TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 4/17/15

equal pay

This week was marked by Equal Pay Day and National Volunteer Week (not to mention Tax Day). Have a listen to Sarah Jones recite Your Revolution while perusing our curated nonprofit tweets of the week:

  • Exponent Philanthropy: We name our favorite resources for #philanthropists who operate with a volunteer board or just one or two staff: http://wp.me/p2bgi2-1rB
  • The New York Times: Cooper Union investigation should be a ringing alarm for nonprofit boards across the U.S. http://nyti.ms/1CwxwOi
  • Nonprofit Quarterly: #Nonprofits should be monitoring several major pieces of legislation in the months ahead http://hubs.ly/y0HwSd0
  • Nonprofit Quarterly: TRENDING: Do the Fruits of Philanthropy Now Fall Closer Than Ever to the Tree? http://hubs.ly/y0H-x80
  • Alex Daniels: “Redskins” foundation –“Not Philanthropy”  The Spectrum
  • Gene: A Moving Target: The regulation of online fundraising platforms The Nonprofit Times … #nonprofit #crowdfunding
  • Independent Sector: The latest Nat’l value of volunteer time is $23.07 per/hr, a 2.3% increase frm last yr! More info here  #NVW2015
  • CalNonprofits: Open letter to Charity Navigator @CharityNav from Calif Assn of Nonprofits — advice as they choose new CEO
  • Jermyn K.Y. Voon: Great read –> Four Factors for Effective #NonprofitGovernance http://huff.to/RAw1Xl via @alicekorngold #corpgov
  • Debra Beck: Getting to great #nonprofit board dialogue: 4 critical factors http://bit.ly/1EtBltd
  • Blackbaud: When Good Donors Do Bad Things Wall Street Journal
  • Philantopic: From Nonprofit to Social Profit: Exploring Assessment for #SocialGood http://owl.li/LDDqo  @triplepundit #nonprofits #socent
  • Camfed: @jeffskoll at #SkollWF: “If there’s a silver bullet to global development, it’s girls education.” Full recap: http://bit.ly/2105SWFscoop [Ed. Day 1 of the Skoll World Forum.]

 

EVENTS

Critical Nonprofit Legal Knowledge for Emerging (and Current) Executive Directors

learning never ends

I’ll be joined by attorney Michele Berger in presenting our first small group seminar of 2015: Critical Nonprofit Legal Knowledge for Emerging (and Current) Executive Directors. There are a few spaces still open. Please RSVP if you’re in our neighborhood.

We’ll be covering:

  • Executive’s role in governance
  • Prohibited activities and transactions
  • Collaborations
  • Social media risks

With attendance limited to 10 persons, we expect there to be lots of Q&A.

Thursday, April 30th
12:00pm – 1:00pm
201 Spear Street, Suite 1100
San Francisco, CA​

RSVP: michele@neolawgroup.com

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 4/10/15

Senza titolo-2

 

 

This week was marked by release of a cellphone video showing a police officer in South Carolina shooting and killing an unarmed black man. Have a listen to Bruce Springsteen‘s American Skin (41 Shots) while perusing our curated nonprofit tweets of the week:

  • CompassPoint: With #TaxDay coming up, how can your #nonprofit be a powerful advocate for the common good? Get the toolkit here: http://ow.ly/L8CWj
  • Nicole Wallace: Robert Reich (@RBReich) argues that the wealthy have used #philanthropy to buy the silence of #nonprofits. Salon
  • AFJ Bolder Advocacy: Learn how your board can #standforyourmission w/ a series of free webinars! http://bit.ly/1yYE9bs #advocacy
  • Ellis Carter: IRS Audits of Tax-exempt Entities http://bit.ly/1A030kD
  • Law Firm for Nonprofits: 990s to Get Greater Scrutiny http://wp.me/p3yhYM-E3
  • Alice Korngold: IRS shortcut to tax-exempt status is under fire: NY Times
  • Nonprofit Law News: Documenting Your Gifts to Charity: Don’t Jeopardize Your Charitable… http://lawdai.ly/1CKVNmR | by @FarellaBraun
  • Jeanne Bell: Good Chair-CEO standing, agenda! “… [by] @joangarry JoanGarry.com
  • Andy Ho: Six elements of great foundations … via @Alliancemag
  • Gene: What It Will Take to Get a Nonprofit Job in 2020 – Fast Company
  • Philantopic: Technology’s Best Bet for Scaling Social Good? Ask the People Who Need the Social Good http://bit.ly/1GPUAxm @fastcoexist
  • Nicholas Kristof: “We’re No. 1!” Ouch, no! The US actually ranks No. 16 in social progress. Read my column http://nyti.ms/1FkZbIU
FISCAL SPONSORSHIP

