6th Annual Private
Foundations
Executive
Symposium
Agenda
6th Annual Private Foundations
Executive Symposium
Wednesday, December 11, 2013
Agenda
8:00 a.m. – 8:30 a.m.
Registration and Breakfast
8:30 a.m. – 10:30 a.m.
Program:
Welcome
Tom Blaney, Partner, Co-Director – Private Foundations, O’Connor Davies, LLP
Understanding the Tax Consequences of Alternative Investments
Garrett M. Higgins, Partner, Exempt Organizations
O'Connor Davies, LLP
Cyber Fraud and Moles
FBI Special Agent -Federal Bureau of Investigation
What’s New in Washington for Private Foundations?
Joanne Florino, Senior Vice President for Public Policy, Philanthropy Roundtable
Project 4/15
Gineen Bresso, Wasie Foundation
Non-Profit Revitalization Act
Daniel Kurtz, Skadden, Arps, Slate, Meagher, & Flom, LLP
Affordable Care Act
Bob GaNun, PayPro Corporation
Closing Remarks
Chris Petermann, Partner, Co-Director – Private Foundations
O’Connor Davies, LLP
Biographies
Featured Speakers & Hosts
Garrett M. Higgins, CPA
Partner, Exempt Organizations, O’Connor Davies, LLP
Garrett Higgins, CPA is the Partner in charge of the Exempt Organization Tax and
Advisory Services Group of O’Connor, Davies, LLP. He is a former manager with
KPMG’s Exempt Organizations Tax Practice in New York and has more than
seventeen years of tax compliance and consulting experience of which he has
spent the past ten years specializing in tax exempt organizations. His clients
include private foundations, colleges and universities, museums, healthcare
organizations, large public charities, pension and welfare benefit trusts, and other
tax exempt organizations.
Garrett has significant experience advising clients in a broad range of tax
compliance and consulting issues including: exemption application assistance,
return preparation and review; private foundation excise taxes; unrelated business income tax analysis and
planning, state and local tax planning and reporting, strategic use of limited liability companies, taxable
subsidiaries and foreign entities, foreign bank account and foreign entity reporting, executive compensation
intermediate sanctions planning and compliance and IRS dispute resolution.
Garrett has written many articles on various tax issues affecting exempt organizations and has presented at
many firm sponsored events. He has been invited to be a guest speaker on numerous occasions for many
organizations, including the United Way of Westchester, Association of Fundraising Professionals and the
Avila Institute. Mr. Higgins also provides continuing professional education within the firm on the tax law of
exempt organizations and has been an instructor for many years for Lorman Education providing continuing
education to attorneys, accountants and exempt organization professionals about the new Form 990. In
2010, Mr. Higgins was the recipient of the New York Enterprise Award for the Best Accountants and
Attorneys for Growing Business.
Contact: [email protected] (212) 286-2600
Joanne Florino
Senior Vice President for Public Policy, The Philanthropy Roundtable
Joanne Florino joined The Philanthropy Roundtable as senior vice president for
public policy in April 2013. Joanne has worked in philanthropy for nearly 30
years. Most recently, she was executive director of the Triad Foundation in
Ithaca, New York, from April 2003 through March 2013. She was also a program
associate at Atlantic Philanthropies and executive director of the Park
Foundation.
Joanne has served as a strategy committee member for the Alliance for
Charitable Reform since its inception in 2003; as chair of the Public Policy
Committee of Grantmakers Forum of New York; as a member of the Ethics and
Practices Committee of the Council on Foundations; and as a trustee of
Tompkins-Cortland Community College. She currently serves as a board member
of the Philanthropic Collaborative and the New York Council of Nonprofits. Joanne received her B.A. in
history from Georgetown University and her M.A. in American history from Cornell University.
Contact: [email protected] or 202.822.8333
Daniel L. Kurtz
Partner, Skadden, Arps, Slate, Meagher & Flom LLP
As Skadden’s exempt organizations practice leader, Dan Kurtz focuses on the
specialized needs of nonprofit organizations. With his diverse background as a
corporate lawyer, civil prosecutor and leading governance authority, he has
developed a national reputation in serving the full range of needs of his
nonprofit clients. These clients include health care institutions, colleges and
universities, cultural organizations, social service agencies, religious
organizations, social clubs, trade and professional associations, national
charities, environmental organizations, advocacy groups and private
foundations, among others.
Mr. Kurtz has acted as general counsel to many of his clients and as a principal
outside counsel to others. In those capacities, he advises clients on corporate and governance issues;
sponsorship and charitable fundraising opportunities; endowment administration and investment;
indemnification; employment matters; compliance issues, including charitable solicitation laws; and a full
range of exempt organization tax issues, including those relating to excess benefit transactions, organization
and dissolution, unrelated business income, lobbying and other advocacy issues. He also regularly handles
business combinations including joint ventures, sales of assets, mergers, consolidations and sophisticated
reorganizations and restructurings.
Mr. Kurtz also represents nonprofit clients in litigation matters, in particular ones involving issues of
governance and fiduciary responsibility. He also has conducted internal investigations and litigations
undertaken by civil enforcement and regulatory authorities, and he has played a key role in many
groundbreaking cases in this area.
From 1979 to 1985, Mr. Kurtz was the assistant attorney general in charge of the Charities Bureau in the New
York State Attorney General's office.
Mr. Kurtz repeatedly has been selected for inclusion in The Best Lawyers in America. He also was chosen to
participate in the David Rockefeller Fellows Program Class of 2010, a New York City-based leadership
program.
Bar Admissions: New York
Education: J.D., University of Chicago Law School; A.B., Brown University
Contact: [email protected] or 212.735.3390
Bob GaNun
Benefit Specialist, Paypro Corporation
Bob GaNun is a Benefits Specialist at PayPro Corporation. He works with the Paypro client base to assist in
transitioning them to a total benefit cost savings solution through payroll, HRIS and employee benefits
integration. Paypro is a Payroll, HR and Time & Attendance and Employee Benefits solutions provider with a
unique philosophy and approach to the middle market. Paypro has been in business since 1992 and is
committed to helping its clients turn payroll into a dynamic cost saving and management asset, not just a
check producing process. Paypro is a member of the Independent Payroll Providers Association (IPPA) and
the American Payroll Association (APA).
Prior to Paypro, Mr. GaNun worked with over 50 brokers managing a block of business worth over $25 million
at Professional Group Plans. He specialized in employee benefits specific to Group Medical, Dental, Life and
Supplementary Coverages.
Mr. GaNun has three children, Jack age 11 and twins Patrick and Caitlin, age 9. He is heavily involved with St
Baldrick's in his local community and has raised close to $1 million dollars for Pediatric Cancer research. He
also supports the Hance Family Foundation, a not for profit dedicated to helping children.
Contact: [email protected] or 631-777-1100 ext: 278
Gineen Bresso
Vice-President of Special Projects & General Counsel, The Wasie Foundation
Gineen Bresso is an attorney with more than a decade of experience working in high
level federal and state and government positions. Gineen currently serves as VicePresident of Special Projects & General Counsel for The Wasie Foundation, located
in Fort Lauderdale, where she provides assistance to numerous charitable and NonProfit/Not-For Profit organizations in South Florida.
Prior to her position with The Wasie Foundation, Gineen worked in the area of
election law, where she earned and established a national reputation, as a leader
within her field. Her expertise led to her nomination by President George W. Bush,
and subsequent confirmation by the U.S. Senate, to serve as a Commissioner on the
United States Elections Assistance Commission. Gineen was later re-nominated to a second term by President
Barack Obama. Prior to her appointment to the United States Election Assistance Commission, Gineen served
as the Director of Legislative Operations & Counsel to the Committee on House Administration for the U.S.
House of Representatives. Before her work on Capitol Hill, Gineen worked as a Policy Advisor for the former
Governor of Maryland, Robert L. Ehrlich, Jr. and served as an Attorney-Advisor for the U.S. Patent and
Trademark Office. Upon graduating from law school, she served as a law clerk for The Honorable Arrie Davis
of the Court of Special Appeals of Maryland.
Contact: [email protected]
Tom Blaney
Partner, Co-Director – Private Foundations, O’Connor Davies, LLP
Thomas F. Blaney, CPA, CFE is a partner of O’Connor Davies, LLP. Tom is the CoDirector of the Firm’s private foundation practice and is a member of the Firm’s
Executive Committee. Tom has spent over twenty-five years specializing solely in the
accounting and tax aspects of exempt organizations. He is a frequent speaker at
private foundations and not-for-profit conferences and has written numerous articles
on a variety of industry related topics. Tom was appointed to the Panel on the
Nonprofit Sectors “990 PF Reform Advisory Committee.” He authored the uniform
system of financial reporting for Private Foundations, Primer on Filing the Form 990-PF
and is a contributor to “The New Foundation Guidebook.”
He is currently on the Leadership Committee of the Support Center for Nonprofit Management, Treasurer of
the McCaddin/McQuirk Foundation and is on the Finance and Governance Committees of the Association of
Small Foundations where he is was Board Member. He is also on the Board of Directors of the Hudson Valley
Chapter of the Make-a-Wish Foundation where he serves as Secretary. Tom is a Certified Public Accountant
licensed in the State of New York, Connecticut, Florida, and Pennsylvania and is a member of the American
Institute of Certified Public Accountants (AICPA), American Society of Fraud Examiners and the New York
State Society of Certified Public Accountants (NYSSCPA), where he served on the Nonprofit and Diversity
Committees and currently serves on the Family Office Committee. Tom earned a Bachelor of Business
Administration degree in accounting from Pace University.
Contact: [email protected] (212) 286-2600
Chris Petermann
Partner, Co-Director – Private Foundations, O’Connor Davies, LLP
Christopher D. Petermann, CPA is a partner of O'Connor Davies, LLP. He is the CoDirector of the Firm’s private foundation practice. Chris has over twenty-five years of
experience in serving a multitude of exempt organizations and private foundations and
is a frequent speaker on a variety of topics of interest to these groups.
He is involved in writing the Firm’s monthly bulletins and is the author of a number of
articles, including “Alternative Investments Home Run or Strike Outs” and “Is Our
Foundation Likely to Have an IRS Audit?” Presently, Chris serves on the Board of
Directors of the William F. Grupe Foundation and the Association of Small
Foundations. Chris earned his Bachelor of Science degree in business administration
from Bucknell University.
