Top 10 Ways Corporate Grantmakers Stay Out of Trouble

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Top 10 Ways Corporate Grantmakers Stay Out of
Trouble

• June 10, 2005

Andrew Schulz Deputy General Counsel Council on
Foundations
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Key Issues

• Self-Dealing
• Conflicts of Interest
• Quid Pro Quo Grants
• Matching Gifts
• Tickets to Fundraisers
• Sharing Resources
• Grants to Individuals
• Scholarships
• Grants to Non-Charities
• Grants Outside the US

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Self-Dealing

• No transactions with disqualified persons
• Officers, directors, trustees
• Substantial contributors (often the parent
  company)
• Family members of the above
• spouse, ancestors, children, grandchildren, great
  grandchildren and spouses of same.
• Businesses they control
• Penalties
• Rectify the violation (pay it back)
• 5 on self-dealer
• 2.5 on managers

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Self-Dealing

• Prohibited Transactions
• Sale, exchange or leasing of property between
  foundation and company (in either direction!)
• Lending money
• Furnishing goods or service
• Permissible Benefits
• Public Recognition for the company (use of logos)
• Consumer goodwill
• Links to company website? Where does the link go?

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Compensation

• Personal Services
• Banking, legal, accounting, investments
• Not real estate management, interior decoration,
  most consulting
• Narrow interpretation by IRS
• Reasonable What similar people get paid for
  similar work in similar circumstances
• Necessary Consistent with exempt purposes

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Conflicts of Interest

• Personal interest differs from the foundations
• Not all conflicts are prohibited
• Conflicts range from per se legal violations to
  ethical considerations
• Grants to charities with corporate executives on
  the board
• Grant to alma matter of Board President
• Hiring sponsoring company to provide personal
  services
• Resolve conflicts according to your policy
• Disclose the conflict
• Interested individuals do not vote

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Quid Pro Quo Grants

• Foundation grants cannot aim to generate company
  business
• Require product purchases
• Reward good customers
• Giving program grants can, but deduction is
  reduced
• Tax implications for grantees
• Line between advertising and mere
  acknowledgement

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Recognition v. Advertising

• Acknowledgement / Qualified Sponsorship
• Brand, trade names and product or service
  listings
• List of locations, numbers, websites, etc
• Value-neutral descriptions of product line or
  services
• Logos and slogans that arent qualitative or
  comparative
• Is it an established part of companys identity?
• Advertising
• Price information or other indications of saving
  or value
• Endorsements
• Inducement to buy, sell or use a service,
  facility or product

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Matching Gifts

• Increased morale is ok incidental and tenuous
  benefit
• Cant satisfy pledges of disqualified persons
• Careful switching program from company to
  foundation
• Employees cannot receive benefits for foundation
  portion
• Employee is responsible for noting increased
  benefits from company match

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Tickets to Fundraisers

• Possibly self-dealing if used by a disqualified
  person
• Ticket may have some economic value
• Charitable dollars cant provide private benefit
• No violation if staff has duty to monitor and
  evaluate
• OK if value treated as income
• No bifurcation permitted
• Easiest solution is through
• corporate giving program

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Sharing Resources

• Foundation cant pay company for services unless
  personal
• Payments to third parties ok
• Zero interest loan to foundation
• Records must be meticulous
• Company can donate services
• No deduction for partial interests in property

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Grants to Individuals

• Must further charitable purposes
• No grants to disqualified persons
• Most common are study or travel grants
• Charitable class
• Objective and non-discriminatory
• Pre-approval of process for private foundations
• Disaster relief and grants to alleviate poverty
  do not require pre-approval
• Check your governing documents

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Scholarships

• Ok to limit to employees and their children
• Disqualified persons ineligible
• Independent selection
• No employment related criteria
• No more than 10 of total who are eligible or 25
  who apply
• Cant circumvent through a public charity
• Cant require internship or employment obligation

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Grants to Non-Charities

• You can make a grant to any organizationas long
  as it is for charitable purposes
• Safest grants are to IRS recognized charities
• Otherwise expenditure responsibility
• Pre-grant inquiry
• Written agreement
• Funds held separately by grantee
• Regular reports from grantee
• Summary status on Form 990-PF
• Company cant deduct gifts to non-charities

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Grants Outside the U.S.

• Foundations can make grants anywhere in the world
• Three Options
• Grantee is recognized by IRS
• Expenditure Responsibility
• Equivalency Determination
• Anti-terrorism concerns
• Company cant deduct gifts to non-U.S.
  organizations

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The General Counsels Office

• Janne Gallagher, 202/467-0288 - gallj_at_cof.org
• Andrew Schulz, 202/467-0459 - schua_at_cof.org
• Jane Nober, 202/467-0387 - nobej_at_cof.org
• Kelly Simone, 202/467-0464 - simok_at_cof.org
• Andras Kosaras, 202/467-0399 - kosaa_at_cof.org