Fiscal Sponsorship: The Risks of Being a Fiscal Sponsor

Worried About Growing Risk

Fiscal sponsorship can be an incredibly valuable tool for incubating charitable nonprofit projects and creating efficiencies through the provision of administrative support to several discrete projects. The key to its value lies in how well the fiscal sponsor meets its responsibilities and obligations and understands how to appropriately manage the risks of sponsorship. In this post, which is intended to complement the April 21 Hot Topic Call I’m participating in with Steve Moody from the Nonprofits Insurance Alliance Group for the National Network of Fiscal Sponsors (register here), we’ll discuss some of the major risks for a fiscal sponsor that provides comprehensive (or Model A) fiscal sponsorship.

The Responsibility of a Fiscal Sponsor

In a comprehensive fiscal sponsorship, the fiscal sponsor owns the project and the sponsor is responsible for all activities of the project and, generally, any of the project’s liabilities, regardless of whether the sponsor was aware of such liabilities. The rights of the other party to the fiscal sponsorship agreement (often, a project committee convened by the project founders) are typically limited to moving the project to another qualified fiscal sponsor or charity or terminating the project, though the founders and project committee members are typically involved in their individual capacities as employees or volunteers of the fiscal sponsor responsible for project management and fundraising.

The Risks of a Fiscal Sponsor

Mission Drift

An organization that serves as a fiscal sponsor must make sure its mission is advanced by each and every project. Operating outside of its mission may be a violation of its governing documents and charitable trust principles.

Reputational

An organization’s reputation is one of its most valuable assets and must be protected vigilantly. Even a single problematic project (e.g., one that publicly communicates values fundamentally different from the organization’s values) could have disastrous impact on a fiscal sponsor’s reputation and future prospects.

Liability for Activities

Because the program’s activities are the fiscal sponsor’s activities, the fiscal sponsor is ultimately responsible for ensuring that the activities are being engaged in consistent with all applicable laws and with the appropriate level of care. If some person or entity is hurt or otherwise suffers damage as a result of negligent actions or omissions of a project representative, generally, the fiscal sponsor will be responsible. The following questions with respect to each project should be considered:

Qualification

Is the fiscal sponsor qualified to carry out charitable activities in the states or jurisdictions where the project is operating? Does it have all appropriate licenses and permits? Is it exempt from state taxes in those states?

Employment

Does the fiscal sponsor have the appropriate infrastructure to employ individuals connected with the project? If the project director is responsible for employing project employees, does she or he have sufficient knowledge and training to comply with applicable employment laws? Does the fiscal sponsor provide a policy that the project director must follow with respect to interviews, background checks, hiring, training, compensation, disciplinary procedures, and terminations?

Intellectual Property

Is the project using or planning to use any intellectual property (copyrights; trademarks; patents; trade secrets, including donor lists) that might infringe on the rights of another party?

Private Benefit

What are the risks of the project conferring a prohibited private benefit (e.g., excessive payment) to an individual or business entity? If any directors, officers or other disqualified persons with respect to the fiscal sponsor involved with the project, what are the risks of an excess benefit transaction?

Lobbying and Electioneering

Will the project engage in lobbying, and, if it will, does the fiscal sponsor have appropriate knowledge and control to ensure that all registration and reporting requirements (e.g., LDA, FECA, California Political Reform Act) are met? Is it clear that the project cannot and will not engage in any activities that might violate the 501(c)(3) prohibition against political intervention, including ensuring that none of the project’s resources (including email) are used to engage in electioneering activities?

Collaborations

Will the project engage in collaborations with other entities, and is there a policy over what types of collaborations are permissible only with the approval of the fiscal sponsor? What are the risks of creating a partnership for which the sponsor may be jointly and severally liable?

Tips for Serving as a Fiscal Sponsor

Evaluating Projects

  • Are the project’s activities consistent with 501(c)(3)?
  • Are the project’s activities in furtherance of the fiscal sponsor’s mission?
  • Are the project’s goals and activities consistent with the fiscal sponsor’s values?
  • Does the project pose risks that the fiscal sponsor is particularly concerned about or have little familiarity in managing?
  • Does the fiscal sponsor have the internal capacity to oversee and support the project in a safe and responsible manner?

