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

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 7/24/15

On air sign isolated on white background

Today, I’ll be on Nonprofit Radio with host Tony Martignetti participating in the celebration of its 250th show and 5th anniversary! I hope you’ll join us live at 10 am PT / 1 pm ET or listen in later on iTunes. Have a listen to the Flintstone’s Happy Anniversary while perusing our curated nonprofit tweets of the week:

  • Philanthropy: Opinion: Why taking legal action against charity fraud is so hard http://bit.ly/1OooAC2
  • Philanthropy: Opinion: Nonprofits get hurt by IRS inaction on political groups http://bit.ly/1DkV9eg
  • Nonprofit Quarterly: Which IRS Scandal Are You Watching? http://hubs.ly/H0107ln0 by @mlwyland
  • Rebecca Cappy: #IRS seeking comments on Form 990, Schedule A & B. Comments due 9/14/2015: Federal Register
  • Independent Sector: GOOD READ: RT @IrishTimes: Is it right for philanthropies to fund social change? – http://bit.ly/1Js2lHJ
  • Philantopic: MacArthur Foundation to Close Moscow Office http://owl.li/PXtwt @macfound #philanthropy #Russia [Ed. International work in several countries is getting more and more challenging; be very careful not to expose your organizations, employees, and volunteers.]
  • Ellis Carter: MOUs versus Contracts http://bit.ly/1FaZ4Mg #nonprofit
  • Venable Nonprofit Law: #Nonprofit websites: No #copyright infringement for content posted by 3rd parties if not following DMCA formalities http://bit.ly/1HE97to
  • National Council of Nonprofits: What makes a great meeting? http://buff.ly/1RRGtzf Hate meetings? Make ’em great with these tips ‘n tools http://buff.ly/1RRGuTM
  • Gene: Engage communities, not just during elections, AND listen to their priorities, not just your organization’s – @AmadoUno #aapis4ce
EVENTS   SOCIAL MEDIA

Social Media and Nonprofits: What You Need to Know

 

Social Media Social Networking Technology Connection Concept

I’ll be presenting Social Media and Nonprofits: What You Need to Know with Carrie Garber Siegrist of Venable LLP on July 21 at 12:00 – 1:30 pm PT for the American Law Institute.

Why You Should Attend

Social media is a powerful tool for nonprofits, small and large. Effective use of social media can increase fundraising, further an organization’s mission, help to recruit volunteers, educate the public, and create cause awareness. However, nonprofit board members, nonprofit employees, and outside counsel advising nonprofits must be aware of the risks associated with social media use. Attend this course, Social Media and Nonprofits: What You Need to Know, that covers some of the legal issues that may arise in connection with a nonprofit’s use of social media and some steps that can be taken to better protect nonprofits.

What You Will Learn

This program shares strategies and tips on ways to avoid potential legal issues arising from social media use, while still leveraging all its benefits. Topics of discussion include:

  • Creating, maintaining & implementing a social media policy
  • Using of social media for fundraising
  • Social media use by nonprofit volunteers & agents
  • Responding to social media inquiries
  • Monitoring your social presence

You’ll find more information about social media-related legal issues on our blog here.

EVENTS   IRS & FEDERAL TAX ISSUES

IRS Tax Workshop – San Francisco

Internal Revenue Service in Washington D.C.

The IRS Exempt Organizations Division will be in San Francisco on Tuesday, August 18, and Wednesday, August 19, to present on what small and medium-sized 501(c)(3) organizations must do to comply with their tax obligations and keep their tax exempt status. You can attend either of the all-day workshops to be held at the Bar Association of San Francisco (301 Battery Street, 3rd Floor) by registering here. Regular admission is $50.

Among the topics to be covered:

  • Benefits & Responsibilities of Tax-Exempt Status
  • Unrelated Business Income
  • Employment Issues
  • Overview of Form 990
  • Required Disclosures

It’s an integral part of a nonprofit board’s and executive’s duties to make sure leadership is sufficiently trained and equipped to perform their jobs. This low-cost training is highly recommended, particularly for those who don’t have a strong compliance background.

