Trustee Liability & Whistleblowing

144283240(1)2016 Salk Institute Breakthrough Biomedical Philanthropy Seminar, La Jolla, California

It is always exciting to take part in the Salk Institute’s annual two-day summit, which couples the worlds of philanthropy and science through featured presentations and panel discussions.  The topic I presented was Trustee Liability and Whistleblowing, specifically focusing on state and federal standards of conduct applicable to directors and trustees of private foundations.  This paper further underscores best practices for these decision makers, highlighting tools to limit liability and emphasizing the importance of diligence in carrying out duties and responsibilities.

Grantmaking Presentation at Dallas Nonprofit Study Group

Ripples in a pond.

Grants creating impact.

I am fortunate to work with many private non-operating foundations (both family foundations as well as independent foundations) with varied grantmaking programs. Some of these foundations make grants only to public charities while others have scholarship programs. Some make grants to governmental entities for public projects while others focus their efforts on international aid. What is consistent across all of these organizations, is their need to satisfy their minimum distribution requirement under Section 4942 of the Internal Revenue Code (foundations must generally distribute at least 5% of the aggregate fair market value of their nonexempt use assets on an annual basis in qualifying distributions) and their desire to avoid the making of taxable expenditures.

A couple of days ago I had the opportunity to speak to the Dallas Bar Association’s Nonprofit Study Group on grantmaking activities of private foundations with a specific focus on qualifying distributions (when grants constitute qualifying distributions, when they don’t, and when out of corpus rules must be followed) and taxable expenditures (when grants constitute taxable expenditures, when they don’t, and when special rules such as expenditure responsibility must be followed). We had a good discussion particularly related to what I view as nontraditional grants, such as grants to supporting organizations, grants to non-501(c)(3)s for charitable purposes, etc. A copy of my reference paper can be found here and a copy of the PowerPoint slides can be found here.

The Dallas Bar Association’s Nonprofit Study Group meets at noon on the 3rd Wednesday of every month (with summers off) in the Rain Room at the Belo Mansion in Dallas. If you are a nonprofit professional in the Dallas/Fort Worth area, I encourage you to check it out.


Treasury Issues New Examples of Program-Related Investments

Last month the Treasury Department and IRS issues an Advanced Notice of Proposed Rulemaking which would modify the Treasury Regulations to provide new examples of program-related investments (PRIs) for private foundations.  This is a welcome development as these examples provide further clarity with respect to the breadth of PRIs.

While foundations generally accomplish their charitable purposes (and satisfy their payout requirement) by making grants to public charities, the rules are actually much broader and include (among other qualifying distributions), the making of PRIs.  PRIs are an alternative form of financing to flow capital to charitable programs, a form that allows for (and anticipates) repayment thereby enabling reinvestment of that same capital and other charitable programs.  A program-related investment is an investment that has a primary purpose of accomplishing one or more charitable purposes, no significant purpose of producing income or appreciation of property, and no purpose to accomplish prohibited political purposes.  The Treasury Regulations have for the past 40 years provided ten examples of program-related investments.  Because these examples have not necessarily kept pace with the changes in forms of financing and opportunities for the making of PRIs, the new examples were needed.  These additional examples demonstrate the use of PRI’s in other contexts (including international contexts) and with other forms of financing (loans, equity investments, credit enhancement, etc.).  The flexibility of PRIs and their allowance for reinvestment and recirculation of capital make PRIs an attractive complement to a foundation’s standard grantmaking activities.

The new examples (which can be relied upon now) can be found at this link.  For a more detailed discussion on the rules related to program-related investments see the my paper on PRI’s presented in August 2011 at the State Bar of Texas’s Governance of Nonprofit Organizations Course.