Vetting Project Directors

  • Would the project director be an individual that the fiscal sponsor would hire to lead a purely internal program?
  • Did the fiscal sponsor vet the project director in a similar manner as it would for an internal program manager with broad leadership autonomy?
    • Interview
    • References
    • Background check
  • Does the project director have sufficient expertise and experience to operate, manage, and raise funds for the project?

Fiscal Sponsorship Agreement

  • Does the agreement differentiate between (1) the party signing the contract with the fiscal sponsor and (2) the individuals who will be managing or working for the project whether as employees or volunteers?
  • Does the agreement provide the sponsor with the authority to approve any successor fiscal sponsor or nonprofit to which the project assets would be transferred in the event of a termination of the agreement?

Onboarding

  • Does the fiscal sponsor make clear to the project leaders that the project does not and cannot operate independent of the fiscal sponsor and that another entity operated by project leaders (if any) must be distinct in name and activity from the project?
  • Does the fiscal sponsor have a policy and practice in training a project director in any areas of deficiency that may pose a risk to the sponsor?
  • Does the sponsor equip the project with appropriate policies, including those regarding conflicts of interest, whistleblowers, document retention/destruction, gift acceptance, communications (including websites and social media), and internal controls?
  • Does the sponsor emphasize the importance of timely and accurate reporting to allow for appropriate oversight?
  • Does the sponsor communicate how the project director and leaders may access administrative and legal assistance from the sponsor?

Insurance

  • Does the fiscal sponsor have appropriate and sufficient insurance coverage that accounts for the activities of the project?

Final Thoughts: The Fiscal Sponsor’s Board

A fiscal sponsor is ultimately responsible for all of its Model A fiscally sponsored projects. Accordingly, the board members of the fiscal sponsor are ultimately responsible for all of the activities and affairs of each of its projects. The fiscal sponsor’s board may delegate management of a project to a project director and intermediate oversight to the sponsor’s administrative leaders. But management of all projects remain under the ultimate direction of the fiscal sponsor’s board notwithstanding any attempt to contract out its oversight responsibilities.

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 4/2/15

Water

This week was marked by the Iran Nuclear Deal, the horrific attack at a Kenyan university leaving 147 dead, and California’s water use restrictions. Have a listen to The Who’s Water while perusing our curated nonprofit tweets of the week:

  • Third Sector Today: 10 Lessons for #Nonprofits- Sincerely, The Breakfast Club http://ow.ly/KWvqN
  • Nonprofit Quarterly: Well, here’s a different #nonprofit approach to proposed state budget cuts: http://hubs.ly/y0FZ4W0
  • Center for Effective Philanthropy: NEW on the CEP blog: The San Francisco Foundation CEO @FredBlackwelliv discusses income inequality in the Bay Area. http://ow.ly/L2hrI
  • Alliance Magazine: Now free to read: Community philanthropy and a new model of development @globalfundcf http://ow.ly/L4mdC
  • Gates Foundation: One the most powerful tools for fighting poverty? The cellphone, in the hands of women. http://gates.ly/1ajeBQW
  • National Council of Nonprofits: Is your #nonprofit’s culture transparent about what you value? Codes of ethics and similar resources for #charities http://buff.ly/1HOpxnk
  • For Purpose Law: “Volunteers: A Primer on Possible Perils” – http://www.forpurposelaw.com/volunteers-pri …ossible-perils/
  • For Purpose Law: Rights and Rules for Board and Staff http://shar.es/1gXHvC
  • National Council of Nonprofits: All about ex-officio board members http://buff.ly/1HjlVGq via @BoardSource
  • Nonprofit Assistance Fund: Must read! RT @GTak: Fiscal Sponsors: The Risks of Sponsorship – http://linkd.in/1IGMkin #fiscalsponsorship
  • Sandra Feinsmith: Moving Forward: IRS Provides Updates on TE/GE Division Progress and 2015 Initiatives BDO
  • Cliff Prior: New tools for #socent – guidelines on key legal issues you may face, designed by @dlapiperprobono and @UnLtd see https://unltd.org.uk/legal-help-guides/
IRS & FEDERAL TAX ISSUES   STARTING A NONPROFIT

Public Charity: Public Support Tests Part I: 509(a)(1)

Percent sign on scale pan

A 501(c)(3) organization is presumed to be a private foundation unless it qualifies as a pubic charity. As discussed in a previous post and on our short YouTube clip, public charity classification is generally far more advantageous due to the burdensome rules and restrictions applicable to private foundations. Most 501(c)(3) organizations qualify as public charities under Section 509(a)(1) of the Internal Revenue Code (IRC). Generally, this group includes certain “per se” charities (churches, schools, hospitals, medical research institutions); governmental units; and organizations that pass either one of two public support tests.