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 7/17/15

Superhero watching over city. No transparency used. Basic (linear) gradients. A4 proportions.

The past week was highlighted by Comic Con, the world-famous comics convention put on by a nonprofit (see Rick Cohen‘s article, Comic-Con Struggles for Its Brand Identity and Nonprofit Provenance). I’ve attended Comic Con in the past and plan to go again to learn more about comics (really!) and see my childhood best friend Larry Zerner, a regular speaker at the Comic Con Law School. Have a listen to The Script’s Superheroes while perusing our curated nonprofit tweets of the week:

  • Nonprofit Times: #StandForYourMission Pushes Board Advocacy http://www.thenonprofittimes.com/?p=26030 .@BoardSource
  • BoardSource: Our CEO @AnneWallestad explains why board engagement in advocacy is essential in Nonprofit Quarterly article #AdvocacyNow
  • AFJ Bolder Advocacy: Resource alert! Legal Tips On Using Social Media For Advocacy http://bit.ly/UBc64p #NN15
  • CompassPoint: 3 essential shifts for the #nonprofit sector: http://ow.ly/P02zE Hez G. Norton from @TSNE guest blogs.
  • Gene: Great article on D&O Insurance and Why It’s Worth the Cost from Pamela Davis of @NIACInsurance Nonprofit Quarterly
  • Nonprofit Quarterly: Senator Grassley has seventeen accountability questions for the Red Cross, where are the answers? http://hubs.ly/y0ZW030
  • For Purpose Law: 501(c)(4) Political Activity Rules: Here’s the Latest https://shar.es/1qMYdL
  • Diana Aviv: Brad Smith of @fdncenter wrote an important piece on foundation funding of inequality. really worth reading! Philanthropy News Digest
  • Alex Daniels: The downside of Sean Parker‘s “hacker philanthropy” Vox
  • Carrie Garber-Siegrist: FASB amendments to accounting for #nonprofits http://ow.ly/Pxkev
  • National Council of Nonprofits: What new #overtime reform could mean for #nonprofits http://buff.ly/1I3UC5X
  • John Montgomery: “Why the Delaware Public Benefit Corporation Matters to Silicon Valley” by @startworks on LinkedIn
  • Goldman Sachs: #GSAM to acquire Imprint Capital to help build world-class #ESG & #impinv platform http://link.gs.com/k67b http://link.gs.com/NwMN
ADVOCACY & LOBBYING   BOARDS / GOVERNANCE

Advocacy: An essential board responsibility

business woman pointing to coworker. He refuses task

Advocacy is an essential board responsibility. That’s the new message being espoused by BoardSource in connection with the release of the third edition of Ten Basic Responsibilities of Nonprofit Boards.

I’ve long asserted that board members should consider whether advocacy (and in some cases lobbying) would be an effective strategy and if so, whether they have a fiduciary duty to lead the organization in engaging in advocacy activities. A change in policy, behavior, or law catalyzed by an advocacy effort might be the most effective and cost-efficient way to further an organization’s mission.

BoardSource takes this principle one step further and asserts that a board member has an essential individual role as an advocate of the organization and its mission outside of the boardroom. In an article published by The Nonprofit Quarterly, BoardSource CEO Anne Wallestad explains the reasons why BoardSource is taking this position:

  • Our missions are too important to sit on the sidelines.
  • The need is too great to ignore.
  • We are the people decision-makers need to hear from.
  • We have more power and influence than we think.

And BoardSource puts even more chips on board advocacy with its initiation and leadership of the Stand For Your Mission movement whose motto is “Creating Positive Change Through Board Advocacy.”

There are more than 1.5 million nonprofit organizations in the United States. We employ more than 10% of the American workforce and represent roughly $1.65 trillion in annual revenues. And we have an estimated 20 million individuals leading our organizations who are among the most influential, dedicated and connected leaders: Our board members.

 

Advocacy is a powerful lever for real impact, but — according to BoardSource’s Leading with Intent report — only 33% of organizations report that their board members are actively involved in advocating for their missions. And many organizations aren’t advocating at all.