Contact: [email protected] (212) 286-2600
About O’Connor Davies, LLP
At O’Connor Davies, LLP, we believe that listening plus expertise equals understanding.
This approach is evident in the diversity and depth of services offered to our clients and in
our commitment to meeting their unique challenges and goals. As a Certified Public
Accounting and consulting firm, we provide accounting, auditing, tax and management
advisory services to domestic and international clients. The Firm is dedicated to serving
the not-for-profit sector and serves more than 1,400 not-for-profit clients including over
225 Private Foundations.
O’Connor Davies is ranked as number 36 in Accounting Today's 2013 listing of "Top 100 Firms" in the United
States and was recently listed as a “Pacesetter in Growth” and “Leader in Audit and
Accounting.” The Firm is also within the 20 largest accounting firms in the New York
Metropolitan area according to Crain's New York Business and the Westchester and Fairfield
County Business Journals. .
Our team includes more than 450 professionals led by 70 partners, all of whom remain
actively involved through a distinctively hands-on approach to leading and managing clients.
We have a strong regional presence, with seven offices located throughout New York, New
Jersey and Connecticut, and are also capable of servicing clients on a national and
international scale. The end result is a proven record of achievement in providing high quality
service and building lasting relationships.
The Firm has expanded its global reach, thanks to a membership in the PKF International network. This
membership offers our professionals an increasingly global perspective and allows our clients access to a
network of firms providing accounting and business advisory services in 440 locations throughout 125
countries.
O’Connor Davies offers a uniquely collaborative approach that is scalable to fit the size, needs and scope of
local, domestic and global clients. O’Connor Davies. Helping you succeed today and preparing you for
tomorrow.
www.odpkf.com
Presentation
Understanding the Tax Consequences of Alternative Investments
Garrett Higgins, CPA
Partner, Exempt Organizations
[email protected]
December 11, 2013
Agenda
•
•
•
•
•
Overview of Tax Exempt Status
Unrelated Business Taxable Income (UBTI)
(
)
Alternative Investments
Tax Compliance Issues
Steps to Ensure Compliance
6th Annual Private Foundations Symposium
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1
Overview of Tax Exempt Status
• Private Foundations exempt from tax under IRC §501(a) are generally not subject to federal income tax on income which is related to their exempt purpose
• Passive Income (Interest, Dividends, Rents, Royalties and Capital gains) are generally not subject to income tax bj
i
6th Annual Private Foundations Symposium
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Unrelated Business Taxable Income
Private Foundations may be subject to income t if it di tl
tax if it directly or indirectly
i di tl generates either t
ith
type of the following income:
• Trade or Business income, or
• Debt Financed Income ‐ Passive income exclusions do not apply to the extent property is debt‐financed
6th Annual Private Foundations Symposium
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2
Alternative Investment
Increase use of alternative investments to diversify a private foundations portfolio to ensure maximum rate of return.
Alternative investments include:
• Hedge Funds, Private Equities, Real Estate Funds etc….
• Investments can be organized as a partnership, corporation, formed in the United States or Outside the United States, generate trade or business or debt financed income.
• An alternative investments organizational structure, domicile An alternative investments organizational structure domicile
and type of income generated will dictate the tax compliance complexities associated with the investment.
6th Annual Private Foundations Symposium
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Alternative Investments Formed As Partnerships
Treated as a flow through for tax purposes
Pay no income tax
y
Each item of income and expense allocated to partners
Any trade or business regularly carried on by a partnership of which a private foundation is a member is an unrelated trade or business to the private foundation
• Exempt partner’s distributive share of partnership debt is taken into account in computing debt/basis % ‐ Regs. §1 514(c)‐1(a)(2)
§1.514(c)
1(a)(2) Ex. (4) Ex (4)
• IRS Position: Sale of interest in partnership which held debt‐financed property is taxable under §514 ‐ TAM 9651001
•
•
•
•
6th Annual Private Foundations Symposium
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3
Alternative Investments Formed As Partnerships
Domestic Partnerships:
• The
The information required to be furnished to partners on the information required to be furnished to partners on the
Schedule K‐1 shall include such information as is necessary to enable each partner to compute its distributive share of partnership income or loss that is UBTI but without regard to the modifications described in paragraphs (8) through (15) of §512(b). IRC §6031(d)
• Federal Sch. K‐1,
–
–
–
–
Item K ‐ 1, Partners Share of Liabilities
Line 1, Ordinary Business Income / (Loss)
Line 20V – Unrelated Business Income / (Loss)
Statements
6th Annual Private Foundations Symposium
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Alternative Investments Formed As Partnerships
Foreign Partnerships:
• N
Need to obtain necessary information to comply to d t bt i
i f
ti t
l t
obtain necessary information to allow the Foundation to remain tax compliant.
• Does foreign partnership issue US K‐1?
• Some foreign partnerships provide a K‐1 substitute for US investors
6th Annual Private Foundations Symposium
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4
Alternative Investments Formed As Corporations
• Blocker Corporations
– Corporation setup between Foundation and Partnership
– Setup to block UBTI generated from partnerships from flowing to Foundation
• Advantages
– Corporate dividends non‐taxable to Foundation as long as investment in corporation is not debt financed
• Disadvantages
–
–
–
–
Costs associated with the startup of corporation
Tax paid at the corporate level
p
p
Potentially increases the amounts of foreign filings if set‐up offshore
Blocking Unrelated Business Losses from offsetting any UBTI generated outside of the blocker corporation
6th Annual Private Foundations Symposium
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Tax Compliance Issues
Unrelated Business Income Tax Returns
Federal Tax Return
Federal Tax Return
• File Federal Form 990‐T, Annual Unrelated Business Income Tax Return, if gross income is $1,000 or more
– Due fifteen day of the fifth month following the close of the tax year
• Federal Estimated Tax Payments
– Total tax expected for the year is $500 or more
• Federal Penalties and Interest
– Failure to file tax returns
– Late payment of tax
– Underpayment of estimated tax
6th Annual Private Foundations Symposium
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5
Tax Compliance Issues
State Tax Returns
•
•
•
•
•
•
State sourcing of unrelated business income
g
– Allocation or apportionment method Presently, approximately 40 state tax jurisdictions impose an unrelated business income tax (UBIT)
Vermont latest state to enact UBIT law
Massachusetts recently modified its UBIT law
Illinois and California aggressively enforcing its UBIT law
Penalties and Interest
– Failure to file tax returns
– Late payment of tax
– Underpayment of estimated tax 6th Annual Private Foundations Symposium
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Tax Compliance Issues
Foreign Investment Reporting
• Foreign Partnerships
F i P t
hi
– Federal Form 8865, Information Return of U.S. Persons With Respect to Certain Foreign Partnerships Foreign Partnerships
– Must file separate Form and applicable schedules for each foreign partnership
6th Annual Private Foundations Symposium
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6
Tax Compliance Issues
Foreign Investment Reporting – Foreign Partnerships Cont’d
• Who must file?
– U.S. person who contributed property directly or indirectly to a foreign partnership in exchange for an interest in the partnership if they:
• Own a 10% or greater interest of a foreign partnership immediately after the contribution or,
• Property contributed to the partnership exceeds $100,000 during the 12‐month period ending on the date of the transfer.
– May also be required when withdrawing from certain foreign partnership investments
• Substantial penalties for non‐compliance
6th Annual Private Foundations Symposium
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Tax Compliance Issues
Foreign Investment Reporting
g
p
g
• Foreign Corporations
– Federal Form 926, Return by a U.S. Transferor of Property to a Foreign Corporations
– Must file separate form and applicable schedules for each foreign partnership
6th Annual Private Foundations Symposium
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7
Tax Compliance Issues
Foreign Investment Reporting – Foreign Corporations Cont’d
• Who must file?
– US persons, including foundations that transfer cash or property US persons including foundations that transfer cash or property
directly or indirectly (through a partnership) to a foreign corporation.
– Own a 10% or greater interest of a foreign corporation immediately after the contribution or,
– Property contributed to the corporation exceeds $
$100,000 during the 12‐month period ending on the date ,
g
p
g
of the transfer.
– May also be required when withdrawing from certain foreign corporation investments
6th Annual Private Foundations Symposium
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Tax Compliance Issues
Foreign Investment Reporting – Foreign Corporations Cont’d
• Controlled Foreign Corporations
– Federal Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations
– Form filed in addition to Form 926
– Must file separate form and applicable schedules for each controlled foreign corporation
6th Annual Private Foundations Symposium
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8
Tax Compliance Issues
Foreign Investment Reporting – Foreign Corporations Cont’d
• Who must file?
– US persons with ownership of more than 10% of the shares of a foreign corporation
• Substantial penalties for non‐compliance
6th Annual Private Foundations Symposium
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Tax Compliance Issues
Foreign Investment Reporting
• Passive Foreign Investment Company
– Federal Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualifying Electing Fund – Generally, not required to be filed by private foundations unless the investment generates UBTI from subpart F income.
• Substantial penalties for non‐compliance
6th Annual Private Foundations Symposium
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9
Tax Compliance Issues
• Reportable Transactions – Federal Form 8886, Reportable Transaction Federal Form 8886, Reportable Transaction
Disclosure Statement
– Reporting listed and loss transactions
– Failure to file Form 8886, when required, may limit the taxpayer’s ability to avoid accuracy related penalties
related penalties
6th Annual Private Foundations Symposium
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Steps to Ensure Compliance
• Monitor all alternative investments (Old and New)
• Review K‐1 for Federal & State UBI • Review K‐1 for indirect foreign investment reporting requirements
• Review Investments not generating a K‐1 (i.e.. Blocker Corp.’s)
• Summarize Federal and State UBTI
• File Tax Returns
6th Annual Private Foundations Symposium
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10
Disclaimer
Any tax advice included in this written communication y
was not intended or written to be used, and it cannot be used, by the taxpayer, for the purpose of avoiding any penalties that may be imposed by any governmental taxing authority or agency
6th Annual Private Foundations Symposium
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Questions
11
What’s New in Washington
for Private Foundations?