The two public support tests referenced by IRC Sections 509(a)(1) and 170(b)(1)(A)(vi) are commonly referred to as the One-Third Support Test and the Facts and Circumstances Test. Both tests include a mathematical computation of an organization’s public support ratio (i.e., public support/total support) measured over a five-year period ending on the last day of the fiscal year for which the organization is filing its Form 990. An organization’s public support ratio is disclosed each year on its Form 990.

One-Third Support Test

                       

                       PUBLIC SUPPORT     

                       —————————              =    1/3 OR GREATER

                        TOTAL SUPPORT

An organization will be treated as a public charity under 509(a)(1)/170(b)(1)(A)(vi) for its current year and the next taxable year if, over the five-year measuring period, one-third or more of its total support is public support from governmental agencies and qualifying contributions or grants from the general public and other public charities. For example, if at the end of 2014, an organization has a public support ratio of at least 1/3 for the five years from 2010 through 2014, the organization will pass the test for 2014 and 2015 (even if it doesn’t pass the test for years 2011 through 2015).

Understanding what is and is not included in both “public support” and “total support” is critical to reporting and managing the public support ratio.

Total Support consists of:
  • Gifts, grants, contributions and membership fees received*
  • The value of services and facilities furnished by a governmental unit to the organization without charge (except services or facilities generally furnished to the public without charge)**
  • Gross investment income
  • Net income from unrelated business activities
  • All other revenues EXCEPT:
    • Gains from the sale of capital assets
    • Gross receipts from admission, merchandise, or other business activities related to the charity’s exempt purposes
    • Unusual grants

* Partly included in public support, subject to the 2% cap described below

** Fully included in public support

Public Support consists of:
  • Grants from government agencies
  • Contributions from other 509(a)(1)/170(b)(1)(A)(vi) public charities
  • Gifts, grants, contributions, and membership fees from all other sources, subject to a 2% cap (i.e., any such contributions from a single source* count as public support only to the extent they do not cumulatively exceed 2% of total support). For example, if an organization has a total support figure (over the 5-year period) of $1 million, including $200,000 of cumulative contributions from Foundation X, the amount of Foundation X’s contributions that count as public support is limited to 2% of $1 million ($20,000).*
  • The value of any services or facilities furnished by a governmental unit to the organization without charge (except services or facilities generally furnished to the public without charge)
  • Benefits from tax revenues received by the charity

* Note that, when applying the 2% cap, amounts from certain related family members, and from business and their major owners, are combined and treated as coming from one source.

Facts and Circumstances Test

An organization that fails to meet the One-Third Support Test can alternatively qualify as a public charity under 509(a)(1)/170(b)(1)(A)(vi) if (a) it has a public support ratio of 10% or more; (b) the organization is organized and operated so as to attract new and additional public or governmental support; and (c) the facts and circumstances indicate it is a publicly supported organization (see the Five Factor Analysis below).

Attraction of public support. The organization must be organized and operated so as to attract new and additional public or governmental support. This may be shown if the organization maintains a “continuous and bona fide program” for solicitation of funds from the general public, community, or membership group involved, or if it carries on activities designed to attract support from governmental units or other charitable organizations described in Section 509(a)(1).

Five Factor Analysis. The organization must show that it is in the nature of a publicly supported organization, taking into account the following factors:

  • Percentage of Financial Support. The greater the percentage of public support above 10 percent, the lesser the burden of establishing the rest of the factors below. If the percentage is low due to a high percentage of its total support from investment income on its endowment funds, the IRS will also consider whether the endowment came from general public, government sources, or from a limited group of donors.
  • Sources of Support. Here, whether an organization is supported by government units, directly or indirectly from a representative number of persons, or a single family, will be taken into consideration in determining if the organization is publicly supported. Also important is the age and type of organization, and whether it appeals to a limited number of persons or communities.
  • Representative Governing Body. The fact that an organization has a governing body that represents the broad interests of the public rather than the personal or private interest of a limited number of donors will be considered here. An organization’s governing body will generally be considered representative of the public interest if it is composed of: (a) public officials acting in their public capacity; (b) individuals selected by public officials acting in their public capacities; (c) persons having special knowledge or expertise in the particular field or discipline in which the organization is operating; and (d) community leaders, such as elected or appointed officials, members of the clergy, educators, civil leaders, or other such persons representing a broad cross-section of the views and interests of the community. Lastly, in the case of a membership organization, an organization will satisfy this factor if the governing body is comprised of individuals elected according to the organization’s governing instrument or bylaws by a broad based membership.
  • Availability of Public Facilities or Service; Public Participation in Program or Policies. This factor looks for evidence that the organization:
    • Provides facilities or services directly for the benefit of the general public on a continuing basis. Examples include a museum or library that is open to the public, or a conservation organization that provides educational services to the public through the distribution of educational materials.
    • Publishes scholarly studies that are widely available and used by colleges, universities, and members of the general public.
    • Participates in or sponsors programs by members of the public having special knowledge or expertise, public officials, or civil or community leaders.
    • Conducts and maintains programs that focus on charitable work in the community, such as combating community deterioration or developing employment opportunities.
    • Receives a significant part of its funds from a public charity or governmental agency to which it is in some way held accountable as a condition of the grant, contract, or contribution.
  • Additional Factors for Membership Organizations. To determine if a membership organization is publicly supported, examine:
    • Whether the solicitation for dues-paying members is designed to enroll a substantial number of persons in the community or area, or in a particular profession or field of special interest (taking into account the size of the area and the nature of the organization’s activities).
    • Whether membership dues for individual (rather than institutional) members have been fixed at rates designed to make membership available to a broad cross section of the interested public, rather than to restrict membership to a limited number of persons.
    • Whether the activities of the organization will be likely to appeal to persons having some broad common interest or purpose, such as educational activities in the case of alumni associations, musical activities in the case of symphony societies, or civil affairs in the case of parent-teacher associations.

If an organization is unable to satisfy both the One-Third Support Test and the Facts and Circumstances Test, there are alternative ways for an organization to become a public charity, including passing a public support test under IRC Section 509(a)(2) and meeting the requirements of a supporting organization under IRC Section 509(a)(3). Stay tuned for our next post, Public Support Tests Part II: 509(a)(2).

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 3/27/15

Smart Media World

TED 2015: Truth and Dare was held in my hometown of Vancouver from March 16-20. Have a listen to tween pianist Joey Alexander (featured at TED) perform Giant Steps while perusing our curated nonprofit tweets of the week:

  • Gene: Read Erin Bradrick‘s Basic Legal Considerations Before Launching a Planned-Giving Program in The Chronicle of Philanthropy
  • Council of Nonprofits: Frequent Q we are asked: “Is it ok to pay a commission on $$ raised?” NO! http://buff.ly/1AJM90F [Ed. Just one of the issues discussed in “Ethical Fundraising” article.]
  • Debra Beck: Nonprofit governance toolbox: The Gene Takagi effect http://bit.ly/1HalOjr [Ed. An unexpected acknowledgment from one of the country’s leading governance experts. Thanks Debra! And thanks to the American Bar Association Bar Services for its kind related tweet too!]
  • BoardSource: Have you read this note from @npquarterly on “Fatally Incurious Governance”? You should: https://rlm.ag/1IcpGI
  • Nonprofit Quarterly: TRENDING: Seven Ways Your Nonprofit Can Avoid Mirroring Practices That Perpetuate Inequality http://hubs.ly/y0DWWz0
  • For Purpose Law: “A Reminder to Nonprofit Employers
  • Melissa Mikesell: Influencing lawmakers: A primer on special interests’ muscle in Sacramento: http://ow.ly/KI1yx
  • Nonprofit Times: #IRS Stats Show Huge Jump In Tax-Exempt Approvals, Applications in 2014 http://ow.ly/KKTXU #nonprofit #philanthropy
  • Law Firm for Nonprofits: IRS Targets Nonprofit Self-Declarers http://wp.me/p3yhYM-DR
  • Gene: Nonprofit Social Enterprises 101 – what they are, how they’re structured http://linkd.in/1MUzWh7 #socent
  • NGOSource: Can Mark Zuckerberg Redefine Philanthropy for a New Generation? HT @GenWeSolve @RockefellerFdn http://ow.ly/KNKlg
  • Rick Cohen: Cohen Report looks at the progressive & less progressive politics of “fourth sector” social enterprise movement here http://goo.gl/RE8b7q
  • McKinsey on Society: “How @Etsy’s IPO could spark investor interest in #BCorps,” from @dennisaprice http://ow.ly/KozmW via @Entrepreneur
IRS & FEDERAL TAX ISSUES   PRIVATE FOUNDATIONS / PHILANTHROPY

