Philip M. Purcell, JD Consultant for Philanthropy Copyright All rights reserved

Top Ten (or) More 1. 2. 3. 4. 5. 6. Donor Advised Funds Expenditure Responsibility Fiscal Sponsorship Scholarships Hybrid Funds Hardship Assistance 7. Mission and Investments 8. Changes to Fund Agreements 9. Fundraising Potpourri 10. Good Governance 11. Cemeteries 12. Other?

1. Donor Advised Funds DAFs cannot fulfill pledges DAF cannot pay grant that qualifies donor/advisor for financial benefit avoid bifurcation IRA rollover cannot be paid to a DAF Avoid field of interest fund acting as a DAF Successor advisors

2. Expenditure Responsibility Basic: Assure charitable status: IRS determination letter, Secretary of State (current nonprofit status), IRS Exempt Check (status), Guidestar review (990) Beware 1023 EZ filers Five steps of ER: 1. Pre-grant inquiries, 2. Grant agreement, 3. Separate account, 4. Regular reports, 5. 990 reporting

WHEN IS EXPENDITURERESPONSIBILITY REQUIRED? Section 501(c) Tax Exempt Organizations Mutual Benefit Orgs Public Charities 501(c)(3) Private Foundations 501(c)(3) 501(c)(4)-Civic leagues 501(c)(6)-Business leagues, chambers of commerce, real estate boards 501(c)(7)-Social & recreational clubs 501(c)(8)-Fraternal benefit societies, associations. 501(c)(13)-Credit unions 501(c)(19)-Veterans organizations Traditional Charities 509(a)(1) No Public Support Test: Hospitals Schools Churches Government Public Support Test: Community Foundations and other publicly supported charities Publicly Supported Charities 509(a)(2) Public Support Test required Type 1 Supporting Organizations 509(a)(3) Type 2 Type 3 Public Safety Organizations 509(a)(4) Expenditure responsibility required. Expenditure responsibility may be required. Functionally Integrated Non-functionally Integrated Expenditure responsibility not required.

3. Fiscal Sponsorships Partnering with unincorporated associations or individuals for charitable project support Expendable/pass-through agreement for fund management issues: name of fund, fees, spending/investment, etc. Fiscal sponsorship agreement for administration issues: donorinitiated fundraising, receipt of gifts, insurance coverage, publicity, grant procedures and documentation, etc.

4. Scholarships Specific exception to donor advised funds per IRC Sec. 4966 Donor must be minority vote on committee with decision controlled by community foundation board of directors Charitable criteria of scholarship approved by board, types of acceptable criteria Corporate scholarships private foundation requirements Pay awards to schools delegates reporting duties

5. Hybrid Funds Avoid combining two or more fund types in one fund/agreement. Example: Scholarship and donor advised funds Confusion relative to priorities and payments Potential for violation of donor advised fund rules: no pledge fulfillment, no receipt of IRA charitable rollover gifts Separation of purposes with separate agreements and accounts

6. Hardship Assistance Hardship assistance, disaster relief, Good Samaritan funds Consider use of intermediaries: Red Cross, Salvation Army, United Way, etc. to delegate oversight and reporting duties Employer sponsored funds Consult IRS Publication 3833 (Disaster Relief) and IRS training videos at www.irs.gov

7. Mission and Investments Prudent Investment Standard: evolution of the law - including UPMIFA PRI: Program Related Investments grants to fulfill mission MRI: Mission Related Investments portfolio investments to fulfill mission SRI: Socially Responsible Investing specific screens on investment ESG: Environment, Social and Governance specific screens on investment

PRI Examples 1. Low-interest or interest-free loans to needy students, 2. High-risk investments in nonprofit low-income housing projects, 3. Low-interest loans to small businesses owned by members of economically disadvantaged groups, where commercial funds at reasonable interest rates are not readily available, 4. Investments in businesses in low-income areas (both domestic and foreign) under a plan to improve the economy of the area by providing employment or training for unemployed residents, and 5. Investments in nonprofit organizations combating community deterioration. 6. Social impact bond a grant to a nonprofit organization to provide the capital required to undertake a charitable program. Then another entity such as a government agency would repay the foundation the value of the grant (plus interest) if the nonprofit meets certain preidentified goals of success through the newly funded program. 12

8. Changes to Fund Agreements Requirement of variance power Application of UPMIFA requires respecting donor intent UPMIFA references cy pres standards: impossible, impractical illegal, etc. Follow the procedure of your state UPMIFA statute 1. With consent of living donor 2. Notification of attorney general 3. Court approval if donor disagrees or deceased

9. Fundraising Potpourri: Asset Gifts Examples: Real estate, S stock or other business interests, tangible personal property Due diligence: liability, lawsuits, insurance, taxes, management issues Consider use of supporting organization and/or LLC to avoid liability Avoid pre-arranged sales Gift receipt describe (not value) the property

9. Fundraising Potpourri: Gift Annuities Gift Annuities: 1. Follow rates recommended by American Council on Gift Annuities (ACGA) See www.acga-web.org 2. Register in appropriate states Consider early termination to avoid underwater annuity programs

9. Fundraising Potpourri: Other Avoid serving as trustee of charitable trusts Promote IRA charitable rollovers: 1. Not to donor advised funds 2. Direct transfer from IRA by check or wire Adhere to gift receipt rules see IRS Publication 1771 Register for fundraising in applicable states

10. Good Governance Independent Sector Guidelines for Good Governance and Ethical Practice Compliance with UPMIFA and state nonprofit law: prudent care standard Avoid excess benefit transactions and intermediate sanction penalties Assure insubstantial lobbying and no political campaigning

11. Cemeteries Cemetery companies are tax exempt per IRC Section 501(c)(13) - not eligible to become a designated fund to award grants for general administrative expenses But eligible for grants for ONLY charitable purposes: beautifying the community, improving public areas, replacing deteriorating headstones, historic preservation, educating the community about history Note: Gifts directly to cemetery funds qualify for an income tax (but not estate tax) charitable deduction per Rev. Rul. 77-385.

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