Best of the Nonprofit Law Blog 2014

Best of 2014 - The year in reviewHere are some selected highlights from NEO Law Group over the past year that we hope you’ll find helpful. 2014 was also highlighted by an addition to Erin’s family and Michele’s graduation and passage of the bar exam! Amazing year for all of us.

Blog Posts


What Issues Should a Nonprofit Board Consider Annually?

Executive Succession: 10 Tips for Boards

Executive Committees: Why You Should Limit Their Authority


Nonprofit Advocacy is More Than Lobbying

Charities and Issue Advocacy: Doing it Right – Part One

5 Things Nonprofits Should Know About Ballot Measure Advocacy in California

Fiscal Sponsorship

Fiscal Sponsor Due Diligence

Fiscal Sponsorship: A Valuable Option for Grantmakers and Grantees

Arts Projects: Charitable or Not?

Proposed Laws

12 Things Nonprofits Should Know About Proposed Tax Reform

California Bill to Strengthen Enforcement of Charity Registration and Reporting

Proposed Rules Affecting California Charities – Comment Period Ends Today!

UBIT / Social Enterprises

UBIT: Advertisements vs. Qualified Sponsorship Payments

Nonprofit Limited Liability Company

Nonprofit Crowdfunding Risks


Nonprofit Laws for Human Resources Managers to Be Aware Of

Retroactive Reinstatement Procedures: Simplified

Dissolution and Transfer of Remaining Assets: An Alternative to Merger


Fair or Foul: A Review of Federal Tax Laws Governing Unfair Competition, The Nonprofit Quarterly (2014)

12 Reasons Why You Should Gracefully Resign from a Nonprofit Board, The Nonprofit Quarterly (2014)

10 Issues To Address In Your Nonprofit’s Social Media Policy, The Nonprofit Times (2014)


Tips on Starting a Nonprofit: Initial Board of Directors

Tips on Starting a Nonprofit: Fundraising Before Exemption

Tips on Starting a Nonprofit: Initial Bylaws

Nonprofit Radio

Advocacy, Net Neutrality, & The Bright Lines Project

Your Board’s Role in Executive Hiring


Speaking Engagements


Profit for Good: How Social Enterprise Policy Affects You, Independent Sector Public Policy Action Institute

Hot Topics in Nonprofit Law, CalNonprofits Policy Convention

Small Charities – Problems and Solutions, American Bar Association, Tax Section Mid-Year Meeting


Earned Income 101 for Nonprofits, Lawline

Understanding UBIT: What Does It Mean for Your Shared Space? Nonprofit Centers Network

Navigating Legal and Ethical Issues, New Grantmakers Institute, Northern California Grantmakers


Fiscal Sponsorship: A Valuable Option for Grantmakers and Grantees


Yesterday, I had the honor of participating on a panel discussing fiscal sponsorship at the 2014 Grantmakers in the Arts 2014 Conference in Houston. Frances Phillips (Walter and Elise Haas Fund), Melanie Beene (consultant, former CEO of Community Initiatives), and Ian David Moss (Fractured Atlas) were my co-panelists, and we were joined by a very vocal group of attendees who made the session one of my favorites. The following post is from a handout we distributed at the session.

Fiscal sponsorship describes a number of varying contractual relationships that have through custom and practice developed between “sponsors” and “projects,” making it possible for charitable projects to receive grants and deductible contributions without having their own 501(c)(3) status. These relationships can help facilitate grantmakers’ support of worthy arts projects that are not suited for independent legal existence as public charities. But the health of the sponsor and the structure of the fiscal sponsorship agreement are critical to ensuring that your grants are made appropriately and in compliance with applicable laws.

Most common forms of fiscal sponsorship

The two most common models of fiscal sponsorship are referred to as comprehensive (Model A) and the pre-approved grant relationship (Model C). The National Network of Fiscal Sponsors (NNFS) provides the following definitions:


In a Comprehensive Fiscal Sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor, and is a fully integrated part of the fiscal sponsor that maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities. This model of fiscal sponsorship is particularly valuable when a project has employees.

Pre-approved Grant Relationship

In a Pre-Approved Grant Relationship Sponsorship, the fiscally-sponsored project does not become a program belonging to the sponsor, but is a separate entity responsible for managing its own tax reporting and liability issues. In addition, the sponsor does not necessarily maintain ownership of any part of the results of the project’s work—ownership rights may be addressed in the fiscal sponsor agreement and could potentially result in some form of joint ownership. The sponsor simply assures that the project will use the grant funds received to accomplish the ends described in the grant proposal. This is the model of fiscal sponsorship primarily utilized in the arts.