Private Foundations & Self-Dealing  

InvestmentWe recently added a post to the blog about private foundations and the rules that they are subject to.  Of the private foundation rules, those regarding self-dealing are some of the most complex and have some of the most serious potential ramifications for a private foundation if violated.  In this post, we’ll take a closer look at the self-dealing rules and some of the exceptions to the rules.

Internal Revenue Code (“IRC”) § 4941 sets forth the self-dealing rules for private foundations and defines self-dealing as any direct or indirect:

  • “sale or exchange, or leasing, of property between a private foundation and a disqualified person;
  • lending of money or other extension of credit between a private foundation and a disqualified person;
  • furnishing of goods, services, or facilities between a private foundation and a disqualified person;
  • payment of compensation (or payment or reimbursement of expenses) by a private foundation to a disqualified person;
  • transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation; and
  • agreement by a private foundation to make any payment of money or other property to a government official…, other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period.”

IRC § 4946 provides the definition of a disqualified person for purposes of the rules applicable to private foundations.  With respect to the self-dealing rules, a disqualified person includes anyone who is:

  • a substantial contributor to the foundation;
  • a foundation manager (which includes officers, directors, trustees, or other individuals who have similar powers or responsibilities);
  • an owner of more than 20% of the combined voting power of a corporation, the profits interest of a partnership, or the beneficial interest of a trust which is a substantial contributor to the foundation;
  • a family member of any such persons;
  • a corporation, partnership, or trust of which any such persons own more than 35% of the total combined voting power, profits interest, or beneficial interest, respectively; or
  • a government official.

As we discussed in our recent post, if a private foundation enters into a self-dealing transaction with a disqualified person, both the disqualified person and the foundation managers who knowingly participated in the self-dealing transaction will be subject to taxes.  (See this IRS page for additional information on the taxes on self-dealing)

However, there are exceptions and special rules that apply to the self-dealing restrictions that private foundations and potential disqualified persons should be aware of, including:

  • Gifts – Although the furnishing of goods, services, or facilities by a disqualified person to a private foundation is typically considered an act of self-dealing, that will not be the case if the goods, services, or facilities are to be used exclusively for IRC Section 501(c)(3) exempt purposes and are provided to the private foundation without charge.
  • Compensation – The payment of compensation or the reimbursement of expenses by a private foundation to a disqualified person (other than a government official) for personal services that are reasonable and necessary to carrying out the foundation’s exempt purposes will not be considered self-dealing, so long as the compensation amount is not excessive. Although we don’t have a clear definition of what constitutes reasonable and necessary personal services, the Regulations state that personal services include legal services, investment advice, commercial banking services, and the services of a broker serving as an agent for the private foundation.  This exception does not apply to the purchase or sale of goods, even if services are a part of the process of producing the goods.  A private foundation may also provide goods, services, or facilities (such as meals or lodging) to a foundation manager, employee, or volunteer without engaging in a self-dealing transaction if the value of the items provided is reasonable and necessary to the performance of the foundation’s activities in carrying out its exempt purposes.
  • Loans – A disqualified person may loan money to a private foundation without it constituting a self-dealing transaction if the loan is made without interest or other charge and if the proceeds of the loan are used by the private foundation exclusively for IRC Section 501(c)(3) exempt purposes. A loan by a disqualified person to a private foundation at below-market rates, however, will still be treated as an act of self-dealing to the same degree that a loan at market rates would be.  The provision of general banking services, including checking and savings accounts (subject to certain conditions), will generally not be considered self-dealing.
  • Leases – The lease of space by a disqualified person to a private foundation will not be considered an act of self-dealing if the lease is without charge. The lease will still be considered to be without charge even if the foundation pays for janitorial expenses, utilities, or other maintenance or administrative costs it incurs, so long as the private foundation does not make the payments directly or indirectly to a disqualified person (rather, the payments should be made directly to the utility provider, for example).  There is also an exception for the leasing of office space to a private foundation in a building with other tenants who are not disqualified persons if the lease is pursuant to a binding contract that was in effect on October 9, 1969, or renewals thereof, and the lease reflects an arm’s length transaction.
  • Publicly Available Services – A private foundation may provide goods, services, or facilities to a disqualified person on a basis no more favorable than that on which the goods, services, or facilities are provided to the general public without violating the self-dealing rules. However, this exception only applies if a substantial number of persons other than disqualified person actually use the goods, services, or facilities in question.
  • Incidental Benefits – The receipt by a disqualified person of an incidental or tenuous benefit from the private foundation’s use of its income or assets is not sufficient in-and-of-itself to make the use an act of self-dealing. For example, if a substantial contributor gets public recognition for the activities of the foundation, that alone generally will not be sufficient to constitute self-dealing.
  • Recapitalization – A transaction between a private foundation and a corporation that is a disqualified person is not self-dealing if it is pursuant to a liquidation, merger, redemption, recapitalization, or other corporate adjustment, organization, or reorganization so long as all of the securities of the same class as those held by the foundation are subject to the same terms and the private foundation will receive no less than fair market value. In order for the securities to be considered subject to the same terms, the corporation must make a bona fide offer on an equal basis to the foundation and every other holder of securities of the same class.
  • Government Officials – Certain payments to government officials, including certain prizes and awards, scholarships for educational study, incidental gifts or services, and reimbursement of domestic travel expenses, will not constitute self-dealing.