Joanne Florino, The Philanthropy Roundtable
6th
O’Connor Davies
Annual Symposium for Private Foundations December 11, 2013
“We
We focus on ‘isn’t
isn t it great that all this money
money’ss
been donated?’ But what’s this actually doing
to help poor people? The New York Times at the
end of their discussion about university
endowments said, ‘How dare Congress tell us
what
h t to
t do?’
d ?’ You
Y don’t
d ’t wantt Congress
C
t tell
to
t ll
you what to do? Don’t take a tax break.”
Dean Zerbe, Tax Counsel, Senate Finance Committee
2009
1
IRS U d
IRS Update
501(c)4 Problems & Potential Spillover to (c)(3)’s
Other Issues:
Compensation Study at Colleges & Universities
Donor Advised Funds
Equivalency Determination + Repository
Program Related Investments
Tax Reform: A Tale of Two Chairmen
House Ways & Means Committee:
Valentine’s Day Hearings
Working Groups
Joint Committee on Taxation Report
Lower Rates and the Pain Threshhold
2
Senate Finance Committee:
Revenue Neutral vs. Revenue Raising
Member‐Only Roundtables
The White Paper
The Blank Slate
Max and Dave Go on the Road
3
Th T i
The Triumph of Partisan Politics
h fP i
P li i
Shutdown (and “Shutdown Philanthropy”)
Budget Conference Rollout of HealthCare gov
Rollout of HealthCare.gov
CBO Report
Harry Reid and the Nuclear Option The Future of Tax Reform, Part 1
Baucus Releases Drafts
Leadership Puts Camp on Hold
Why It All Matters
4
The Future of Tax Reform, Part 2
The
Future of Tax Reform Part 2
Heading into 2014…
Another Showdown?
Midterm Elections Looming
Midterm Elections Looming
Major Players Transitioning
5
Where Do Our Issues Stand?
Where Do Our Issues Stand?
The Charitable Deduction:
Countering the Subsidy Argument
Voices for Private Giving
The Private Foundation Excise Tax:
The Private Foundation Excise Tax:
The Argument for Flattening
Progress with Ways and Means
6
Clouds on the Horizon
Clouds on the Horizon
A “Hierarchy” of Charitable Causes
“The fortunes of America’s wealthiest citizens have grown exponentially over the past 20 years, making them even more capable of providing larger sums to a wider range of nonprofits Yet they continue to spend most of their
nonprofits. Yet they continue to spend most of their philanthropic support on universities and buildings with their names on them and very little on social services, the homeless, the hungry, and social‐change groups.”
Pablo Eisenberg
“Americans
Americans of all ages, all conditions, and all dispositions of all ages, all conditions, and all dispositions
constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society.” Alexis de Tocqueville
7
Private Philanthropy vs. Democracy –
Pi
Private or Public Money
P bli M
Regardless of whether the public are “owners” of charitable entities, through the tax code we as taxpayers are investing billions of dollars y
each year in the charitable sector. We need to ask ourselves, are we getting everything we want out of the investment?
Ray Madoff
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public'ss money.
public
money ” Alexis de Tocqueville
8
INCENTIVIZE CHARITABLE GIVING



Gene Steuerle of the Urban Institutecollaboration with The Wasie Foundation.
Foundation
Amend the Internal Revenue Code of 1986 to
allow charitable contributions made by an
individual after the close of the taxable year, but
before the tax return due date, to be treated as
made in such taxable year.
A way to make the charitable deduction work
better.
1

January
Ja
ua y 2010
0 0 Haiti
a t Earthquake
a t qua e

2004 Indian Ocean Tsunami

Individual Retirement Accounts (IRA)



88 p
percent of U.S. households donate to some
form of charity.
22 percent of online donations are made on the
last two days of December, the last possible
moment to claim a tax deduction for that year.
Individuals are more likely to make a contribution
once they know of any potential tax liabilities.
2






Nonprofits generate $1.1 trillion every year in
the form of jobs and services and account for
more than
h 5 percent off the
h GDP.
GDP
One in 10 U.S. workers are employed by the
nonprofit sector, which provides 13.7 million
jobs.
Increased giving will provide additional
funding to charities to hire more workers and
provide more services.
Revenue
e e ue loss
oss to tthe
e federal
ede a go
government
e
e t is
s
only 30 cents or so (the tax saving) for every
additional dollar of charity generated.
If people don’t give more, there are no losses,
outside some slight timing differences.
Window of Opportunity.
3


Introduced the Charitable Giving Extension
Act in September 2013.
2 Co-Sponsors and enjoys bi-partisan
support- Rep. William Enyart (D-IL).

Ways & Means Committee Member.
Member

Effective Date-After December 31, 2013.

“(2) Treatment of charitable contributions made
by individuals before due date of return
return.--If
If any
charitable contribution is made by an individual
after the close of a taxable year but not later than
the due date (determined without regard to
extensions) for the return of tax for such taxable
year, then the taxpayer may elect to treat such
charitable contribution as made in such taxable
year. Such election may
y
y be made only
y at the time
of the filing of such return of tax and shall be
signified in such manner as the Secretary may
provide.”
4
NEXT STEPS
5
O'Connor Davies, LLP
6th Annual Private Foundations Executive Symposium
December 11, 2013
New York Non-Profit Revitalization Act of 2013
Daniel L. Kurtz 1
Coleen M. McGrath
New York Non-Profit Revitalization Act of 2013
 Passed by the NYS Legislature on June 21, 2013
 Now awaiting Governor Cuomo's signature
 Act is intended to lessen regulatory and administrative burdens on nonprofit corporations
and enhance governance and increase accountability by more clearly articulating the
responsibilities of directors
 Act reflects first major overhaul of the NY Not-for-Profit Corporation Law (NPCL) in
more than 40 years
 Act also amends other New York statutes, including, among others, the Education Law,
Religious Corporations Law, Executive Law and Estates, Powers and Trusts Law
 Act applies to corporations governed by the NPCL
 Many provisions also apply to education corporations and religious corporations under
bridging provisions, i.e., Education Law §216-a and Religious Corporations Law §2-b 2
 Certain provisions also apply to NY charitable trusts
 Most provisions of the Act will become effective on July 1, 2014
Key Changes Effected by the Act include:
1. Audit Oversight (Sections 3, 3-a, 3-b and 72 of the Act)
 Amends Executive Law § 172-b, raising gross revenue thresholds for filing an
independent certified public accountant's audit report with the NYS Attorney General
from current > $250,000 to:
(i) > $500,000 (as of July 1, 2014);
(ii) > $750,000 (as of July 1, 2017); and
1
Copyright © Daniel L. Kurtz and Coleen M. McGrath. All Rights Reserved.
Daniel L. Kurtz is a partner at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP and head of the firm's
Exempt Organizations practice. Coleen M. McGrath is an associate in Skadden's Exempt Organizations practice.
2
New York education corporations are governed by the NPCL to the extent provided under Education Law § 216-a
and New York religious corporations are governed by the NPCL to the extent provided under Religious
Corporations Law § 2-b.
1
(iii) > $1 million (as of July 1, 2021)
 Raises threshold for independent review report from $100,000 to $250,000
 Grants the Attorney General the authority to request an independent audit report from
nonprofits with gross revenue of $250,000 or more after reviewing their annual review
report
 Imposes new requirements on certain corporations with respect to oversight of their
accounting and financial reporting processes and the audit of their financial statements
(new NPCL §712-a)
• Applies to corporations that are required to file an independent certified public
accountant's audit report with the Attorney General pursuant to Executive Law §
172-b, i.e., corporations that are registered or required to be registered with the
Attorney General pursuant to Executive Law § 172 and receive annual gross
revenue exceeding $500,000
• These functions must be overseen by the corporation's board of directors or a
designated audit committee of the board comprised solely of "independent
directors"; if board oversees, only independent directors may participate in
deliberations and voting related to these oversight responsibilities
• To be considered an "independent director," the director may not:
i. be or have been within the last three years an employee of the
corporation or any affiliate, or have a relative who is or has been
within the last three years a key employee of the corporation or any
affiliate;
ii. have received or have a relative who received more than $10,000 in
direct compensation from the corporation or any affiliate within any of
the last three fiscal years; or
iii. be an employee of or have a substantial financial interest in any entity
that has made payments to or received them from the corporation or an
affiliate for property or services which, in any of the last three fiscal
years, exceeds the lesser of $25,000 or 2 percent of such entity's
consolidated gross revenues, or have a relative who is an officer of or
has a substantial financial interest in any such entity
• Specific oversight duties include annually retaining or renewing the retention of
the independent auditor and reviewing the results of the audit and any related
management letter with the auditor
• If the corporation, in its prior fiscal year had, or in its current fiscal year
reasonably expects to have, annual revenue in the excess of $1 million, the board
of directors or audit committee also must:
o Review with the auditor the scope and planning of the audit prior to its
commencement;
o Upon the completion of the audit, review and discuss with the auditor:
i. any material risks and weakness in internal controls identified by the
auditor;
ii. any restrictions on the scope of the auditor's activities or access to
requested information;
iii. any significant disagreements between the auditor and management;
and
2
iv.
