What s New, Hot and/or Mildly Interesting: Legal Update for Corporate Foundations

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2 What s New, Hot and/or Mildly Interesting: Legal Update for Corporate Foundations Clay B. Tousey III Fisher, Tousey, Leas & Ball clay.tousey@fishertousey.com Riverside Avenue, Suite 600 Jacksonville, Florida 32203

3 2016 Hot Topics

4 2016 Hot Topics

5 2016 Hot Topics Good news? No significant new federal statutes specifically affecting corporate foundations or private foundations, more generally.. No significant new federal regulations specifically affecting corporate foundations. All-in-all, a relatively quiet year in this area of the world.

6 2016 News

7 2016 News New FASB Standards Updated Financial Accounting Standards Board released on August 2016 regarding non-profits. Changes effective for first fiscal year beginning after December 15, Purported goal is greater clarity and transparency. Simplifies asset reporting into two categories: restricted and unrestricted ( net assets with donor restrictions and net assets without donor restrictions ). Eliminates the distinction between permanently restricted and temporarily restricted. Enhanced disclosures of several items, including: how donor or governing restrictions affect the use of resources, management of liquid assets and ability to meet one-year cash needs (i.e., cash flow), classification of expenses by both natural classification and functional classification (e.g., fundraising) in one location, method of allocation of expenses between support and programs, and underwater endowments (meaning less than original gift or required retained amount, not just bankrupt endowments). Investment returns must be reported net of external and internal investment expenses.

8 New FATF Policy 2016 News Updated international Financial Action Task Force counter-terrorism recommendations regarding non-profits announced at the June 2016 session. Updated Recommendation 8 removes characterization of non-profits as particularly vulnerable: to terrorist abuse. Instead, acknowledges that non-profits may be at risk and recommends a risk-based approach with respect to counter-terrorism financing measures in member countries. Ultimately reflects greater respect of due diligence and care taken by non-profit organizations and an important steps in setting the tone for worldwide treatment of the sector, including in the United States. Changes effective for first fiscal year beginning after December 15, 2017.

9 Changes at the IRS 2016 News Publically-discussed changes to organizational structures and procedures, largely in light of 501(c) (4) brouhaha and related Congressional scrutiny. Overall: less discretion, more objectivity; less on the front-end, more on the back-end need to pay more attention to their 990s going forward. More universal and objective (i.e., automated) review of 990s. Particular areas of focus ( perhaps ): transactions with officers and directors, conflict of interest policies, Schedule L, and general matching up of reporting. Approximately 190 queries. Split between determinations and examinations. Has resulted in transfer of employees from Exempt Organizations division (determinations) to Chief Counsel s division (examinations). Increasing internal, non-public information sharing at IRS via K-Nets. Two known topics to date: private foundations and UBIT.

10 2016 News Potential Donor Advised Fund Regulations Continuing discussions regarding forthcoming additional regulations for donor-advised funds. Particular areas of focus/concern: (1) termination of private foundation into DAFs; and (2) treatment of gifts from DAFs for the public support test. For terminations, focus on the material restriction test ( freely and effectively employing the transferred assets in furtherance of its exempt purpose ) and ability of the terminating foundation to place limitations of the recipient organization. For gifts from DAFs, focus appears to be on private foundations that receive all or substantially all of their support from DAFs. Implementation of a rule curtailing the safe harbor currently given to DAFs would be quite difficult for DAFs and foundations, including an unprecedented look-through of DAF donors and/ or subjecting DAF contributions (but not other contributions from the sponsoring organization?) to the 2% limit. Stay tuned if applicable

11 Mildly Very Interesting

12 Mildly Very Interesting

13 Mildly Very Interesting Self Dealing! (Only applicable for private foundations.) Don t do it! Don t purchase items for ultimate benefit of disqualified persons; don t make payments to thirdparties for the ultimate benefit of disqualified persons. Reminders no leases (even for free), no loans, no sales, no goods or services (except for free or on public terms). Headline risk and education of the media by current events.

14 Disclosure! Mildly Very Interesting Must make available for public inspection or a take home copy Form 1023 (Application for Recognition) and any relevant IRS responses and relevant correspondences. Also Form 990(s) and all schedules, attachments and supporting documents for three years following due date (as extended of the return). This includes 990-T. Only exceptions to the above names and addresses of contributors (is required for private foundations), K-1s and Schedule A of Form 990-BL (of course, that s the Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons ). May charge a reasonable fee for providing copies, which is generally defined as the amount charged by the IRS for providing copies (currently $0.20/page). May fulfill requirement by making the documents widely available - must be on a readily accessible website, either its own or on a database of exempt organization documents maintained by another organization; must be in an easily accessible format (.pdf, e.g.); must exactly reproduce the image of the original document; and must allow an Internet user to access, download, view and print the posted document without the payment of a fee.

15 Mildly Very Interesting Federalism! Increasing role of state regulators. State disclosure requirements. (New York, e.g., still requires private foundations to publish an annual notice that their 990-PF is available for inspection.) State charitable solicitation registrations. State conflict of interest policies and acknowledgements. Again, the news has helped educate the public and empower the regulators.

16 Mildly Very Interesting Mergers! And Acquisitions! We know that the assets of the corporate foundation are legally distinct from the assets of the acquired corporation, but do the investment bankers and deal lawyers? Effects of transactions on donor restrictions. Pre-transaction material communication limitations ( dark periods ) and related confidentiality concerns/restrictions. Post-transaction changes to foundation governance and updates to governing documents. Improper non-exempt benefit and headline risk Part 2.

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