Unless an exception applies, the prohibition on acts of self-dealing for private foundations is absolute and, given the stiff penalty taxes that are imposed, private foundations are well-advised to understand these rules and to ensure that they refrain from violating them.

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 3/20/15

 

WhartonSF

This week I had the pleasure of attending the Wharton Social Impact Conference (see Storify). Have a listen to Ramy Essam‘s Irhal (anthem of the Egyptian protests in Tahrir Square) while perusing our curated nonprofit tweets of the week:

  • La Piana Consulting: 6 assumptions + 3 critical uncertainties = 9 key trends affecting the charitable sector http://ow.ly/KgyiA from @IndSector
  • Council of Nonprofits: 2015 Nonprofit Trends to Watch http://buff.ly/1xbomuy
  • Council of Nonprofits: Why bother w/advocacy? Good description of value of advocacy http://buff.ly/1FEIkzx Policy Agenda 4 any #nonprofit http://buff.ly/1FEImHw
  • Independent Sector: The Senate Finance Committee’s working grps on tax reform are now open to comments frm the public. Send yours today: SenateFinanceCommittee
  • Nonprofit Quarterly: California revokes the tax-exempt status of Blue Shield, how will this affect the healthcare insurance industry? http://hubs.ly/y0D6D90
  • Manny / Diabetes: So you want to start a Private Foundation? Via @GTak https://lnkd.in/bB-iWcg
  • Rusty Stahl: The Wrecking of a “Blue-chip” New York Nonprofit
  • For Purpose Law: Pa. Supreme Court To Consider Attorney-Charity Confidentiality | Nonprofit Issues
  • CreateEquity: With introduction of Form 1023-EZ & streamlined procedures, IRS has significantly reduced 501c3 applicant backlog http://bit.ly/1Ay3XM7
  • Philanthropy: Opinion: Impact Investing Can Help Foundations Avoid Obsolescence http://ow.ly/KuKY5 @BillBurckart
  • Amy Sample Ward: Thanks, @nonprofitorgs, for the awesome #15NTC storify recap!
  • Fast Co. Exist: The world changing ideas of 2015 from @fastcoexist: http://f-st.co/5I8Jyyi
  • Bridgespan Group: Don’t miss out! Follow the TechSocial blog series on @FastCoExist. @AbeGrindle starts us off : http://bit.ly/1Fw6g7D #transformativescale
  • Alex Counts: Just published blog on what impact investing can learn from #microfinance … on @CFI_ACCION blog

 

 

 

IRS & FEDERAL TAX ISSUES   PRIVATE FOUNDATIONS / PHILANTHROPY   STARTING A NONPROFIT

NEO Law Group’s Video on Tips for Nonprofits: Private Foundation or Public Charity?

 

Yesterday, NEO Law Group released a new short video in its series of videos on tips for nonprofits, available on YouTube. This video focuses on the differences between private foundations and public charities. We hope that you enjoy it and please stay tuned for additional videos from NEO Law Group on tips for nonprofits.