•
•
the adequacy of the corporation's accounting and financial reporting
processes
o Annually consider the performance and independence of the independent
auditor; and
o In the case of an audit committee, report to the board of directors on the
audit committee's activities
If the nonprofit controls a group of corporations, the board or audit committee of
the controlling corporation may perform these oversight duties for one or more of
the controlled corporations
Any corporation that had annual revenues of less than $10 million in its last
fiscal year ending prior to January 1, 2014 will not be subject to these audit
oversight requirements until January 1, 2015
 Action Items:
• Corporations will need to implement procedures for collecting information to
determine whether or not a director is independent and ensuring that such information
remains current
• Corporations may need to update their bylaws, audit committee charters and any
other documents setting forth their audit policies and procedures to ensure that they
are in compliance with the Act's audit oversight requirements
2. Related Party Transactions (Sections 33 and 74 of the Act)
 Act makes significant changes to NPCL §715, which regulates transactions between a
corporation and its insiders, i.e., related party transactions
 NPCL § 715 now prohibits "related party transactions" unless certain criteria are met
 Nonprofit may not enter into a related party transaction unless the transaction is
determined by the corporation's board of directors or an authorized committee of the
board to be fair, reasonable and in the corporation's best interest at the time of such
determination
 A "related party transaction" is any transaction, agreement or any other arrangement in
which a related party has a financial interest and in which the corporation or any affiliate
of the corporation is a participant ("affiliate" is any entity controlled by, in control of or
under common control with the corporation)
 A "related party" includes:
i.
any director, officer or key employee of the corporation or any affiliate of the
corporation;
ii.
any relative of any director, officer or key employee of the corporation or any of
its affiliates; or
iii. any entity in which any individual described in (i) or (ii) above has 35% or greater
ownership or beneficial interest or, in the case of a partnership or professional
corporation, a direct or indirect ownership interest in excess of five (5) percent
 "Key Employee" is any person, other than a director or officer, who is, or who was at any
time during the five-year period ending on the date of the related party transaction, in a
position to exercise substantial influence over the affairs of the corporation
3
 A related party is prohibited from participating in deliberations or voting on the related
party transaction but he or she may present information concerning the transaction to the
board or authorized committee prior to commencement of deliberations or voting if so
requested by the board or authorized committee
 If the corporation is charitable corporation and the related party transaction is one
in which a related party has a substantial financial interest, the board or authorized
committee also must:
i. consider alternatives transactions to the extent available, prior to entering into
the transaction;
ii. approve the transaction by not less than a majority vote of the directors or
committee members present at the meeting; and
iii. contemporaneously document in writing the basis for the board or authorizing
committee's approval including its consideration of alternative transactions
 Act does not define the term "substantial"
 Directors, officers and key employees having an interest in a related party transaction
have a duty to disclose in good faith to the board or authorized committee the material
facts concerning his or her interest
 The Act also enhances the Attorney General's authority to address violations of the
related party transaction rules:
• Attorney General may bring an action to enjoin, void or rescind any related party
transaction or proposed related party transaction that violates any provision of the
NPCL or was otherwise not reasonable or in the best interest of the corporation at
the time the transaction was approved
• Attorney General also may seek restitution and removal of directors and officers
or seek to require any person or entity to:
i. account for any profits made from the transaction and pay them to the
corporation;
ii. pay to corporation the value of the use of any of its property or other
assets used in such transaction;
iii. return or replace any property or other assets lost to the corporation as a
result of such transaction, together with any income or appreciation lost to
the corporation because of the transaction, or account for any proceeds of
the sale of such property and pay them to the corporation together with
interest; and
iv. in the case of willful and intentional conduct, pay an amount up to double
the amount of the benefit improperly obtained
 A corporation's certificate of incorporation, bylaws or board policy may contain
additional restrictions on related party transactions, additional procedures necessary for
review and approval of related party transactions or provide that any transaction in
violation of such restrictions shall be void or voidable
 Action Items:
• Boards of directors need to be educated regarding their new responsibilities with
respect to related party transactions, i.e., transactions with a related party are now
barred unless certain conditions are met
4
•
As the scope of transactions falling within the purview of the amended NPCL §715
does not precisely mirror the scope of transactions regulated by the IRS intermediate
sanction rules, corporations that have adopted a conflict of interest policy reflecting
the intermediate sanction rules may need to amend their conflict policies to
incorporate the Act's requirements regarding related party transactions and the
procedures for authorizing such transactions
3. Conflict of Interest Policy (Section 75 of the Act)
 Act requires all corporations governed by the NPCL to adopt a conflict of interest policy
that includes procedures for disclosing, addressing and documenting related party
transactions in accordance with NPCL §715 (new NPCL § 715-a)
 Conflict of interest policy must include, at a minimum:
• a definition of the circumstances that constitute a conflict of interest;
• procedures for disclosing a conflict of interest to the audit committee or, if no
audit committee, to the board of directors;
• a requirement that the person with the conflict not be present at or participate in
board or committee deliberations or vote on the matter giving rise to the conflict;
• a provision prohibiting any attempt by the interested person to influence
improperly the deliberation or voting on the matter giving rise to the conflict;
• a requirement that the existence and resolution of the conflict be documented in
the corporation's minutes of any meeting at which the conflict was discussed or
voted upon; and
• procedures for disclosing, addressing and documenting related party transactions
in accordance with NPCL §715
 Conflict of interest policy must require that each director, prior to his/her initial
election and then annually thereafter, sign and submit to the corporation's secretary a
written statement identifying, to the best of the director's knowledge, (i) any entity of
which the director is an officer, director, trustee, member, owner (as sole proprietor or
partner), or employee and with which the corporation has a relationship, and (ii) any
transaction in which the corporation is a participant and in which the director might have
a conflicting interest
 Secretary must provide a copy of all completed statements to the audit committee, or if
there is no audit committee, to the chair of the board of directors
 Adoption, implementation of and compliance with the conflict of interest policy must be
overseen by the board of directors, audit committee or another board committee
comprised solely of independent directors
 A Corporation that already has adopted and possesses a conflict of interest policy
pursuant to federal, state or local laws that is substantially consistent with NPCL § 715-a,
will be deemed in compliance with §715-a
 Action Item:
• Corporations should review their conflict of interest policies and make the changes
necessary to incorporate the Act's requirements regarding related party transactions
and the procedures for authorizing such transactions and the Act's requirements for
conflicts policies
5
4. Whistleblower policy (Section 75 of the Act)
 Under the Act, every corporation that has 20 or more employees and annual revenue
exceeding $1 million in its prior fiscal year must adopt a whistleblower policy (new
NPCL § 715-b)
 Whistleblower policy must provide that no director, officer, employee or volunteer of the
corporation who, in good faith, reports any action or suspected action taken by or within
the corporation that is allegedly illegal, fraudulent or in violation of any adopted policy of
the corporation will suffer intimidation, harassment, discrimination or other retaliation or,
in the case of employees, adverse employment consequences
 Whistleblower policy also must include:
i. procedures for reporting violations or suspected violations of law or corporate
policies, including procedures for preserving the confidentiality of reported
information;
ii. a requirement that an employee, officer or director of the corporation be
designated to administer the whistleblower policy and to report to the audit
committee or other designated committee of independent directors (or to the
full board if there is no audit or other designated committee); and
iii. a requirement that a copy of the whistleblower policy be distributed to all
directors, officers and employees and to volunteers who provide substantial
services to the corporation
 A Corporation that already has adopted and possesses a whistleblower policy pursuant to
federal, state or local laws that is substantially consistent with NPCL § 715-b, will be
deemed in compliance with §715-b
 Action Items:
• Corporations required to adopt a whistleblower policy under the Act must do so,
ensuring that the policy complies with NPCL § 715-b
• Corporations that already have adopted a whistleblower policy should review the
policy to see if it is substantially consistent with NPCL § 715-b; if not, the policy
should be amended to ensure compliance with § 715-b
5. Streamlining Governance Procedures
a. Electronic Communications (Sections 4, 62-66, 68, 69, 129 of the Act) – The Act
allows for:





Electronic notices for board and member meetings and for waivers of notice
Electronic board and member unanimous consents
Electronic member proxies
Director participation in board meetings through videoconferencing, Skype, etc.
Also clarifies that Attorney General's Charities Bureau may accept registration
forms, annual reports and other submissions by electronic means
6
•
Action Item:
 Corporations should review their bylaws and revise as necessary to take
advantage of these new provisions authorizing the use of electronic
communications for certain corporate actions
b. Board of Directors (Sections 29, 58, 67, 73, 77 of the Act) – The Act:
 Clarifies that the term "entire board" means the number of directors fixed in the
bylaws or, where the bylaws provide for a range, the number of directors within
that range that were elected as of the most recently held election of directors
(NPCL § 102)
 Provides that the number of directors constituting the entire board may be fixed in
the bylaws or by action of the members or of the board pursuant to a bylaw
provision allowing such action [or by any number within a range set forth in the
bylaws] 3 (NPCL § 702)
 Provides that no employee of the corporation may serve as Chair of the board or
hold any other title with similar responsibilities (this provision takes effect on
January 1, 2015) (NPCL § 713)
 Amends NPCL § 515 to clarify that persons who may benefit from compensation
paid by a corporation to a member, director or officer cannot participate in
deliberations or voting on such compensation
 Amends NPCL § 718 to eliminate the requirement that a corporation include the
home addresses of its directors and officers on its list of directors and officers
provided in response to a demand for such a list received from a member, creditor
the Attorney General, a district attorney or state official
•
Action Item:
 Corporations should review their bylaws and make any necessary changes to
reflect the new provisions regarding fixing the number of directors constituting
the entire board and the prohibition on an employee serving as board chair
c. Committees (Sections 70, 71 of the Act) – The Act:
 Eliminates the distinction between standing and special committees – now only
board committees and committees of the corporation
 Board committees must have a minimum of three members and all members must
be directors
 Board committees still are to be designated by resolution adopted by a majority of
the entire Board
3
The meaning of the bracketed language is unclear. Does it mean that the number of directors constituting the
entire board could be fixed by action of the number of directors within the range then in office or is it intended to
refer to the definition of "entire board" in the revised NPCL § 102, i.e., the number of directors within the range
elected as of the most recent election? As of this writing, we do not know whether or not the meaning of this
provision will be clarified in the technical corrections made to the Bill.
