the following requirements described in Section 501(c)(3) of the Internal Revenue Code (IRC):

  • It is organized exclusively for a charitable, educational, or other 501(c)(3) exempt purpose;
  • It is operated primarily for a qualified exempt purpose;
  • It does not engage in any transactions that would result in private inurement or a prohibited private benefit;
  • Its assets, upon dissolution, would be distributed to another nonprofit for a qualified exempt purpose or a government instrumentality;
  • It does not engage in substantial lobbying; and
  • It does not engage in prohibited political campaign intervention.

In addition, the review must ensure that the foreign grantee would qualify as a public charity (and not a private foundation) if it were to apply for IRS recognition of exemption under 501(c)(3). Most public charities qualify as such because they are “publicly-supported” (i.e., they receive a significant portion of their financial support from public sources). For such organizations that do not receive a significant amount of earned income, this may be proven using one of two tests referenced in IRC Sections 509(a)(1) and 170(b)(1)(A)(vi).

First, an organization can demonstrate that it receives at least 1/3 of its total support from governmental units or the public. If the organization cannot meet this first test, it may pass an alternative facts and circumstances test, which requires the organization to establish that, under all of the facts and circumstances, it normally receives a substantial part of its support from government units or the general public.  (For more information about public support, see Adler and Colvin’s Qualifying For Public Charity Status).

The equivalency determination process, outlined in IRS Revenue Procedure 92-94, requires the grantmaker to collect comprehensive information about the foreign organization’s operations and finances to make a “good faith determination” of whether the grantee would be given tax-exempt, public charity status in the U.S., including whether it is publicly supported.

Often, these requirements can be difficult to satisfy because of differences in a foreign grantee’s accounting system, language, and sometimes governing legal system and reporting procedures in the grantee’s own country.

Basic Requirements

The equivalency determination may be done either by the grantor itself, based on information provided in an affidavit completed by the grantee, or by written opinion of legal counsel of the grantor or the grantee. The affidavit is meant to extract all the necessary information about the foreign grantee including financials for the current and previous years, governing documents (often a translated copy is required), details about the board of directors, and descriptions of program activities.

More specifically, in order for a grantee to be equivalent to a public charity based on its level of public support, it must provide the grantor with a financial support schedule for the current year as well as the four most recently completed years. The schedule must be detailed and include information such as grants and contributions received, net income from unrelated business activities, and gross receipts for services performed. Furthermore, the schedule must show contributions from donors that are in excess of 2% of the total support received (because such excess is not included as public support in the public support test).

Proposed Regulations

In September of 2012, the IRS issued proposed regulations that allow private foundations to rely on a broader class of practitioners, not just legal counsel, in making the good faith determination.  The person issuing the opinion may be a “qualified tax practitioner,” such as an attorney, a certified public accountant (CPA), or an enrolled agent.  Foreign counsel is no longer included in this class unless they meet the requirements of a qualified tax practitioner. Although these changes are technically “proposed,” the regulations indicate that a private foundation may rely upon these changes for grants made on or after September 24, 2012.


While the regulations aim to simplify and expand equivalency determinations, the process is quite burdensome and costly. For many years, there was no mechanism for sharing information about foreign grantees among grantmakers, and no uniform standard for collecting and processing the equivalency determination information. Thus, grantees were, and many continue to be, asked to provide affidavits and supplemental materials to multiple grantmakers in various forms. The regulations required each grantmaker to use its own reasonable judgment and good faith determination based on the materials collected. Therefore, foundations were not permitted to rely upon each other’s determinations.

To address these issues, several leading organizations such as The Council on Foundations, InterAction, the Foundation Center, and Independent Sector, worked to create a centralized repository of information to improve the efficiency of international grantmaking. The product of this effort, NGOsource, recently launched an online equivalency determination service and repository . NGOsource members can easily access which projects and organizations are approved for grantmaking purposes, thus eliminating redundant determinations and lowering costs for both the grantmaker and the foreign grantee.

For information about how NGOsource’s equivalency determination service works, click here.