Model A
Pre-Approved Grant ...
Model C
Project is housed in sponsorYesNo
Project is housed in separate legal entityNoYes
Project employeesEmployees of the sponsorEmployees of the project (sub-grantee)
SolicitationsBy agents of the sponsorBy agents of the sponsor
GrantsTo sponsor for purposes of the project (housed in sponsor)To sponsor for purposes of the project; sponsor may, but is not required to, regrant to project (sub-grantee)

An alternative to forming an independent charity

Having a charitable project fiscally sponsored by a sound and reputable fiscal sponsor may be an attractive alternative to starting a nonprofit, especially when:

  • An idea is being tested or incubated.
  • The project involves the work(s) of a single artist or collaborative group.
  • The project leaders are inexperienced or otherwise not well prepared to manage the administrative needs of a charity.
  • The project and/or funding is time sensitive.

Tips and traps for grantmakers


  • Carefully vet the fiscal sponsor (your grantee), not just the project leaders.
  • Check the fiscal sponsor’s articles/bylaws (consistency with grant purposes).
  • Check the fiscal sponsor’s financials (e.g., negative unrestricted net assets).
  • Review the fiscal sponsorship agreement (variance powers in Model C).


  • Directing a grant to the project in a Model C fiscal sponsorship.
  • Sending grants to Model A project leaders instead of the fiscal sponsor.
  • Granting to a fiscal sponsor that acts as a mere conduit to another entity.
  • Placing too much weight on overhead (incl. fiscal sponsorship fees).

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.


Council on Foundations 2014 Annual Conference

Leadership with education

The Council on Foundations 2014 Annual Conference (Philanthropy Exchange) was held in Washington DC on June 8-10 with pre-conference sessions taking place on June 6 and 7. The Full Session Calendar shows the breadth of topics covered and is a wealth of resources. Here are some my favorites resources coming out of, or relating to topics covered by, the Conference:

Energizing Private Partnerships at the Federal Level
See Philanthropy and Government Working Together: The Role of Offices of Strategic Partnerships in Public Problem Solving

Public Policy Seminar
Investing in Change: A Funder’s Guide to Supporting Advocacy
Tax Reform Act of 2014 Summary

The State of the Nation: American History, Identity and Politics
Gallup’s Jim Clifton on The Coming Jobs War

Inequality, A Polarized Society, and Young Men of Color
A Time For Action – Mobilizing Philanthropic Support for Boys and Young Men of Color

Making Rights Real: Civic Literacy, Media Access, and the Democratic Imperative
Dialogues On Election Reform: A Continuing Conversation with the States (May 1, 2014 – American Bar Association Standing Committee on Election Law)

Civil Legal Aid: A Natural Ally in Tackling Poverty
Natural Allies: Philanthropy and Civil Legal Aid

President Obama’s Social Innovation Fund at Five… Where it’s been, and where it’s going
Innovation to Impact: Obama’s Social Innovation Fund at Four (Stanford Social Innovation Review)

Re-Emerging Art of Funding Innovation
Re-Emerging Art of Funding Innovation (Stanford Social Innovation Review)

Fostering Philanthropy and Civil Society Globally
Discussion Questions
Council on Foundations conference 2014: foundations and the post-2015 development goals (Alliance Magazine)

Closing Plenary: Finding Common Ground to Advance the Common Good
Common Ground with Bob Beckel & Cal Thomas


Also check out Rick Cohen‘s Live Blog: Council on Foundations Annual Meeting on the Nonprofit Quarterly site.


CalNonprofits Annual Convention


Photo-39 copy 2"The poor is not them, the poor is us." – Robert Reich

Our friends at the California Association of Nonprofits held their Annual Convention this Thursday in San Francisco. The Convention featured former Secretary of Labor Robert ReichJeanne Bell, CEO of CompassPoint; Emmett Carson, CEO of the Silicon Valley Community Foundation; Pete Manzo, CEO of United Ways of California; Pamela David, E.D. of the Walter & Elise Haas Fund; Melissa Breach, E.D. of the League of Women Voters of California; Nayantara Mehta, Senior Counsel, Alliance for Justice; exempt organizations attorney Rosemary Fei, Adler & Colvin; author and grassroots fundraising guru Kim Klein; and CalNonprofits CEO Jan Masaoka.

