Extreme Legal Makeover Grantmaking Edition Kelly Shipp Simone

Extreme Legal Makeover: Grantmaking Edition Kelly Shipp Simone Deputy General Counsel Kelly. Simone@cof. org February 8, 2004

Agenda § Grants from… § Designated funds § Agency endowments § Donor advised funds § Grants to… § Individuals § Non-charities § International organizations February 8, 2004

Grants from…. February 8, 2004

Designated Funds § Typical: • Est. to benefit Section 501(c)(3) public charities • Provide periodic distributions • May be endowed § Extreme: • • Est. to benefit other organizations (non-charities) Provide periodic distributions BUT Distributions can’t be automatic Only for charitable purposes: grant proposals, written grant agreements & periodic reporting February 8, 2004

Designated Funds § Question --- Can a donor later change the designated agency? § Answer: • No • Possible release of restriction under UPMIFA (no new restrictions) February 8, 2004

Agency Endowments § Typical • Endowment est. by a public charity for its own benefit • Assets contributed to and owned by community foundation • FAS 136 dictates accounting treatment § Extreme: • Unendowed possible • “Agency fund” • No unilateral right to withdraw February 8, 2004

Donor Advised Funds § Extreme Typical practice • No bifurcation • What is it? Splitting charitable & non-charitable portions • Examples: • Hospital fundraiser: Ticket $100, FMV of dinner $40 • College Alumni Association: Contribution allows access to athletic tickets February 8, 2004

Donor Advised Funds § Extreme Typical practice • No pledges • Can’t make grant to fulfill a personal pledge of donor, advisor or related party • Community foundation may make pledge from donor advised fund CAUTION: Make sure the money is in the fund! February 8, 2004

Donor Advised Funds § Extreme Typical practice Grants to supporting organizations • Not enough to determine whether an organization is a public charity • Must determine what type of charity • Sources: IRS business master file, IRS letter of determinations, third party sources • If grantee is a supporting organization, expenditure responsibility may be required February 8, 2004

Public Charities Public Charity Section 509(a)(1) Traditional Organizations 170(b)(1)(A)(i) 170(b)(1)(A)(iii) 170(b)(1)(A)(iv) 170(b)(1)(A)(vi) Churches Schools Hospitals Support organizations to schools Governmental Units Publicly supported organizations (including Community Foundations) Section 509(a)(2) Section 509(a)(3) Section 509(a)(4) Gross Receipts Organizations Supporting Organizations Testing for Public Safety Organizations Type III Functionally Integrated Non-functionally Integrated February 8, 2004

Grants to…. February 8, 2004

Individuals § Typical • Scholarships § Extreme: • Emergency hardship • Disaster relief • Awards February 8, 2004

Disaster Relief and Hardship Assistance § Must benefit a charitable class § Establish a process for determining who will receive assistance and permissible types of assistance § Working with corporations to assist employees? • Carefully follow rules for disaster relief established post-9/11 to provide relief to employees in “qualified disasters” • Other hardship relief guidelines February 8, 2004

Grants to Individuals: Awards § Recognize past achievement, not intended to finance future activity § Award must serve a charitable purpose § Recipients selected in objective and nondiscriminatory manner February 8, 2004

Non-charities § Typical • Grants to Section 501(c)(3) public charities § Extreme: Non-charity grantees • Tax-exempt organizations that are not charities (garden clubs; chambers of commerce) • For-profit entities • New public charities that have not obtained Section 501(c)(3) status from the Internal Revenue Service February 8, 2004

Non-charities § Rules: • Must be exclusively for charitable purposes • From donor advised funds: “expenditure responsibility” required • From other funds: Adequate documentation of charitable purposes February 8, 2004

Non-charities Expenditure Responsibility Steps: § Pre-grant inquiry § Written grant agreement with special provisions § Segregation of funds if non-charity § Follow-up reporting from grantee § Disclosure on Form 990? February 8, 2004

International Organizations § Determine whether organizing documents permit and consider policy issues § Donor advised funds: • Expenditure responsibility or • Equivalency determination (process to document that grantee is equivalent to US public charity) § All other funds: • • Obtain documentation Comply with counter-terrorism guidelines Execute written grant agreement Obtain follow-up reporting February 8, 2004

International Organizations § Equivalency Determination • Good faith determination of equivalence to US charity • Basis • Affidavit from potential grantee • Opinion of legal counsel February 8, 2004

International Organizations § Equivalency - Documentation • • Founding documents Detailed description of purposes Dissolution provisions Restrictions in legal or founding documents on: • • Private benefit Non-charitable activities Lobbying Participation in political campaigns • Detailed financial information (w/ some exceptions) February 8, 2004

Questions February 8, 2004

Additional Resources § Articles on grantmaking issues: www. cof. org/legal § International Grantmaking: www. usig. org § Pension Protection Act of 2006: www. cof. org/ppa § Council on Foundations Legal Services Department: legal@cof. org February 8, 2004