Nonprofit Tweets of the Week – September 19, 2014

Twitter New

The BBC reported Scotland voted narrowly against independence. Have a listen to Al Green‘s Let’s Stay Together while perusing our curated nonprofit tweets of the week:


Nonprofit Tweets of the Week – September 12, 2014

September 11th Memorial

This week, the President announced his authorization of expanded military action against the Islamic State terror group (ISIS) and we remembered 9-11. Have a listen to Bruce Springsteen’s The Rising while perusing our curated nonprofit tweets of the week:

  • HuffPost Impact: After 9/11, hundreds of charities launched. Now, here are the few left standing
  • Rick Cohen: Beyond Lerner: Fixing the #IRS Interaction with Nonprofits – @SenCarlLevin @DarrellIssa #darkmoney #nonprofit Nonprofit Quarterly
  • Gene: Subcommittee Releases Report and Dissenting Views on IRS Handling of 501(c)(4) Applications
  • Foundation Center: Senate Panel Clears IRS of Bias in Screening Tax-Exempt Groups #politics #philanthropy
  • Gene: Who Needs a Smoke-Filled Room? Karl Rove, the Koch Brothers and the End of Political Transparency NY Times
  • La Piana Consulting: Three ways to make sure your board is up to the task of implementing a new strategy. #nonprofits
  • CompassPoint: Why #nonprofit boards don’t govern, in two parts: 1) and 2)
  • Debra Beck: Avoiding questions that must be asked: Why our #nonprofit boards evade inquiry
  • Council of Nonprofits: @LawForChange nice post reminding us that a “good” reputation is not a substitute for good governance practices
  • Laura Arrillage-Andreessen: My MOOC is a greatest hits playlist of my 15 yrs of teaching @Stanford & practicing #philanthropy #TCDisrupt
  • La Piana Consulting: Lessons on building networks for social change from @LeviStraussFdn and @hmcgrant via @SSIReview
  • David Sasaki: Philanthropy does much good in the world, but an estimated $700B is tucked away, tax-free: NY Books … via @robreich

Bonus tweets from SOCAP 2014:

  • Council on Foundations: Three Lessons on Impact Investing: Reflections from Batman and Robin via @Forbes #impinv
  • Nonprofit Finance Fund: #SOCAP14: What does it mean to be investment ready?
  • TechSoup: .@TechSoup is covering the #SharingEconomy on @AirBnB outreach to nonprofits & need to do more. #Socap14
  • Kevin Doyle Jones: Biggest takeaway from #SOCAP14 by @Raivineet let’s deflate the hype. Where’s the $10b in #impinv JP Morgan says exists?

Nonprofit Tweets of the Week – September 5, 2014

Photo Credit: Purvis

Today is the International Day of Charity, a perfect day to speak on fiscal sponsorship to the State Bar Nonprofit & Tax-Exempt Organizations Committees here in San Francisco. Have a listen to Jellyfish’s Russian Hill while perusing our curated nonprofit tweets of the week:

  • Nonprofit Issues: Can #nonprofit Directors vote by proxy?  [Ed. For California nonprofit public benefit corporations, the answer is “no.”]
  • Gene: Recommended! To Pay or Not to Pay – Compensating Nonprofit Founders  Charity Lawyer Blog
  • For Purpose Law: Drafting a (Nonprofit’s) Social Media Policy: How Hard Can It Possibly Be?
  • Gene: Lawmakers could face restrictions on soliciting money for nonprofits – LA Times
  • Philanthropy 365: IRS Denies Exempt Status Under Section 501(c)(4) For Too Much Political Activity – Mondaq News Alerts (registration)
  • McKinsey on Society: “#Nonprofits often focus on scale while evaluators focus on net impact. We need both”
  • Stanford Social Innovation Review: Check out “Mission-Driven Returns” by #SOCAP14 opening plenary speakers @cathyhc @BlendedValue @ImpactInSight #impinv
  • Rockefeller Foundation: See Dr. Rodin’s slides from today’s #SOCAP14 speech // Innovations in Finance for Social Impact … #BigIdeas
  • Gene: B corporation founded by @jessicaalba w/ $1B valuation preparing to go public Chronicle of Philanthropy 