"The world needs more of what nonprofits do." – Jan Masaoka

The morning plenary moderated by Jan Masaoka focused on the theme of What Should Philanthropy be Doing Better? The panelist was comprised of foundation CEOs Fred Ali (Weingart Foundation), Emmett Carson, and Pam David. The first area explored was partnerships with government. David said this was essential and that government could not be treated as a grantee. Carson took the position that the power dynamic heavily favored government and that philanthropy has to use levers in knowing how to advance its goals. When asked about what new law should be created, David suggested a requirement that private foundations invest 5% of their endowments in mission-related investments. Carson cautioned that what was good for one nonprofit might be horrible for another, showing how difficult it can be for the sector to speak with one voice on many issues. Another area explored was collegiality among foundations. Carson shared his concern that collegiality was chilling debate; foundation leaders that criticized the practice of others could be treated as pariahs. When the discussion turned towards strategic philanthropy and its focus on measurable outcomes, David noted that some outcomes are unknown until the work is done. An audience member voiced some frustration about philanthropy funding innovation but not funding infrastructure to take proven ideas to scale. When asked what were the foundation leaders' beef with their charity grantees, Carson said they're not dreaming big enough, and Ali pointed to the need for more values-driven organizations.

Rosemary Fei led the session – I'm a Nonprofit Lawyer, Ask Me Anything? Rosemary, one of the most highly regarded exempt organizations practitioners in the country, was my grad school teacher in the 90s and continues to be an exceptional teacher. She responded to a wide variety of questions including those related to startup issues, fiscal sponsorship, governance and lobbying.

Jeanne Bell moderated the discussion on Emerging Nonprofit Funding Models featuring Gihani Fernando (Bridgespan Group) and Carla Javitz (President, REDF). Bell asked the provocative questions: (1) Do great organizations go out of business? and (2) Do organizations living hand-to-mouth as the accepted business model have the right leadership? Javitz pointed out that in operating a social enterprise, there are additional social costs involved, and, in her opinion, it's acceptable to look for subsidies for such costs as part of a prudent and sustainable business model. Fernando reminded us that organizations must properly match funding sources to the types of expenses (e.g., growth expenses vs. day-to-day fixed expenses).

Robert Reich provided the brilliant keynote address. Among the points he made:

  • Recovery? For 90% of Americans, this has been the slowest, most anemic economic recovery in the history of economic recoveries.
  • The problem: For more than 30 years, median household income has been stagnant (even though economic pie has doubled) – most growth has benefited the top 5%.
  • Coping mechanisms (more women in the workforce, longer hours, borrowing) have had impact but they have now been exhausted.
  • The value we add to the global economy relies on skills we bring to table; we need better affordable early and public education (community colleges are great unsung heroes of upward mobility).
  • History tells us there is a tipping point in our economy around the corner. Look at what the next generation values.
  • Immigration will be used to grow the economy as boomers age and the worker:retiree ratio moves to 2:1 in 20 years.
  • Washington is still hesitant about dealing with inequality. Outsiders need to push Washington and hold politicians accountable. Nonprofits are on the front line.
  • 1st step: Need to get big money out of politics so people's voices can be heard.
  • We have a powerful association for older and retired people that will be joined by 70 million boomers. We don't have an association of poor kids who need a voice in Washington.
  • We need to get the message out that the poor is not them, THE POOR IS US. We're in this together. As a country, we need to recapure the shared experience of interdependence that we had when confronted with earlier challenges.

Check out Reich's website and his film Inequality for All.

The final session I attended was a debate on the issue of whether nonprofits should be held to a higher ethical standards than for-profits moderated by Kim Klein. Melissa Breach and Dolores Garay (California Rural Legal Assistance) argued yes and Nayantara Mehta and Marco Montenegro (Mission Economic Development Agency) argued no. The debate was interesting but probably didnt change my mind. The public already holds nonprofits to a higher ethical standard and nonprofits that live up to such standards will have advantages over those that do not. The law holds charity leaders to a different standard than their for-profit counterparts because charities do not have shareholders that have legal rights and standing to hold directors accountable; charities hold charitable assets in trust and directors are charged in part with safeguarding those assets even though the charity's beneficiaries and donors generally have no right to hold the directors accountable. I am in agreement with Mehta's argument that the standard of care should not be higher for a director of a nonprofit than a for-profit.

