Legal 101: Grantmaking Compliance and Best Practices Kelly Shipp Simone Deputy General Counsel Council on Foundations Grants Managers Network Conference Seattle, Washington March 18, 2011
Agenda Grants to charities Publicly supported charities Supporting organizations Religious institutions Private foundations Grants to government Grants to non-charities Grants to international organizations Grants to individuals (scholarships, awards, hardship) Grants for advocacy
Grants to Charities: Basics Verify IRS Status Sources: IRS Determination Letter IRS Publication 78 (www.irs.gov) IRS Business Master File Third-party provider (e.g., GuideStar)
Grants to Charities: Basics Determine public charity v. private foundation Other documentation? Form 990? Audited financials? Proposal?
Grants to Charities: Supporting Organizations If grant from private foundation or donor advised fund, determine if public charity is a supporting organization (i.e. Section 509(a)(3) organization) Special rules applicable to grants from private foundations and donor-advised funds Grants to some supporting organizations require expenditure responsibility Grants to some supporting organizations do not count as qualifying distributions for private foundations
Public Charities Public Charity Section 509(a)(1) Traditional Organizations 170(b)(1)(A)(i) 170(b)(1)(A)(ii) 170(b)(1)(A)(iii) 170(b)(1)(A)(iv) 170(b)(1)(A)(v) 170(b)(1)(A)(vi) Churches Schools Hospitals Support organizations to schools Governmental Units Publicly supported organizations (including Community Foundations) Section 509(a)(2) Gross Receipts Organizations Section 509(a)(3) Supporting Organizations Type I Type II Type III Functionally Integrated Section 509(a)(4) Testing for Public Safety Organization s Nonfunctionally Integrated
Grants to Charities: Religious Institutions May be part of group exemption Not required to have determination letter Multi-part IRS test for determining whether an organization is a church Integrated auxiliaries (brotherhoods, youth groups) part of the organization More loosely affiliated groups hospitals, nursing homes should have 501(c)(3) letters
Grants to Private Foundations From private foundations Require expenditure responsibility To private non-operating foundation: out-of-corpus rules must be followed to count grant towards minimum distribution requirement From public charities Grants to private operating foundations generally ok Grants to private non-operating foundations can cause concern
Grants to Government Examples: Schools, libraries Must be for an exclusively public purpose No special documentation or expenditure responsibility required
Grants to Non-charities Examples: Tax-exempt organizations that are not charities (garden clubs; chambers of commerce) For-profit entities Rules: Private foundations and donor-advised funds: expenditure responsibility required Must be exclusively for charitable purpose Documentation critical grant agreements and followup reporting
Expenditure Responsibility Pre-grant inquiry Written grant agreement with special provisions Segregation of funds if non-charity Follow-up reporting from grantee Disclosure on Form 990 or Form 990-PF
International Grants Determine whether organizing documents permit and consider policy issues Private foundations and donor-advised funds: Expenditure responsibility or Equivalency determination (process to document that grantee is equivalent to US public charity) All grantmakers: Obtain documentation Comply with counter-terrorism guidelines Execute written grant agreement Obtain follow-up reporting
Grants to Individuals: Scholarships Defined: Grant to assist individual pursue education, achieve an objective, or develop a skill Charitable class Objective and non-discriminatory basis Many criteria acceptable (geographic; school or interest) No benefit to persons making selection Private foundations: IRS pre-approval required for grants for travel or study Special rules for private foundations providing assistance to corporate employees or their dependents
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 No IRS advance approval needed unless awarded by a private foundation for the purpose of study and/or travel
Grants to Individuals: Scholarships and Awards Donor-advised fund rules No grants to individuals Scholarship fund will not be considered donoradvised if: Donor does not control selection committee Donor s advice is provided only as member of committee Sponsoring organization appoints selection committee Procedures are approved in advance by board Procedures are objective and non-discriminatory
Disaster Relief and Hardship Assistance Must benefit a charitable class Establish a process for determining who will receive assistance and permissible types of assistance Corporate private foundations Carefully follow rules for disaster relief established post-9/11 to provide relief to employees in qualified disasters Other hardship assistance to employees generally not permissible
Grants for Advocacy General definition of lobbying Encouraging general public to communicate with legislators about specific legislation Expressing a view to legislators about specific legislation Not all policy work is lobbying
Grants for Advocacy Earmarked grants: Public charities may earmark grants for lobbying Earmarked grants count against a public charity s lobbying limits Private foundations may not earmark grants for lobbying Not required to prohibit the use of grant funds to public charities for lobbying unless grant requires expenditure responsibility
Grants for Advocacy General Support Grants Not counted as lobbying even if grantee has lobbying activities No written or oral agreement that it will be used for lobbying
Grants for Advocacy Specific Project Grants Not a lobbying expenditure if - Fund up to the non-lobbying amount of the project budget Reasonable reliance on budget from grantee No earmarking of funds for lobbying activity Project Budget Total Anti-hunger project: $100,000 Lobbying: $ 10,000 Grant Request: $ 50,000
Additional Resources Articles on grantmaking issues: www.cof.org/legal grantmaking International grantmaking resources: ww.usig.org Pension Protection Act of 2006: www.cof.org/ppa
QUESTIONS
Council Contacts Legal Services legal@cof.org Janne Gallagher janne.gallagher@cof.org 703-879-0711 Maya Harris maya.harris@cof.org 703-879-0714 Dan Rader daniel.rader@cof.org 703-879-0719 Kelly Simone kelly.simone@cof.org 703-879-0716 Kristy Tsadick kristy.tsadick@cof.org 703-879-0718 Public Policy Andrew Schulz andrew.schulz@cof.org 703-879-0715 Chatrane Birbal chatrane.birbal@cof.org 703-879-0689