Nonprofit Tweets of the Week – August 29, 2014

Equality For Woman sign on a virtual screen

Last Tuesday was Women’s Equality Day. Have a listen to Nellie McKay‘s Mother of Pearl while perusing our curated nonprofit tweets of the week:

  • Women’s Foundation: Women #vote in higher percentages than men, but are still underrepresented in public office:
  • CalNonprofits: We’re in today’s Huffington Post! Read about our new economic impact report #CausesCount & share your comments! Huffington Post
  • Jan Masaoka: Weighing in on #Ferguson @CalNonprofits: Nonprofit Values and the Events in Ferguson CalNonprofits
  • Cynthia Choi: In response to #Ferguson philanthropy groups call on the sector to work together @aapip
  • Sustainable Law Group: #IRS releases recommendations for taxing unrelated earned income for #nonprofits Lexology #tax #charity
  • Gene: Stay on that Nonprofit Board! – @EugeneFram
  • Catalytic Women: 5 common traps of #philanthropy: @BridgespanGroup tells how we can avoid common mistakes in giving
  • GuideStar USA: #NPONews you can use: how will @alsassociation spend ice bucket millions?
  • Jeremiah Owyang: NEW BLOG POST: Cold Hard Facts on the Ice Bucket Challenge #icebucketchallenge Web-Strategist
  • Gene: I accepted the ALS #IceBucketChallenge from @KenatSukis and donated to a veterans org – see why here

Nonprofit Limited Liability Company

LLCA limited liability company (LLC) is a legal form of enterprise, owned by one or more members, that may be organized and operated for a wide variety of purposes, including charitable purposes. One of the major advantages of an LLC is the limited liability protection it offers to its members. Members are generally not liable for the debts and obligations of the LLC except to the extent of their investments in the LLC.

While technically, there is no such thing as a nonprofit LLC, there are tax-exempt LLCs, and these entities are commonly referred to as “nonprofit limited liability companies” or “nonprofit LLCs”. For the purposes of this article, I’ll refer only to tax-exempt LLCs that are organized and operated for charitable purposes.


Federal Tax-Exemption

An LLC may be recognized by the IRS as tax-exempt for federal income tax purposes in any of these scenarios:

  1. The LLC may apply for recognition of exemption under Internal Revenue Code 501(c)(3) by filing Form 1023. See IRS Website.
  2. The LLC may be a disregarded entity for federal income tax purposes and take on the tax characteristics of its sole member, a 501(c)(3) organization.
  3. The LLC may be considered a pass-through entity for federal income tax purposes and accordingly its income (and expenses) will be attributed to its members, all of which are 501(c)(3) organizations.

Generally, a domestic LLC exempt under Section 501(c)(3) of the Internal Revenue Code will be eligible to receive (a) deductible charitable contributions and (b) private foundation grants without the need for expenditure responsibility. See IRS Notice 2012-52.

See Instructions for Limited Liability Company Reference Guide Sheet (IRS).


State Tax-Exemption

While an LLC may be recognized by the IRS as tax-exempt for federal income tax purposes, this does not necessarily mean that it will be recognized as exempt from state income taxes or state property taxes. In California, an LLC (other than one electing to be taxed as a corporation) will be recognized as tax-exempt for state income and franchise tax purposes only if it is qualifies as a title-holding company under Revenue and Taxation Code Section 23701(h) or 23701(x). it will be recognized as exempt from state property taxes if it separately qualifies under the welfare exemption.

See Limited Liability Companies and Tax-Exempt Status (Franchise Tax Board); Limited Liability Companies As Tax-Exempt Organizations; Limited Liability Companies and Qualification for the Welfare Exemption.