7
 Provides a new means for electing committees of the corporation; such
committees may be elected in the manner set forth in the bylaws; if not specified
in the bylaws, members of committees of the corporation are elected in the same
manner as officers of the corporation, which is the current rule
 Clarifies that committees of the corporation have no authority to bind the board
•
Action Item:
 Corporations should review their bylaws and make necessary changes to reflect
the changes with respect to standing/special committees and, if appropriate, to
specify how the members of committees of the corporation will be elected
d. Real Property Transactions (Sections 53, 54 of the Act) – Under the Act:
 Certain real estate transactions no longer require approval by two-thirds of the
entire board of directors
 Board approval is no longer needed when leasing real property from a third party
 Purchase of real property or the corporation's sale, mortgage, lease, exchange or
other disposition of its real property now may be approved by a majority of the
board or committee, unless the transaction involves all or substantially of the
corporation's assets
 Requirement for approving transactions involving all or substantially all of the
corporation's assets have not changed; still requires two-thirds affirmative vote of
entire board, except for boards having 21 or more directors, where a majority of
the entire board is sufficient
e. Streamlined Approval of Major Corporate Actions (Sections 55, 56, 82-85, 88-92
of the Act) – The Act:
 Streamlines the approval process for major corporate actions, such as
amendments to corporate purposes set forth in certificate of incorporation,
mergers, consolidations, dissolutions and transfers of all or substantially all assets
 Such actions now may be authorized solely by the Attorney General; court
approval is no longer needed unless the Attorney General determines otherwise
 If Attorney General withholds approval, a corporation still may petition the court
for approval on ten days written notice to the Attorney General
6. Other Changes
a. Elimination of Types (Section 38 of the Act) – The Act:
 Eliminates the current classification of corporations into four types – Types A
through D
 Divides corporations into two categories – Charitable or Non-Charitable
 Corporations formed for both charitable and non-charitable purposes will be
deemed Charitable Corporations
8
 Type A corporations formed prior to July 1, 2014 are deemed to be NonCharitable Corporations
 Type B and C corporations formed prior to July 1, 2014 are deemed to be
Charitable Corporations
 Type D corporations formed for charitable purposes prior to July 1, 2014 are
deemed to be Charitable Corporations and any other Type D corporations formed
prior to July 1, 2014 are deemed to be Non-Charitable Corporations
 Education corporations and religious corporations are Charitable Corporations for
purposes of the NPCL
b. Incorporation and Authorization (Sections 47-49 of the Act) – The Act:
 Amends NPCL § 402 to clarify that while a corporation's certificate of
incorporation must state the corporation's purposes, the certificate may, but need
not, set forth the activities that the corporation intends to carry out in furtherance
of its purposes
 Amends NPCL § 404 to clarify that the consent of the Commissioner of
Education is not required prior to the filing of the certificate of incorporation of a
nonprofit corporation having a purpose for which the corporation might be
chartered by the Regents, other than a school, college, university or other entity
providing post-secondary education, library, museum or historical society; such a
corporation must provide a certified copy of its certificate of incorporation to the
Commissioner of Education within 30 business days after the corporation receives
confirmation from the Department of State that the certificate of incorporation has
been accepted for filing
 Adds a new sub-paragraph to NPCL § 404 that permits a nonprofit corporation to
satisfy the agency approval and notice requirements of NPCL § 404 (a) through
(v) by including in its certificate of incorporation a provision stating that its
purposes and powers do not include any of those set forth in § 404 (a) through (v)
c. Mergers/Consolidations of Education and Religious Corporations (Sections 9, 2427 of the Act) – The Act amends the Education Law and Religious Corporations Law to permit
education and religious corporations to enter into mergers in addition to consolidations, creating
the option of having a surviving entity rather than having to form a new consolidated entity.
d. Application to Charitable Trusts (Section 130 of the Act) – The Act amends the
Estates, Powers and Trusts Law, adding a new section, EPTL § 8-1.9, which makes charitable
trusts subject to the requirements governing audit oversight, related party transactions, conflict of
interest policies and whistleblower policies that are applicable to charitable corporations under
the Act.
e. Charitable Solicitation (Sections 2, 37 of the Act) – The Act:
 Amends Executive Law § 171-a to clarify that grant writers do not fall within the
definition of fund raising counsel
9
 Amends NPCL § 115 to provide that no corporation required to obtain approval
from or provide notice to an administrative agency in connection with the
corporation's incorporation may solicit until it does so
f. Indemnification (Section 80 of the Act) – The Act amends NPCL § 724 to provide
that the Attorney General must be given notice of any application to the court for
indemnification under § 724.
g. Key Employees (Section 78 of the Act) – The Act amends NPCL § 720 to add "key
employees" (defined in Section 2 above) to the list of individuals against whom actions may be
brought to remedy violations of the NPCL.
10
Prepare for Affordable Care
Act Now & Avoid Penalties!
www.payprocorp.com
Why Worry?
Employer Mandate has Been
Postponed until 2015!
Guaranteed
issue
Marketplaces
& Tax
Subsidies
still a go for
2014!
www.payprocorp.com
1
Quick Recap
W-2
Reporting
New
Medicare
Tax
FSAs
Employee
Notice of
E h
Exchange
www.payprocorp.com
PCORI Fee
Patient-Centered Outcomes Research Institute Fee
Effective Date
Applies to policy and plan
years ending after October 1,
2012 and before October 1,
2019
For calendarcalendar-year
policies/plans, the fees would
apply for calendar policy/plan
years 2012 through 2018
www.payprocorp.com
2
What about 2015?
You can’t simply wait.
The employer mandate
has been deferred not
repealed!
www.payprocorp.com
Are You Planning to:
Pay
Play
Play
y
Differently?
www.payprocorp.com
3
Employer Size
Less
than 50
50 or
more
www.payprocorp.com
Employer Mandate
Effective for Plans beginning /Renewing on or after January 1st, 2015
Employers
with 50+ full time
p y
employees (or full time equivalent):
• Must offer medical coverage that is “affordable” and
provides “minimum value” to full time employees
• Subject to penalties
• Mandate is effect January 1, 2015 regardless of
grandfathered status
www.payprocorp.com
4
Prepare for 2015
Employer Mandate
Transitional relief
for employeremployersponsored plans
that currently begin
on a date other
than January 1, if
they comply upon
the first day of
their 2014 plan
year. Provided their
existing plan was:
Offered to at
least one third of
the employer’s
employees
during the most
recent open
enrollment, OR
The current plan
covers at least
one quarter of
the employer’s
employees
www.payprocorp.com
Remember!
Full Time:
Employees who work an
average of 30 hours per week
www.payprocorp.com
5
Remember!
Plan Affordability
For an individual
who earns within
the Federal Poverty
Level, an Employee’s
“single premium”
contribution has to
be equal to or less
than 9.5% of either:
An employee’s
Federal taxable
wages (Box 1 on
W2), or
An employee’s
monthly wages
(h
(hourly
l rate x 130
hours per month)
www.payprocorp.com
Remember!
Minimum Value:
bronze
A plan must pay 60% of the actuarial
value of covered health services
www.payprocorp.com
6
Employer Mandate Penalties
Penalties for not
offering any coverage:
$2000 per FTE (minus
first 30)
Non--Tax
Non
Deductible!
www.payprocorp.com
Employer Mandate Penalties
Penalty for
employers offering a
plan that is not
“affordable” or does
not provide
“minimum value” is
the lesser of:
• $3,000 per FTE
receiving the tax
credit for exchange
coverage, or
• $2,000 per FTE
(minus the first 30)
Non-Tax Deductible!
www.payprocorp.com
7
Employer Mandate Penalties
There are no tax penalties for
employers with less than 50 full-time
employees, or full time equivalents
Employers with a non January 1st plan
renewal will not incur any penalties if
they comply upon the first day of their
2014 plan year. Employers cannot
change a January 1 effective date to
take advantage of this relief
www.payprocorp.com
Remember!
Waiting Period:
Employers cannot have more than a 90
day waiting period after an employee
becomes eligible for coverage
www.payprocorp.com
8
Appendices
February 2013
Private Foundation Newsletter
Business Continuity and Disaster Recovery
A Post-“Sandy” Reflection
By Thomas DeMayo, Manager, Information Technology Services
Following the impact of Hurricane Sandy, while sitting in the darkness of my house
thankful that the worst inconvenience I sustained was no electricity, I found myself not
only concerned about my friends and family, but also our clients. I knew firsthand that
many of them did not have a business continuity and disaster recovery plan. Did they
sustain damage? Would they resume operations in a timely manner? Would their
business survive?
We often find ourselves making recommendations to our clients regarding the
development of a business continuity and disaster recovery plan. All too often a
Foundation does not have such a plan or the plan is outdated, perhaps never tested, or
was initially developed with little input and oversight from management. These past few
months, as families and businesses alike slowly begin to pick up the pieces from Sandy’s
devastation and move forward, this recommendation - that has been contained in so
many of our management letters - has become more than just words on a piece of paper;
this recommendation has become a reality.
With the world recovering from a major economic slump, Hurricane Sandy could not
have come at a worse time. Many businesses that had created a plan had since
abandoned it to reduce costs, and many who had hopes to develop a plan could not
justify the expense. Business continuity and disaster recovery plans are often not viewed
as what they really are, an immediate business necessity. However, a plan is no different
than any other insurance policy that is invested in to protect the Foundation.
As we push forward, businesses should take the opportunity to learn from this
experience and rebuild stronger and better. While developing a business continuity and
disaster recovery plan can be a time consuming process, it is not impossible. The very
first step in the development of a plan is management support and involvement.
Without management participation, the plan will not succeed.
When developing a business continuity and disaster recovery plan, many operational
aspects of the Foundation need to be considered. Technology alone will not allow for
successful recovery. A successful business continuity and disaster recovery plan must
encompass the human, procedural, and technical components that drive the Foundation.
In the creation phase, do not get caught up in trying to analyze and prepare for every
single threat and event. While it is certainly a good exercise, you can never account for
everything. What is important is not to overly focus on the events that cause the
damage, but the damage itself. For example, if your network goes down or you can’t
access your office facility, what do you do? There can be many disruptive events that
cause network downturn or office inaccessibility. The causes are irrelevant. What is
important is the planned response to the disruption.
A Foundation’s personnel, coupled with equipment, perform essential business functions.
These functions are what need to be identified and ranked for criticality when developing
a business continuity and disaster recovery plan. Once the functions are identified, we
need to deconstruct those functions into the individual components that make them
work. As I mentioned earlier, the resources required for these business processes may
not just be computer systems, but may include personnel, procedures, tasks, supplies,
and vendor support. By identifying the criticality of the business functions you will also
identify the systems and applications that need immediate recovery versus those that
can wait. Next, it is critical to understand how one function is dependent upon another
to prepare for a successful recovery. For example, many Foundations are now depending
on Cloud solutions for financial application hosting; however, a key dependency on any
Cloud service is internet access. Although the Cloud provider might promise to never
have application downtime, they cannot promise your internet connectivity will be just as
reliable. When we assist organizations in mapping out these interdependencies, often it
is discovered that processes considered insignificant are, in fact, a critical component in
the operation of a key business process, without which it would fail. We cannot
emphasize enough that your business functions are what should drive the business
continuity and disaster recovery plan.