Updated (11/14/13)


Independent Sector Public Policy Action Institute 2013: Key Issues in Tax Reform



Day Two of the Independent Sector Public Policy Action Institute kicked off with a session on tax reform moderated by Kyle Caldwell, Charles Stewart Mott Foundation, and divided into five hot topics.

Charitable Deduction. Richard Schmalbeck, Duke University School of Law, discussed the availability of a charitable contribution deduction only to itemized filers and the 28 percent cap for high-income taxpayers proposed by President Obama, which he supported as a possible solution.  Sue Nelson, America Heart Association, began by stating that she did not expect major tax reform in the next five years and noted that the sector has diverse levels of interest on the issue of the charitable deduction. 

Non-cash Contributions. Victoria Bjorklund, Simpson Thacher & Bartlett LLP, discussed policy issues surrounding the general 30 percent deduction rule but startled the audience by noting that the IRS has a 100 percent win rate on the denial of deduction cases involving noncash contributions and defective substantiating paperwork (Forms 8283 and 8282). Seth Turner, Goodwill Industries International, Inc., discussed the potential adverse impact on Goodwill of policies that would diminish the incentive of noncash contributions.

UBIT/Commercial Activity. Jill Manny, National Center on Philanthropy & the Law, NYU School of Law, discussed basics of UBIT and the commerciality doctrine and noted the unlikelihood of reform hitting these areas. Exactly how much unrelated business activities are permissible to a charity remains vague, but a bright line test doesn't seem practicable. Angela Williams, YMCA of the USA, emphasized the need for nonprofits to be part of the conversations on tax reform because they are the starting point of conversations for years to come. She mentioned the Business Coalition for Fair Competition's advocacy against earned income activities of nonprofits, reminding the audience of the need for a counterpoint. 

Community and Private Foundation Issues. David Shevlin, Simpson Thacher & Bartlett LLP, discussed the equivalency determination repository; differing conflicts of interest rules for public charities, private foundations, and donor-advised funds (can they be harmonized?); the wide spectrum of investments that don't all fit into legally defined categories; and donor-advised funds (will the still-forthcoming IRS regulations treat them like private foundations?).  Sue Santa, Council on Foundations, echoed the need for strong advocacy by the sector, the importance of drawing a line in the sand to protect against a chipping away of the charitable deduction, and the work of Charitable Giving Coalition. She also noted the proposed tiering of the charitable sector, dividing charities into different classes subject to different tax treatments.

Nonprofit Advocacy and Political Activity. Nina Ozlu Tunceli, Americans for the Arts Action Fund, discussed proposals limiting 501(c)(4) political activity following the recent IRS controversy that range from 0 to 49 percent. Greg Colvin, Adler & Colvin, started by calling on foundations to remove the prohibition against lobbying from their grant agreements. He then noted the problems with the lack of guidance on political intervention (what it is and how much is permitted) and the solution proposed by the Bright Lines Project


2013 Annual Private Foundation National Conference – Day Two


Seattle 3 

Highlights from the morning sessions of Day Two of the 2013 Private Foundation National Conference in Seattle below.

BREAKING NEWS: Greg Colvin's Committee housed within Public Citizen drafted a proposal on clarifying IRS rules on political intervention. See Bright Lines Project (just published yesterday).

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)]

Day One Highlights


2013 Annual Private Foundation National Conference – Day One



I'm in beautiful Seattle for the Fourth Annual Private Foundation National Conference. Day One highlights below:

Primer on private foundations - Jody Blazek

  • Motivation for starting a private foundation must be charitable
  • Special rules and excise taxes apply to private foundations (n/a to public charities)
  • Self-dealing penalties cannot be abated
  • The statute of limitations on acts of self-dealing will not run if such acts were not properly disclosed to the IRS
  • Important to use professionals to understand when and how the minimum distribution requirement can be reduced to 1 percent
  • Less than 100 private foundations make PRIs – see Leveraging the Power of Foundations-An Analysis of Program-Related Investing (IUPUI)
  • See Tax Information for Private Foundations (IRS)

Private Foundation Sector Update - King McGlaughon

  • The majority group of private foundations (other than the top 5-10% in size) increased their giving during the recession, and their founders/benefactors increased their giving to their private foundations during this time
  • Distributions from these private foundations (particularly the $1-10M foundations) from 2008-2011 (through the recession) were about twice the amount of the minimum amounts required
  • These "entrepreneurial foundations" are led by individuals who are driven by their charitable motivations (as opposed to more "institutional foundations" that are often set to operate in perpetuity)