 

It’s time to find our voice. It’s time to stand for our missions. Join us.

Our senior counsel Erin Bradrick will be speaking at the 2015 BoardSource Leadership Forum in New Orleans. We hope you’ll join her to further explore the critical importance of board advocacy.

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – 7/10/15

 

b26b6a19-97d9-48a7-abef-cbf8d4fdefd3

This week was marked by scary economic news from Greece and China. Have a listen to Ray Lamontagne’s Trouble  while perusing our curated nonprofit tweets of the week:

CALIFORNIA LAW   CURRENT AFFAIRS & OPINION

Proposed Regulations Threaten California Nonprofits – Comments due July 13

 

Your Comment Counts words on a red suggestion box to illustrate the value and importance of feedback, opinions, suggestions and brainstorming ideas

In a previous post, we warned our readers about the initial draft of these proposed regulations from the Office of the Attorney General of the State of California:

The proposed regulations, if adopted, will mean such charities will need to suspend activities and fundraising if they are delinquent in their registration, and if suspended or revoked, their board members will be subject to personal liability and their assets subject to forced divestiture.

A revised version of the proposed regulations dated June 25, 2015 failed to adequately address the three provision we believe threaten California’s nonprofit sector and all individuals served by California nonprofits. You have until 5 p.m. on Monday, July 13, to send your comments to Joseph N. Zimring, Deputy Attorney General at Joseph.Zimring@doj.ca.gov.

According to this article by Jeffrey Davine of Mitchell Silberberg & Knupp LLP:

The California Department of Justice, however, estimates that there are 52,000 charities within California that have not complied with these requirements. Moreover, it is estimated that there are at least 130,000 additional non-California charities operating in the State that have not complied with these requirements.

Assuming such statistics are accurate, if the proposed regulations are promulgated, over 180,000 charities in California will be required to stop operation until they have fixed their registration issues (which may take several months). 180,000! What would be the impact on the people relying on the services those charities are providing? What is the likelihood that this rule will most impact those most in need, particularly in rural and poor areas? And what message is the Attorney General sending by stating that if those 180,000 charities don’t stop operating, the Attorney General can hold the board members personally liable and take away all of the charity’s assets?

§ 999.9.3. Disclosure and Restrictions on Use of Charitable Assets After Suspension or Revocation of Registration.

(b) A registrant that has been suspended or revoked may not distribute or expend any charitable assets or assets subject to a charitable trust without the written approval of the Attorney General. Members of the board of directors or any person directly involved in distributing or expending charitable assets may be held personally liable in a civil action brought by the Attorney General for any charitable assets or assets subject to a charitable trust that are distributed or expended in violation of this regulation.

Why It’s a Problem:  A charitable nonprofit that is late filing a single form with a California agency may be suspended. If a nonprofit is suspended (whether it is aware of the suspension or not) but still operates (which generally means it’s expending charitable assets), the Attorney General has the power to sue the board members. This is the true even if the nonprofit is expending funds to pay its employees, live up to its contractual operations, or deliver urgent services to its beneficiaries. This will have a chilling effect on board recruitment and on the desire for nonprofits to operate in California.

(c) The Attorney General may direct a registrant whose registration has been suspended or revoked to distribute some or all of its charitable assets or assets subject to a charitable trust to another charitable organization or into a blocked bank account.

Why It’s a Problem:  If a charitable nonprofit has been suspended (e.g., for one late filing), that fact alone gives the Attorney General power to force the nonprofit to give all of its assets to another nonprofit.

§ 999.9.1. Automatic Suspension.

(d) A registration that has been continuously suspended for one year pursuant to this regulation shall be automatically revoked.

Why It’s a Problem:  A charitable nonprofit that is unaware of its suspended status (possible due to a change in mailing address, a common scenario for all-volunteer organizations) may have its registration revoked. While the revised version of the proposed regulations included a 30-day notice period to allow a noncompliant charity to cure the violation causing an automatic suspension, this notice will not be helpful if the organization’s leaders do not receive it.