What Foundations often forget as they go through this process is that everything needs
to be documented. In a time of crisis and chaos, you cannot rely on your employees to
recall from memory what the order of operations is or what the agreed response was.
The plan needs to be scripted and rehearsed. It needs to become a conditioned
response. Testing will be a key component of your Foundation’s plan. If you do not test
the plan, you cannot rely on it.
This article is not meant to be a complete resource for developing a business continuity
and disaster recovery plan. We hope, however, that it provides you with an overview of
the key issues to consider when developing your business continuity and disaster
recovery plan. Should you need additional assistance, please feel free to contact Thomas
J. DeMayo at [email protected].
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of
serving clients both domestically and internationally and providing specialized professional services of the
highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and Connecticut, and
approximately 400 professionals including 70 partners, the Firm provides a complete range of accounting,
auditing, tax and management advisory services. O’Connor Davies is ranked as number 39 in Accounting
Today's 2012 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the
New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County
Business Journals. O’Connor Davies is dedicated to serving the not-for-profit sector and serves more than 1,400
not-for-profit clients. O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally
independent firms and does not accept any responsibility or liability for the actions or inactions on the part of
any other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly
stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not
intended or written to be used, and cannot be used, (i) to avoid any penalties imposed by the Internal Revenue Code,
or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein. Our firm
provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal
advice, tax advice, accounting services, investment advice, or professional consulting of any kind.
The information provided herein should not be used as a substitute for consultation with professional tax, accounting,
legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional
adviser who has been provided with all pertinent facts relevant to your particular situation.
March 2013
Private Foundation Bulletin
Grants Requiring Expenditure Responsibility
Foundations that wish to make grants to organizations that are not
"public charities" are subject to a tax (called a taxable expenditure)
unless the foundation performs a series of procedures known as
"Expenditure Responsibility." There are five basic procedures that
should be performed under "Expenditure Responsibility:"
A. Conduct a pre-grant inquiry to ascertain that the grantee will
use the grant for religious, charitable, scientific, literary or
educational purposes.
B. There should be a written agreement between the
foundation and the grantee outlining the charitable activities
to be performed. The agreement should prohibit the use of
any funds for lobbying and the grant cannot be used for an
organizations general purpose.
C. The grantee should furnish the foundation with reports on
how the funds are spent and the progress towards the
charitable objectives of the grant.
D. The foundation should make full and detailed reports in its
federal tax form 990-PF in any year an expenditure
responsibility grant is made.
E. The grantee (unless the grantee is another Private
Foundation) should establish a separate fund for the grant.
Foundations making taxable expenditures will be taxed at the rate of
20 percent of each taxable expenditure, and each foundation
manager who knowingly, willfully and without reasonable cause
agreed to make a taxable expenditure will be taxed 5 percent of the
value of the taxable expenditure (subject to a limit of $10,000). If
the expenditure is not corrected, an additional tax equal to 100
percent of the amount of the expenditure will be imposed upon the
foundation and a tax of 50 percent of the amount of the expenditure
will be imposed upon the participating foundation manager (subject
to limit of $20,000).
For more information, please contact Thomas Blaney, Partner, at
[email protected] or 212.286.2600.
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that
has a long history of serving clients both domestically and internationally and providing
specialized professional services of the highest quality. With roots tracing to 1891,
seven offices located in New York, New Jersey and Connecticut, and approximately 400
professionals including 70 partners, the Firm provides a complete range of accounting,
auditing, tax and management advisory services. O’Connor Davies is ranked as number
36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also
within the 20 largest accounting firms in the New York Metropolitan area according
to Crain's New York Business and the Westchester and Fairfield County Business
Journals. O’Connor Davies is dedicated to serving the not-for-profit sector and serves
more than 1,400 not-for-profit clients including over 250 Private Foundations and
grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of
legally independent firms and does not accept any responsibility or liability for the
actions or inactions on the part of any other individual member firm or firms.
April 2013
Private Foundation Bulletin
Direct Charitable Activities and the Private Foundation
Direct charitable activities exist when a private foundation maintains some
significant involvement in its grant program. However, expenses attributable to
administering grant programs, such as reviewing grant applications, site visits,
selecting grantees and reviewing reports relating to the use of grant funds, usually
do not constitute Direct Charitable Activities. Direct Charitable Activities are
common within large private foundations and private operating foundations of any
size. They are not as common in family and small foundations. Nevertheless, there
appears to be a trend for some foundations (large and small) to initiate some
programs that could be construed to have a Direct Charitable Activity component.
These foundations are starting to function as a hybrid between a private
foundation and a private operating foundation. Foundations that have these type
of programs normally have more employees and consequently higher salaries and
wages than a “plain vanilla” private foundation. In connection therewith,
foundations that have Direct Charitable Activities probably should not be
compared to a “plain vanilla” foundation when performing compensation studies.
Furthermore, on the Federal Form 990‐PF tax return, Direct Charitable Activities
should be summarized. Many foundations fail to disclose this required information
on the Federal Form 990‐PF which, if presented accurately, could serve as a
marketing tool for the foundation as well as substantiate certain salaries and
wages.
Examples of Direct Charitable Activities are expenditures for:
•
Conducting educational seminars and conferences.
•
Providing goods, shelter, or clothing to indigents or disaster victims if the
foundation maintains some significant involvement in the activity rather than
merely making grants to the recipients.
•
Conducting scientific, historic, public policy, or other research with significance
beyond the foundation’s grant program that does not constitute a prohibited
attempt to influence legislation.
•
Publishing and disseminating the results of such research, reports of
educational conferences, or similar educational material.
•
Supporting the service of foundation staff on boards or advisory committees of
other charitable organizations or on public commissions or task forces.
Nowadays, more than ever, it is prudent for Foundations to ascertain if any grant
programs have a Direct Charitable Activity component and, if so, that it is properly
accounted for and disclosed on the Federal Form 990‐PF tax return.
Foundations making taxable expenditures will be taxed at the rate of 20 percent of
each taxable expenditure, and each foundation manager who knowingly, willfully
and without reasonable cause agreed to make a taxable expenditure will be taxed
5 percent of the value of the taxable expenditure (subject to a limit of $10,000). If
the expenditure is not corrected, an additional tax equal to 100 percent of the
amount of the expenditure will be imposed upon the foundation and a tax of 50
percent of the amount of the expenditure will be imposed upon the participating
foundation manager (subject to a limit of $20,000).
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a
long history of serving clients both domestically and internationally and providing specialized
professional services of the highest quality. With roots tracing to 1891, seven offices located in
New York, New Jersey and Connecticut, and approximately 400 professionals including 70
partners, the Firm provides a complete range of accounting, auditing, tax and management
advisory services. O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100
Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New
York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield
County Business Journals. O’Connor Davies is dedicated to serving the not-for-profit sector and
serves more than 1,400 not-for-profit clients including over 250 Private Foundations and
grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally
independent firms and does not accept any responsibility or liability for the actions or inactions
on the part of any other individual member firm or firms.
May 2013
Private Foundation Bulletin
IRS-403(b) Plan Approvals for Prototype and
Volume Submitter Plan Documents
By Louis F. LiBrandi, Principal
The Internal Revenue Service (“IRS”) has established procedures for a
preapproved document program for tax code Section 403(b) plans. The
guidance was issued in Revenue Procedure (“Rev. Proc.”) 2013-22 released in
March 2013. The Rev. Proc. describes the IRS procedures for issuing opinion
and advisory letters for 403(b) prototype and volume submitter plans that
comply with the 2007 final regulations under Section 403(b).
Pre-Approved Plan Document Programs
For many years the IRS has reviewed prototype and volume submitter plans
which were submitted by plan document preparer's (i.e., insurance companies,
financial institutions, TPAs and law firms). This type of IRS approval program
has been used for 401(k), profit-sharing, and other types of qualified
retirement plans. Generally, a prototype plan consists of a basic plan
document, an adoption agreement which the employer completes, and also
makes selections for the salient features (e.g., eligibility provisions, vesting
schedule, employer allocation formula, availability of loans and hardship
withdrawals, etc.) of the plan. A volume submitter plan is typically one selfcontained document which includes all the terms required to satisfy the
applicable plan regulations.
After the IRS completes its review of a specimen plan document, an opinion
(prototype) or advisory (volume submitter) letter will be issued to the plan
sponsor which constitutes a determination that the form of the plan
documents satisfy the requirements of Section 403(b). The IRS's review will not
consider the terms of any investment arrangement under the plan, and the IRS
has stated that if there is any conflict between the plan and the investment
contracts, the plan document will control. Other requirements outlined in the
Rev. Proc. including required provisions for all pre-approved plans (e.g.,
universal eligibility, compensation limitation, distributable events, etc.) must be
satisfied for an employer who adopts an approved prototype or volume
submitter plan to rely on the IRS issued letter.
Changes and New Guidance
The Rev. Proc. has made some additions or changes to previously issued
guidance for 403(b) plan documents. Also, the IRS's pre-approval program will
allow employer contributions to be subject to a vesting schedule.
Retroactive Remedial Amendment Period (RAP)
Effective January 1, 2009, a contract (that is, an annuity contract, custodial
account, or retirement income account) does not satisfy the requirements of
Section 403(b) unless the contract is maintained pursuant to a written plan
that, in both form and operation, satisfies the requirements of the IRS's 2007
regulations.
The Rev. Proc. allows an eligible employer to retroactively correct defects in
the form of its written Section 403(b) plan (including any defects in documents
incorporated by reference into the plan) in order to satisfy the written plan
requirement in the 2007 regulations by timely adopting a Section 403(b) preapproved plan or by otherwise timely amending its plan. Therefore, the Rev.
Proc. is providing a process for an employer to currently correct plan document
“defects” and be considered to be in compliance retroactive to the later of
January 1, 2010, or the effective date of the plan.
Please feel free to contact Louis F. LiBrandi, Principal, in the Employee Benefit
Services Practice, at [email protected] if you have any further questions
about the IRS pre-approval 403(b) plan document process or other 403(b) plan
issues.