Effectively Understanding and Evaluating Grantee Indirect Costs – Panel

  • The true cost of running a program includes its direct cost and its fair share of indirect cost
  • There is no single definition of "indirect cost"
  • Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective
  • Indirect costs include both management & general costs AND shared program costs that cannot easily be identified with a specific program or cost objective
  • An indirect cost rate is not a measure of program efficacy
  • Fundraising for a shortfall in recovery of indirect costs is very difficult
  • Because of the way government reimbursements of indirect costs work, raising private foundation grants that do not pay indirect costs can result in the grantee being in a worse financial situation than if it did not accept the foundation grant
  • Example of the problem of relying on a single metric and not reviewing multiple metrics in context: Land trust: raises $1M and buys conservation land for $1M. While 100% of funds raised went to directly advance its charitable purpose, its programmatic expense ratio is 0%.

Trends in Philanthropy – Aubrey Haberman

  • Proportion of Northwest dollars by subsector in 2010 included: 30% education; 18% human services; 17% international; 12% public benefits; 8% health; 7% environment; 7% arts; 1% religion

Trends in Family Philanthropy – Craig Muska

 Excess Business Holdings Rules – Jeffrey Haskell

  • Excess business holdings (EBH) rules limit the holdings that a private foundation, together with its disqualified persons (e.g., substantial contributors, insiders like directors and officers, and related persons and entities), may have in a business enterprise.
  • The EBH rules are meant to prevent the shifting of a foundation's focus away from its charitable/exempt activities and a foundation's unfair competition with for-profit businesses by taking advantage of a much lower tax rate (1% or 2%).
  • See Taxes on Excess Business Holdings (IRS)

Self-dealing Case Studies – panel

  • Private foundation self-dealing analysis: (1) Is there value flowing from the foundation to a disqualified person? (2) Is there an exception to self-dealing rules applicable? (3) Is the amount of the transaction excessive? (4) Does the transaction advance the foundation's charitable/exempt purposes?
  • Foundation credit cards used for personal purposes creates a self-dealing problem. Be very careful with policies on credit card use (including enforcement of such policies).
  • Reimbursement to a disqualified person may be permissible or may be a self-dealing transaction subject to penalties. Consider whether the transaction advances the foundation's charitable/exempt purposes; whether it was reasonable; whether the purchase by the individual was authorized; whether the individual was acting as an agent of the foundation; and/or whether the individual was acting as a lender to the foundation?
  • If a disqualified person leases space to a foundation for free (which is okay in and of itself) but is indemnified for fire caused by a foundation employee, the indemnification may be a prohibited self-dealing transaction.
  • If a disqualified person leases space to a foundation for free (with respect to rent), but the foundation must pay for associated services, the foundation should pay such service fees directly to vendors. If it pays the foundation, there may be a violation of the self-dealing rules.
  • A private foundation may pay a family management company for personal services (like administrative management) without violating self-dealing rules. However, janitorial and maintenance services are not covered under this exception.
  • A sponsorship paid 90% by a foundation and 10% by a disqualified person that results in benefits used by a number of people including the disqualified person may be a violation of the self-dealing rules (to the extent that the disqualified person availed himself of a benefit that would not have accrued without the foundation's payment).

These are short summaries of statements made by speakers at a conference regarding highly complex rules that should be discussed with an attorney, CPA or other qualified professional.

Day Two Highlights


Council on Foundations 2013 Annual Conference



The Council on Foundations 2013 Annual Conference was held in Chicago on April 7-9.  Here are some my favorites resources coming out of the conference:

The Opening Plenary, A National Philanthropic Dialogue on Safe and Healthy Communities, was accompanied by the following Session Materials: The History of Violence as a Public Health Issue from Centers for Disease Control and Prevention.

The session Coalition Building and Collaboration  examined the role of foundations in building coalitions and fostering collaboration in communities. See Early Learning Challenge Collaborative Presentation Slides.

Monday's Breakfast Plenary, Food Justice: An Issue for All, sparked an array of tweets emphasizing that food justice is social justice. "Our food system is based on exploitation of land and labor" – LaDonna Redmond. See Promoting Sustainable Food Systems Through Impact Investing.

One of my favorite speakers Emmett Carson spoke at the session Major Social Justice Issues of the Day: How Can Philanthropy be a Leader in Tackling Them? Carson instructed attendees to examine their mission and vision statements and see that they're all social change organizations. He also stated we need to get past the language; social justice is about systemic fairness, equity, opportunity and access. Community foundations can provide social justice leadership and raise funds.