Why the AG Wants These Regulations

I get why the Attorney General wants to propose regulations with teeth that forces the tens of thousands of noncompliant charities operating in California to comply with the registration requirements. I agree this is a major problem that needs to be addressed. But the draft regulations provide an inelegant solution, leaving it up to the Office of the Attorney General to pick and choose which charities and board members will be the examples facing the stiff consequences with little guidance. Why not limit the draconian consequences to more specific situations and eliminate the possibility of imposing such consequences upon an organization that missed a single filing resulting in suspension.

You can read more about the proposed regulations on the Wexler Law Group post, Second Bite at the Apple. We encourage you to also check out his very detailed comments.

Endorse Our Letter of Concerns

Please consider adding your endorsements to the Letter to Attorney General detailing our concerns with the proposed regulations. Joining us as signatories to the letter are  Barbara Rosen of Evans Rosen LLP; the California Association of Nonprofits; the National Council of Nonprofits, and Pamela E. Davis, Founder/President/CEO, Nonprofits Insurance Alliance of California (NIAC). The letter has also been endorsed by the United Ways of California; the Alliance for Justice; and Anne Wallestad, President & CEO, BoardSource. Even thought the comment period has passed, your endorsements will add weight to our efforts to protect charities operating in California and the millions of people they serve. Please contact us or leave your endorsement in the comments section below. Thank you for your advocacy!

 

EVENTS

Stronger Together – A Conference for California’s Nonprofit Leaders

StrongerTogether-2015-with-logos-H.jpg

 

The second annual Stronger Together Nonprofit Conference will be in Los Angeles on Monday, August 24. Certain to be among the highlights are Jan Masaoka‘s session on changes in nonprofit overhead, Jeanne Bell‘s session on creating a theory of change, and the keynote by Eric Holt-Gimenez on the food justice movement. Other sessions focus on risk management, HR 101 issues, sustainability from an auditor’s perspective (presented by my wonderful colleague on the CompassPoint board Tonetta Connor), cyber security, the organization’s role in work-life balance, implementation of a minimum wage increase, succession planning, volunteer management, and policy advocacy.

Three strong partners are working together on the second annual nonprofit conference for California with leading edge content and exceptional presenters in leadership, strategy, advocacy, and risk management.

The Nonprofits Insurance Alliance of California (NIAC) is itself a 501(c)(3) nonprofit organization that serves only other 501(c)(3) organizations. Its mission is two-fold: (1) to provide a stable source of liability insurance tailored to the specialized needs of the nonprofit sector, and (2) to assist its members with programs, tools and training that minimize their risk [and] protect their clients, employees and volunteers.

We have demonstrated over 26 years that nonprofits can more effectively and efficiently insure themselves by pooling their risks. Working together, we have returned $180 million to the nonprofit sector, funds that otherwise would have become profits for the insurance industry. Please join us. We are stronger together!

The California Association of Nonprofits (CalNonprofits) is a statewide alliance of nearly 10,000 organizations, representing and promoting California’s growing nonprofit sector. CalNonprofits works to bring the full power of nonprofits to strengthening communities.

As an alliance of nonprofits, a crucial role for CalNonprofits is to advance public policies that support a healthy nonprofit ecosystem. We focus on elevating your voice to policy makers, philanthropy, and the public; and strengthening your ability to advocate on behalf of your community.

CompassPoint Nonprofit Services‘s mission is to increase the impact of nonprofit community-based organizations and the people who work and volunteer in them. It pursues this mission by: (1) delivering a range of high-impact capacity-building services to community-based organizations and the individuals working and volunteering in them, (2) continuously refining these services based on what clients tell us they need and our own informed experiences in the field, and (3) staying abreast of and helping to shape current best practices and paradigms in nonprofit capacity building.

CompassPoint intensifies the impact of fellow nonprofit leaders, organizations, and networks as we achieve social equity together. We believe that nonprofit organizations and leaders need relevant support that builds on their strengths, experiences, and achievements and that those individuals and organizations that invest in increasing their leadership and management capacities are better poised to achieve progress.