Washington Snapshot - March 11, 2016

News from the Hill

Chairman of House Veterans' Affairs Committee to Retire from Congress

Representative Jeff Miller (R-FL-1) announced this week that he will not seek re-election at the expiration of his current term in office. First elected to the U.S. House of Representatives in 2001, Miller serves as Chairman of the Committee on Veterans' Affairs and is a member of the both the Armed Services Committee and the Permanent Select Committee on Intelligence.

Working to help foundations leverage their support of veterans and their families with strategic, collaborative funding is a key area of work for the Council. The Veterans' Affairs Committee has been and will continue to be an important partner in this work.

Executive & Regulatory News

IRS Issues Procedure to Gather Input from Sector

The IRS recently issued Revenue Procedure 2016-19 (the Industry Issue Resolution Program), which outlines a process for identifying and resolving “disputed or burdensome tax issues that are common to a significant number of [tax-exempt] entities.”

This process would involve the formation of a joint working group comprised of representatives from both the field and the IRS to address issues of concern for a significant group of taxpayers through pre-filing guidance rather than post-filing examination.

The Council is exploring opportunities for involvement with the IRS as a part of this new process.

Trending in Legal Affairs

Agency Funds: Invading Principal when Third Party Donors are Involved

Many community foundations manage agency funds—a type of fund that is established by another public charity in the community, and are often endowed. Typically, the fund agreements include provisions that allow the public charity ‘agency’ to withdraw from the fund’s principal at any time (as a means of having a safety net for the agency during times of emergency or financial hardship).

When an agency establishes this type of fund with a community foundation, anyone can independently make a contribution to that fund. The question becomes, if the agency wishes to withdraw from the principal, may any of the independent contribution be touched?

This was exactly the case for a community that recently contacted the Legal Affairs team, inquiring how to handle this situation.

Legal Affairs advised that the intent of the third-party donor will be the determining factor in this situation. Certainly the community foundation’s board can take action through variance power to modify restrictions on the fund when there is a need, but the original third-party’s donor intent must be preserved.

Since this can be a tricky matter, the Legal team advised further with several considerations to make in an instance like this:

• It is important to understand the third-party donor’s explicit intent when they make the contribution to the agency fund, particularly regarding whether or not the gift is to be endowed;
• A community foundations in states with an Attorney General who is aggressive about charity enforcement may want to handle this matter more conservatively; and
• The state’s Uniform Prudent Management of Institutional Funds Act (UPMIFA) allows for the release or modification of a restriction on an endowed fund (every state in the U.S. has adopted UPMIFA except Pennsylvania).

But, if there is any uncertainty about the third-party donor’s intent, it would be best to clarify with that donor prior to taking any action with the fund.

For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.

Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Happening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

Positive News on Proactive Nonprofit Legislation

While defensive policy work normally takes up most of the time of advocates, including those representing philanthropy and nonprofits, important forward progress is being made on several nonprofit initiatives across the country. Here is a small collection of positive developments:

• Giving Incentives: A Michigan Senate Finance Committee this month approved a package of bills that would restore Michigan's charitable giving tax incentives that were taken away in 2011. The bills in the package of interest are SB 461 (public art, radio, colleges, universities, and museums), SB 462 (food banks, homeless shelters, and community foundations), and SB 464 (donations of automobiles).
• Sales Tax Exemption: Legislators in Idaho are once again considering exempting Girl Scout cookies from sales taxes. The bill applies to food sales by Boy Scouts and Girl Scouts. If successful in Idaho, Hawai`i would be the only state that taxes these mission-related fundraising sales.
• Audit Threshold: Following a trend across the states, a Maryland bill proposes to raise the audit threshold from $500,000 in gross income from charitable contributions to $750,000 for nonprofits that must submit an audit with their annual registration statement files with the Secretary of State. See the National Council of Nonprofits’ Nonprofit Audit Guide for a state-by-state listing of audit requirements.

Philanthropy News and Op-Eds

Charitable Giving Coalition Releases Statement on Clinton Tax Plan

As our readers know, the Charitable Giving Coalition is a group of organizations dedicated to preserving the charitable deduction—of which, the Council has been a long-time, active member.

The Coalition issued a statement last week in response to an analysis by the Tax Policy Center (a joint project of Urban Institute and the Brookings Institution) of presidential hopeful Hillary Clinton’s proposed tax plan. The statement expresses appreciation that Secretary Clinton’s plan would exempt the charitable deduction from the proposed cap for the value of itemized deductions to 28% adjusted gross income.

In June, the Coalition sent letters to every officially declared candidate encouraging them to preserve the full value of the charitable deduction.