Use of an LLC by a Nonprofit

A nonprofit may want to establish and own an LLC for multiple reasons, including:

  1. To protect itself from the risks and liabilities associated with the assets or activities of the LLC. This isolation-of-risk strategy may be particularly appropriate where the LLC’s assets (e.g., real property with environmental risks) and/or activities (e.g., adventure camps) have a higher risk profile than the nonprofit’s assets and activities.
  2. To operate a business that is not substantially related to advancing its exempt purpose without exposing itself to revocation of its 501(c)(3) exempt status. This strategy is commonly employed where a nonprofit desires to carry on an unrelated business that is substantial in scope and size. In this case, the LLC will not be tax-exempt.
  3. To operate a joint venture with one or more other entities. The LLC housing the joint venture may be tax-exempt if all of its members are tax-exempt or taxable if its members consist of both nonprofit and for-profit organizations.

See Single Member LLCs: The flexibility of limited liability companies is one asset for nonprofits (Alliance for Children & Families Magazine).


Fiscal Sponsorship using an LLC (Model L)

A nonprofit fiscal sponsor may want to establish and own an LLC to protect itself from the risks and liabilities associated with the assets or activities of the sponsored project. If appropriately structured, an LLC solely owned by a fiscal sponsor may be considered tax-exempt as a disregarded entity and seek out its own deductible charitable contributions and private foundation grants, as described above.

The Model L fiscal sponsorship strategy may be worthy of consideration under a couple of circumstances:

  1. Where comprehensive fiscal sponsorship (Model A) is being considered but the risks and liabilities associated with a new project are of significant concern to the fiscal sponsor.
  2. Where an existing nonprofit wants to dissolve and transfer its programs to a fiscal sponsor but the fiscal sponsor is concerned about potential successor liability.


Among the issues for fiscal sponsors to be aware of before setting up a Model L fiscal sponsorship:

  1. The activities of the LLC may be attributed to the fiscal sponsor for tax purposes. If the LLC engages in substantial lobbying (relative to the fiscal sponsor’s limits) or prohibited political intervention activities, the fiscal sponsor’s 501(c)(3) status may be jeopardized.  And the LLC’s unrelated business activities may result in unrelated business taxable income to the fiscal sponsor.
  2. The LLC is itself a charitable asset owned by the fiscal sponsor impressed with a charitable trust. Accordingly, the board members of the fiscal sponsor have a duty to protect such asset from misuse. The fiscal sponsor’s selection of a manager to manage the LLC should accordingly be made with reasonable care (query whether it would be prudent to eliminate a manager’s fiduciary duties to the fiscal sponsor, if possible). The fiscal sponsor itself will likely not want to be the manager in order to mitigate against the possibility of ascending liability.
  3. The selection of the state in which the LLC is to be organized.
  4. The LLC may need to be adequately capitalized to mitigate against the risks of veil piercing and ascending liability.
  5. There may be different ways for the fiscal sponsor to be paid for such arrangement, including through fees or distributions to the sole member. However, the payments should be clearly defined in a written agreement to mitigate against the risks of veil piercing and ascending liability.
  6. The LLC will not be disregarded for employment tax purposes and will have all of the responsibilities of an employer to the extent it has any employees.

See The Use of LLCs in Fiscal Sponsorship – A New Model (Taxation of Exempts); Successor Liability in a Model A Fiscal Sponsorship (Nonprofit Law Matters, Adler & Colvin).


Low-profit Limited Liability Companies (L3Cs)

An L3C is a special form of LLC that significantly furthers the accomplishment of one or more charitable and/or educational purposes. Generally, an L3C can be used in place of a traditional LLC in any of the scenarios above. See our earlier posts on the L3C.



Nonprofit Tweets of the Week – August 22, 2014


Spent a wonderful week with family (including my two nieces pictured above) in beautiful Vancouver. Have a listen to Vancouver-based Marianas Trench’s Celebrity Status while perusing our curated nonprofit tweets of the week:

  • Emily Chan: Charities Seek Their Own Ice Bucket @WSJ | >1000% increase in donations to @alsassociation
  • La Piana Consulting: How-tos, case studies & more on nonprofit collaboration & strategic restructuring, here & here
  • C. Garber Siegrist: Interesting resource: Research, Reports, and Data on the Nonprofit Sector via @NatlCouncilNPs
  • Gene: California charities – expect more enforcement of registration & reporting requirements – AB 2077 status
  • Council of Nonprofits: Let’s bust some myths re: compensation in the #nonprofit world Yes, you can pay #nonprofit employees a bonus [Ed. But be careful - if the possibility of bonuses has not been agreed upon as consideration of employment, payment of a bonus may be a possible violation of charitable trust laws.]
  • Gene: Privacy and Data Security for Your Nonprofit? Venable
  • Law for Change: You asked: Is $ raised through a #fiscalsponsor by an LLC for charitable purposes taxed as income? Answer: #Nonprofit
  • Stanford Social Innovation Review: A new paradigm playing out across the world isn’t about profit or #nonprofit, but about open or closed: #socent
  • Social Enterprise Alliance/SF Bay Area: We feel so trendy: Companies with Benefits  New Yorker
  • The Atlantic: The wonderful, weird economy of Burning Man

Nonprofit Tweets of the Week – August 15, 2014


Sad week: Ferguson, Robin Williams … Have a listen to Friend Like Me while perusing our curated nonprofit tweets of the week:

  • Rick Cohen: Missing in Action in #Ferguson: Key Government Leaders Don’t Show up – NPQ – Nonprofit Quarterly
  • Independent Sector: Robin Williams spread joy off-screen through charity work  … [LA Times] #RobinWilliams
  • Nonprofit Quarterly: The #IceBucketChallenge: What can #nonprofits take away from this social media trend?
  • Lucy Marcus: Boardroom 101: What do directors do? Above Board with Lucy Marcus for @BBC_Capital #corpgov
  • Gene: Any IRS moratorium on enforcing electioneering restrictions against churches lifted, but … [see below] JD Supra
  • Gene: Moratorium on IRS investigations of tax-exempts during Congress’s probe of IRS audits of conservative nonprofits [is still ongoing] JD Supra
  • National Council of Nonprofits: Charitable registration legalities (e.g. mysteries) Resources updated!
  • Alliance Magazine: This is COMMON SENSE philanthropy: a response to ‘Strategic Philanthropy for a Complex World’
  • HuffPost Impact: 10 reasons why investing in girls’ education is an absolute must #globalmotherhood #jnj

Nonprofit Tweets of the Week – August 8, 2014


I’ll be on Nonprofit Radio today talking with host Tony Martignetti about nonprofit collaborations. Hope you catch us live (10 am PT / 1 pm ET) or later on iTunes. Have a listen to Michael Winslow (Police Academy sound effects dude) performing Led Zeppelin’s Whole Lotta Love while perusing our curated nonprofit tweets of the week:

  • USD Nonprofit Institute: USD and CalNonprofits release first authoritative study on the economic impact of CA NPs #USDSOLES #CausesCount
  • Erin Bradrick: Nonprofits generate 15% of California’s GDP, 4th largest industry @calnonprofits
  • Robert Egger: GREAT video from @CalNonprofits detailing the economic impact of #nonprofits (including $40B in out-of-state money)
  • Kim Keel: Can your #NPO answer these questions? #duediligence @BridgespanGroup [How to Research a Nonprofit’s Organization and Operations]
  • Nonprofit Quarterly: How the #nonprofit sector better serve young professionals? #millennials
  • For Purpose Law: Distinguishing a Board’s Steering and Rowing Work – NPQ – Nonprofit Quarterly
  • Nonprofit Quarterly: A free guide for executive #leadership for #nonprofits
  • Gene: How Does a Nonprofit Board Know When a CEO Is ‘Just Minding the Store’? @eugenefram
  • Harvard Business Review: So You Want to Join a Board
  • Bolder Advocacy: Can a #nonprofit say that on social media?? Find out! #webinar [August 12]
  • Nonprofit Times: Employment Agreements #nonprofit
  • National Council of Nonprofits: Looking for a fiscal sponsor? Tips and resources
  • Nonprofit Quarterly: 5 Bad Reasons to Choose a For-Profit Social Enterprise over Nonprofit
  • HuffPost Environment News: The Three Core Questions to Determine: When Is a Company Serious About Sustainability?