Tuesday's Breakfast Plenary, Risk Taking, featured the Case Foundation's What it Means to Be Fearless video. Judith Rodin, President of The Rockefeller Foundation, emphasized that the question isn't whether to take the risk, it's in managing the risk. Due diligence on the front-end and real-time monitoring are the keys. Rodin also noted that the risk is not about losing the money, it's about not realizing the potential. Also, foundations should aspire for a balanced portfolio; everthing can't be risky.

The Conference's Closing Lunch Plenary – Activist Philanthropy: Challenging the Status-Quo—Change the Questions, Change the World – featured a panel including Paul Farmer, Chief Strategist and Cofounder, Partners In Health, and Eve Ensler, Founder , V-Day Foundation. While you consider that 1 out of 3 women on the planet will be raped or beaten in her lifetime, check out the One Billion Rising livestream.

Some favorite tweets and blogs from the Conference:

Every $1 invested in civic engagement & policy provides a return of $115 in community benefits: [@urbandata]

Learning: The “Third Heat” of Impact Investing—and All Grantmaking? #impinv #COF13 @chriscardona [@COF_]

Gov Pat Quinn @COF_ annual conference announces IL Social Impact Bond prgm to bring effective programs to scale; improve innovation [@COF_]

"Risk tolerance and embracing failure requires a long term view." Kelly Ryan, @incourageCF [@msmithDC]

Why Journalism Matters to PhilanthropyRick Cohen

Why Should Foundations Communicate? Make Your Mission ViralRegan Gruber Moffitt

Dispatch From the Frontlines: Council on Foundations' 2013 Annual ConferenceMichael Seltzer

Media Policy: think globally, act locally – Knight Foundation


Emerging Practitioners in Philanthropy 2013 National Conference


"Emerging Practitioners in Philanthropy (EPIP) is a national network of foundation professionals and social entrepreneurs who strive for excellence in the practice of philanthropy. Our mission is to develop emerging leaders committed to building a just, equitable, and sustainable society. EPIP exists to ensure that emerging foundation professionals are effective stewards of philanthropic resources and all social entrepreneurs reach their potential as leaders." – About EPIP

EPIP held its 2013 national conference in Chicago from April 4-6. The theme: lead. I was impressed with the words of Executive Director Rahsaan Harris: "We all have opportunities to make a difference in the world. Leadership doesn’t come from a job title. It isn’t conferred through an educational degree. Leadership comes from a willingness to meet today’s challenges in your community and the world at large."

Here are links to two excellent graphic recordings of the conference from Ink Factory:

Graphic Recording One

Graphic Recording Two

One of the themes from the conference: collective leadership. Here's a slideshare on the subject from the 2010 GEO Conference and a secret sauce graphic from Leadership Learning Community.

Some favorite tweets from the conference:

"The great diversity at EPIP13 doesn't reflect foundation boards or the communities to which foundation $ are directed." – John W Rogers Jr [@lauratomasko]

Often we tackle social change in silos – but individuals don't experience life that way. Work within the gaps to bridge networks [@elizsullivan]

#Funders encouraged to value qualitative outcomes as much as quantitative.  Collecting data from transient, poor is hard! [@VillanuevaEdgar]

Challenges in collective impact: "In an effort to change the system, you can't forget that the system still exists. [@nicolegulotta]

Top 5 #philanthropy strategies for #nextgendonors : 1 due diligence 2 root causes 3 impact 4 systemic change 5 peer recommendations [@church01]

"It's easier for individuals to organize without organizations." Has huge implications for the nonprofit ecosystem [@elizsullivan]

#fact Nat'l survey: 45% of young profs in the NP sector plan to leave someday. Of those, 90% said that this is due to burnout. [@danielletorain]

Daniel Lee sharing that grantees are looking like contractors to grantors more and more. Is this a good thing? [@marvinwebb]

Key lesson when supporting community alternatives to violence: Listen to the people most affected by what you are working to change [@IHRFG]

John Rogers: need dynamic leaders to insist on culture of inclusion in orgs to be welcoming to people of color. [@jaclyn0812]

Just 10% of foundation grants are focused on communities of color. Just 11% of foundation Trustees are people of color [@dcmarla]

Inclusivity = better productivity and improved decision making. Diversity in perspective is important. [@julietinla]

Mention of Atlantic article citing wealthy giving less than those w/ fewer means. Hypothesis: wealthy not regularly exposed to needs [@lauratomasko]