About O’Connor Davies
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that
has a long history of serving clients both domestically and internationally and providing
specialized professional services of the highest quality. With roots tracing to 1891,
seven offices located in New York, New Jersey and Connecticut, and approximately 400
professionals including 70 partners, the Firm provides a complete range of accounting,
auditing, tax and management advisory services. O’Connor Davies is ranked as number
36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also
within the 20 largest accounting firms in the New York Metropolitan area according to
Crain's New York Business and the Westchester and Fairfield County Business Journals.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of
legally independent firms and does not accept any responsibility or liability for the
actions or inactions on the part of any other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to
inform you that unless expressly stated otherwise, any discussion of U.S. federal tax
issues in this correspondence (including any attachments) is not intended or written to
be used, and cannot be used, (i) to avoid any penalties imposed under the Internal
Revenue Code, or (ii) to promote, market, or recommend to another party any
transaction or matter addressed herein.
Private Foundation Bulletin
June 2013
Contact
New York, NY
(downtown)
212.867.8000
New York, NY
(midtown)
212.286.2600
Harrison, NY
914.381.8900
Stamford, CT
203.323.2400
Paramus, NJ
201.712.9800
New Windsor, NY
845.220.2400
Wethersfield, CT
860.257.1870
www.odpkf.com
Private Foundations Filing Requirements Relating to Foreign
Investments
Many private foundations have been investing in alternative and other foreign investments.
These investments promise to generate higher rates of return or are structured to prevent or
eliminate exposure to the unrelated business income (“UBI”) tax and can directly or indirectly
involve the private foundation in transactions with foreign entities. These transactions often
generate additional tax filing requirements and can potentially subject the private foundation to
substantial penalties if the required forms are not completed.
U.S. filing requirements for exempt organizations invested in foreign entities
IRC Sections 6038 and 6038B require exempt organizations to report to the IRS on an annual
basis, certain direct and indirect transfers to and investments in foreign corporations and foreign
partnerships. Generally, Forms 926 and 5471 will be required to be filed with respect to
ownership in and certain transfers of property, including cash, to foreign corporations. Form
8865 will be required to report certain information with respect to the ownership in and
transfers to, foreign partnerships. The amount and type of information required to be disclosed
will depend on the percentage of ownership in the foreign corporation or partnership and or the
value of the property transferred.
Foreign Partnerships
Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, is generally
required to report direct or indirect investments in foreign partnerships. The form must be filed
for each foreign partnership whereby the exe mpt organization directly or indirectly transfers an
amount in excess of $100,000 in a twelve month period.
Foreign Corporations
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is generally required
to report direct or indirect investments in foreign corporations. The form must be filed for each
foreign corporation whereby the exempt organization directly or indirectly transfers an amount
in excess of $100,000 in a twelve month period.
Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, is
generally used to report a 10 percent or greater interest in a foreign corporation. Please note
that this form may be required to be filed in addition to the form 926 if certain criteria for filing
are met.
Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund is generally not required to be filed by an exempt organization unless the foreign
investment generates UBI.
Other Potential Filings
Form 8858, Information Return of U.S. Persons with respect to Foreign Disregarded Entities Form
TDF 90‐22.1, Report of Foreign Bank and Financial Accounts (for exempt organizations as well as
officer and directors) Form 8886, Reportable Transactions Disclosure Statement
Please contact Thomas Blaney at [email protected] or a member of the O’Connor Davies
Private Foundation Services Team if you have any questions.
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history
of serving clients both domestically and internationally and providing specialized professional services of
the highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and
Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a complete
range of accounting, auditing, tax and management advisory services. O’Connor Davies is ranked as
number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also within the 20
largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the
Westchester and Fairfield County Business Journals. O’Connor Davies is dedicated to serving the not-forprofit sector and serves more than 1,400 not-for-profit clients including over 250 Private Foundations and
grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent
firms and does not accept any responsibility or liability for the actions or inactions on the part of any other
individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless
expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any
attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed
by the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction
or matter addressed herein. Our firm provides the information in this e-newsletter for general guidance
only, and it does not constitute the provision of legal advice, tax advice, accounting services, investment
advice, or professional consulting of any kind.
The information provided herein should not be used as a substitute for consultation with professional tax,
accounting, legal, or other competent advisers. Before making any decision or taking any action, you should
consult a professional adviser who has been provided with all pertinent facts relevant to your particular
situation.
Private Foundation Bulletin
July 2013
Senate Finance Committee - Tax Reform Options for
Discussion Related to Private Foundations and Other
Tax-Exempt Entities
On June 13, 2013 the Senate Finance Committee issued a series of papers compiling tax
reform options for tax-exempt organizations and charitable giving. Some of the topics
covered included the following:
1.
Reform the taxation of private foundations
a. Excise Tax - Replace the two current federal excise tax rates on net
investment income of 2% or 1%, as determined by certain financial ratios,
with a single rate (i.e. 1.4%)
b. 20% Business Ownership Rule - Ease the rules that disallow private
foundations from owning more than 20% of a for-profit corporation in
instances when the foundation acquires the business through a gift or
bequest, the foundation is independent of the donor’s family, and the forprofit corporation distributes all of its net profits to the foundation
2.
Ensure that donor-advised funds and supporting organizations are directing
resources for charitable purposes in a timely fashion
Under current law, donor advised funds (DAFs) and supporting organizations are
public charities that often have some donor involvement similar to private
foundations. An individual may make an irrevocable gift to a DAF and receive the
charitable contribution deduction. The fund then makes grants to charities on the
advice of the individual donor. Supporting organizations are charities that support
exempt organizations, usually other public charities. Some of the proposed changes
for these entities include:
a. 5% Payout - Impose a minimum yearly payout requirement for DAFs (i.e. 5%)
b. “Spend-out” Deadline - Require that all assets be distributed within a
specified time frame (i.e. 7 years)
3.
Reform reporting requirements
Currently, most tax-exempt organizations are required to publicly file their annual
information on Form 990. However, most tax-exempt organizations, other than
501(c)(3) organizations, are not required to publicly file the Form 990-T where they
disclose information about their unrelated business income (UBI). Some potential
reforms to the reporting requirements include:
a. Make UBI Returns Public - Require tax-exempt organizations to make public
their Form 990-T
b. E-file - Require electronic filing for all 990 forms
c. Raise Minimum Requirements to File - Allow charities with up to $1 million in
gross receipts to file a simpler form than the full Form 990
If you would like a complete copy of the Senate Finance Committee Staff discussions,
please contact Thomas F. Blaney, CPA, Partner, at [email protected] or Christopher D.
Petermann, CPA, Partner at [email protected] or 212.286.2600.
About O’Connor Davies, LLP
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long
history of serving clients both domestically and internationally and providing specialized professional
services of the highest quality. With roots tracing to 1891, seven offices located in New York, New
Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm
provides a complete range of accounting, auditing, tax and management advisory services.
O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United
States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area
according to Crain's New York Business and the Westchester and Fairfield County Business Journals.
O’Connor Davies is dedicated to serving the not-for-profit sector and serves more than 1,400 notfor-profit clients including over 250 Private Foundations and grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally
independent firms and does not accept any responsibility or liability for the actions or inactions on
the part of any other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that
unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence
(including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid
any penalties imposed by the Internal Revenue Code, or (ii) to promote, market, or recommend to
another party any transaction or matter addressed herein. Our firm provides the information in this
e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax
advice, accounting services, investment advice, or professional consulting of any kind.
Private Foundations Bulletin
August 2013
Foreign Account Tax Compliance Act (FATCA)
Starting Dates Delayed and Timelines Modified
Contact:
New York, NY
(midtown)
212.286.2600
New York, NY
(downtown)
212.867.8000
Harrison, NY
914.381.8900
Stamford, CT
203.323.2400
Paramus, NJ
201.712.9800
New Windsor, NY
845.220.2400
Wethersfield, CT
860.257.1870
The Treasury announced on July 12, 2013 that it was revising the timelines for
implementation of the FATCA requirements (IRC § 1471 – 1474) and delaying the start of
withholding and account due diligence for six months. The delay will also be used to provide
additional guidance concerning the treatment of financial institutions located in jurisdictions
that have signed Intergovernmental Agreements (IGAs) for the implementation of FATCA, but
have not yet brought those agreements into force. Details of the delays are contained in
Notice 2013-43.
The delay, the second involving FATCA, pushes the start of withholding to payments made
after June 30, 2014 to payees that are Foreign Financial Institutions (FFIs) or Non-Financial
Foreign Entities (NFFEs) with respect to obligations that are not grandfathered obligations.
The definition of grandfathered obligation will be revised to include obligations outstanding
on July 1, 2014. The deadlines for completing due diligence on preexisting obligations will
also be moved by six months to July 1, 2014.
Due diligence deadline for documenting payees and account holders by U.S. withholding
agents and participating foreign financial institutions (PFFIs) will remain as March 31, 2015,
but only with respect to calendar year 2014 for U.S. accounts identified by December 31,
2014. Annual reporting, including information exchanged under an IGA by partner
jurisdictions in 2015 will, therefore, no longer be required for calendar year 2013. This
revision will also be applied to FFIs governed by a Model 1 IGA.
The FATCA registration website is now planned to be accessible to FFIs by August 19, 2013.
Financial information provided by FFIs prior to January 1, 2014 will be considered preliminary.
On or after the January 1 date, the FFI will have to log into its account and finalize its
information. At this point, the FATCA registration number, Global Intermediary Identification
Number (GIIN), will be issued.
About O’Connor Davies
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long
history of serving clients both domestically and internationally and providing specialized professional
services of the highest quality. With roots tracing to 1891, seven offices located in New York, New
Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a
complete range of accounting, auditing, tax and management advisory services. O’Connor Davies is
ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also
within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York
Business and the Westchester and Fairfield County Business Journals.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent
firms and does not accept any responsibility or liability for the actions or inactions on the part of any
other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that
unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence
(including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any
penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to
another party any transaction or matter addressed herein.
September 2013
Private Foundation Bulletin
Designing an Effective Compensation Committee Process at
Your Foundation
The annual process of setting the compensation for a Foundation President, CEO,
Executive Director or other key executives has been the subject of much discussion and
scrutiny for some time. However, many foundations do not have a well thought out and
standard procedure to ensure that the process conforms to good business practices.
