Highlights from the morning sessions of Day Two of the 2013 Private Foundation National Conference in Seattle below.
Direct Charitable Activities – Jody Blazek and Jane Searing
- A private operating foundation is any private foundation that spends at least 85 percent of its adjusted net income or its minimum investment return, whichever is less, directly for the active conduct of its exempt activities (the income test). In addition, the foundation must meet one of three tests: the assets test, the endowment test, and the support test.
- If a private foundation’s qualifying distributions exceed its minimum investment return for the tax year, but are less than its adjusted net income, substantially all of the total qualified distributions must be made directly for the active conduct of the foundation’s exempt activities. But if the foundation’s minimum investment return is less than its adjusted net income and its qualified distributions equal or exceed the adjusted net income, only that part of the qualified distributions equal to substantially all of the foundation’s adjusted net income must be made directly for the active conduct of the foundation’s exempt activities.
- The Internal Revenue Manual gives the following examples of expenditures for Direct Charitable Activities: amounts paid or set aside to acquire or maintain the operating assets of a museum, library, or historic site, or to operate such facility; to provide goods, shelter, or clothing to indigents or disaster victims if the foundation maintains some significant involvement in the activity rather than merely making grants to recipients; to conduct educational conferences and seminars; to operate a home for the aged or disabled; to conduct scientific, historic, public policy, or other research with significance beyond the foundation's grant program, and which does not constitute a proscribed attempt to influence legislation; to publish and disseminate the results of such research, reports of educational conferences, or similar educational material; to support the service of foundation staff on boards or advisory committees of other charitable organizations, or on public commissions or task forces; to provide technical advice or assistance to a governmental body, a governmental committee or subdivision of either in response to a written request by the governmental body, committee or subdivision; and, to conduct performances in the performing arts.
- Technical assistance must have significance beyond the purposes of the grants made to grantees, and must not consist merely of monitoring or advising the grantees in their use of grant funds. Technical assistance involves the furnishing of expert advice and related assistance regarding, for example, compliance with governmental regulations, reducing operating costs or increasing program accomplishments, fund-raising methods, and maintaining complete and accurate financial records.
- Expenses attributable to administering grant programs, such as reviewing grant applications, site visits, selecting grantees and reviewing reports relating to the use of grant funds, usually do not constitute Direct Charitable Activities,
Private Foundations Can't Influence the Government? Think Again – Greg Colvin
- Lobbying laws applicable to public charities differentiate between direct and grassroots lobbying. [Ed. See "Direct" and "Grass Roots" Lobbying Defined (IRS)]
- Ballot measures – public is the law-making body – lobbying directed to the public = direct lobbying. [Ed. See Ballot Measures and Public Charities: Yes You Can Influence That Vote (AFJ)]
- Exceptions to lobbying include response to written request for technical assistance from government body. See templates for written request and affirmative response from Adler Colvin
- Private foundations cannot earmark grants for lobbying, but they can make general support grants and certain specific project grants for projects that will involve lobbying so long as the grant amount is at least equal to the nonlobbying portion of the project budget ("McIntosh rule")
- Private foundation grant agreements are NOT required to prohibit use of funds for lobbying, but make sure you have protective language (e.g., "The Grant is not earmarked for use in any attempt to influence legislation … and the Grantor and Grantee have not entered into any agreement … that directors that the grant funds be used for lobbying activities …")
- "Educating public officials" could be lobbying – understand the definitions and be careful. Check whether there was a communication made and to whom. Look for a specific legislative proposal. In public messaging, look for a call to action. See if an exception applies.
- "The bigger the public policy advocacy campaign, and the longer it goes on, the smaller the proportion of expenditures within the IRS definition of lobbying"
- See Independent Sector's Beyond the Cause: The Art and Science of Advocacy
- Lobbying regulations take up about 50 pages. Prohibited political intervention activities regulations take up about 1/4 page. More detailed regulations and bright-line tests needed.
[Ed. Also see Private Foundations May Advocate (AFJ)]