Established guidelines, if followed, can provide some reassurance that the Foundation
has reached reasonable and prudent conclusions surrounding executive compensation.
Without a reasonable and documented process, a Foundation risks paying an "excess
benefit" to an executive.
While the details of the process will vary for each organization, the following are some
suggested elements of a good Compensation Committee process:
Organizational Meeting
• Develop a calendar for action and confirm independence of Committee members
• Review prior year process and report and consider amendments for process
improvement(s)
• Identify covered executive personnel
• Identify independent data sources
• Consider hiring an independent compensation consultant
Data Gathering
• Retrieve covered personnel compensation history (include all elements of
compensation)
• Gather independent, outside compensation data (e.g. consultant, survey,
Guidestar)
• Gather other sector and economic data (e.g. CPI, local geographic economics)
• Make sure data is for similar type organization
• Obtain personnel evaluation results, if applicable
Recommendation Development
• Propose preliminary compensation adjustment(s)
• Compare proposed compensation adjustment(s) to comparable independent data
• Conclude compensation recommendation(s)
Conclusion and Documentation
• Prepare report to Board
• Review Committee process and possible improvements for following year
• Prepare minutes of Committee process
Communication
• Present report to Board
• Document communication of actions with covered employee(s)
Regardless of the detailed steps taken by a Foundation's Compensation Committee, it is
essential that the members of the Committee are all independent of the executive(s)
whose compensation is being determined. It is also critical that the Committee gather
contemporaneous independent data covering comparable positions at comparable
institutions. And lastly, that the Committee documents its process including its ultimate
reporting to the governing board.
If you have any questions, please contact Thomas F. Blaney CPA, [email protected]
or Chris Petermann, CPA, at [email protected], Partners and Co-Directors in the
Foundation Services Practice.
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long
history of serving clients both domestically and internationally and providing specialized
professional services of the highest quality. With roots tracing to 1891, seven offices located in
New York, New Jersey and Connecticut, and approximately 400 professionals including 70 partners,
the Firm provides a complete range of accounting, auditing, tax and management advisory
services. O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in
the United States. The Firm is also within the 20 largest accounting firms in the New York
Metropolitan area according to Crain's New York Business and the Westchester and Fairfield
County Business Journals. O’Connor Davies is dedicated to serving the not-for-profit sector and
serves more than 1,400 not-for-profit clients including over 250 Private Foundations and
grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally
independent firms and does not accept any responsibility or liability for the actions or inactions on
the part of any other individual member firm or firms.
October 2013
Private Foundations Bulletin
Foreign Account Tax Compliance Act “FATCA” Update
The Internal Revenue Service (IRS) has been very busy the last few months in the FATCA
world. As previously reported, the IRS delayed the timetable to begin withholding on certain
payments made to foreign financial institutions and the definition of a grandfathered
obligation. More recently, the IRS has announced the opening of on-line FATCA registration
and posted a print Form 8957 to its website as an alternative. As the implementation
timeframe approaches, registration is becoming increasingly important as demonstrated by
these recent information releases and website postings.
Contact:
RECENT DEVELOPMENTS
New York, NY
(midtown)
212.286.2600
On-line Registration
New York, NY
(downtown)
212.867.8000
The U.S. Treasury and the IRS created a new FATCA registration website, which is the primary
way for foreign financial institutions FFIs to interact with the IRS and to complete the
required registration, agreements, and certifications. The website is accessible to FFIs. After
approval, each participating FFI and registered deemed-compliant FFI will be assigned a
global intermediary identification number (GIIN), which will be used both for reporting
purposes and to identify the FFI's status to withholding agents.
Harrison, NY
914.381.8900
On August 19, 2013 the IRS announced the opening of the new on-line registration system for
financial institutions that need to register with the IRS under FATCA.
Stamford, CT
203.323.2400
Financial institutions can now begin the process of registering by creating an account and
providing required information. They will also be able to provide required information for
their branches of operation and other members of their expanded affiliate groups. The
registration system is a web-based application with around-the-clock availability and is
designed to enable secure account management.
Paramus, NJ
201.712.9800
New Windsor, NY
845.220.2400
Wethersfield, CT
860.257.1870
Within a secure environment, the new registration system enables financial institutions to:
•
•
•
•
•
establish online accounts;
customize home pages to manage accounts;
designate points of contact to handle registrations;
oversee member and/or branch information; and
receive automatic notifications of status changes.
Financial institutions are encouraged to become familiar with the system because starting in
January 2014, financial institutions will be expected to finalize their registration. As
registrations are finalized and approved in 2014, financial institutions will receive a notice of
acceptance and will be issued a GIIN.
The IRS will electronically post the first IRS FFI List in June 2014, and will update the list
monthly. To ensure inclusion in the June 2014 IRS FFI List, financial institutions will need to
finalize their registrations by April 25, 2014.
[Access to the FATCA registration system and related support information can be found on
the FATCA page of IRS.gov.]
FATCA Print Form
On August 27, 2013 the IRS posted to its website the final version of a new print form for
FATCA Registration and accompanying instructions. Despite the availability of the print form,
both the form and instructions encourage on-line registration.
Filing out the Form
Form 8957 is a 4-page, 4-part form. Part 1 must be completed by all applicants. It requests
information on the financial institution, including: a) basic entity information; b) whether or
not the entity is and intends to remain a qualified intermediary (QI), withholding partnership
(WP) or withholding trust (WT); c) information on any branches outside the entity's tax
residence country; d) identification of a responsible officer; and e) information about persons
who will be points of contact for the IRS.
Part 2 covers information on the members of the expanded affiliated group, if the filer is the
member of such a group and is the "Lead FI" of the group.
Part 3 contains renewal information of QIs, WPs and WTs.
Part 4 contains the responsible officer signature and certification.
It would appear that April 25, 2014 is the deadline for filing Form 8957 or registering
electronically to completely eliminate any possibility of being withheld upon. However, it isn't
fully clear whether filing a Form 8957 constitutes "finalizing registration."
Clearly, the clock is ticking for FATCA registration and implementation procedures. Affected
taxpayers should have already taken steps to ensure they will be in FATCA compliance.
About O’Connor Davies
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long
history of serving clients both domestically and internationally and providing specialized professional
services of the highest quality. With roots tracing to 1891, seven offices located in New York, New
Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a
complete range of accounting, auditing, tax and management advisory services. O’Connor Davies is
ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also
within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York
Business and the Westchester and Fairfield County Business Journals.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent
firms and does not accept any responsibility or liability for the actions or inactions on the part of any
other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that
unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence
(including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any
penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to
another party any transaction or matter addressed herein.
November 2013
Private Foundation Bulletin
2013 Form 990-PF Filing: Draft changes and how they could effect
your Foundation’s reporting requirements
The Internal Revenue Service (“IRS”) has just recently released their draft of the
2013 Form 990-PF instructions. As was the case in prior years, this release
comes with a few changes.
One of the more significant changes to be aware of is how grantee receipients
are to be classified. In the past, grantees listed on Part XV, Supplementary
Information, could be classified as a Public Charity, Private Foundation, ForProfit, Government Entity, etc.
Starting with the 2013 Form 990-PF, the IRS has developed specific codes with
the goal of clarifying the status of recipients and creating uniformity. Below is a
full listing of the codes that your Foundation will need to become familiar with.
Foundation Status of Recipient
• PC – public charity
• NC – non-charity
• PF – private non-operating foundation
• EOF – exempt operating foundation
• POF – private operating foundation other than an EOF
• SO-DP – type I, type II, or type III functionally integrated supporting
organization if a disqualified person of the private foundation controls the
supporting organization or a supported organization
• SO I – type I supporting organization
• SO II – type 2 supporting organization
• SO III FI – functionally integrated type III supporting organization
• SO III NF – non-functionaly integrated type III supporting organization
• TPS – testing for public safety organization
The rules used to determine whether a grantee is a type I, type II, or type III
functionally integrated, or type III non-functionally integrated supporting
organization can be quite complex. Treasury Regulation 1.509(a)-4, Notice
2006-109 and Rev. Proc. 2009-32 provides detailed guidance.
It is essential when performing grantee due diligence that your Foundation
obtains a clear understanding regarding the organizational status of potential
grantees. One way of accomplishing this is to require potential grantees to
provide their most recent IRS determination letter as part of your due diligence
process. Addtionally, there are various service providers available as a resource
in verifying the organizational status of potential grantees.
Stay tuned for updates on the finalization of the 2013 instructions. If you have
any questions about the topic covered above or any of the other changes that
have occurred to the 2013 Form 990-PF please contact Thomas F. Blaney, CPA
at [email protected] or Chris Petermann, CPA at [email protected],
both Partners and Co-Directors in the Foundation Services Practice.
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that
has a long history of serving clients both domestically and internationally and providing
specialized professional services of the highest quality. With roots tracing to 1891,
seven offices located in New York, New Jersey and Connecticut, and approximately 400
professionals including 70 partners, the Firm provides a complete range of accounting,
auditing, tax and management advisory services. O’Connor Davies is ranked as number
36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also
within the 20 largest accounting firms in the New York Metropolitan area according
to Crain's New York Business and the Westchester and Fairfield County Business
Journals. O’Connor Davies is dedicated to serving the not-for-profit sector and serves
more than 1,400 not-for-profit clients including over 250 Private Foundations and
grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of
legally independent firms and does not accept any responsibility or liability for the
actions or inactions on the part of any other individual member firm or firms.
December 2013
Private Foundation Bulletin
2013/2014 Year End Private Foundation
Tax Planning Tips
•
Individuals that donate to private foundations must be provided with an
acknowledgement letter in order for the individual to receive a charitable deduction
on their federal tax return. This is the responsibility of the private foundation and
should be done in a timely manner.
•
Consider offsetting capital losses with capital gains.
•
Prior to year end, monitor the Foundation’s current financial position to ascertain if
the foundation can qualify for a reduction from a 2% to a 1% federal excise tax. For
example, a foundation that distributes an extra $5,000 in grants could possibly save
that amount or greater in taxes. Some foundations may wish to accelerate the
distributions of grants from the next tax year to the current tax year to possibly
qualify for the reduction in tax. Most importantly, make sure that the Foundation's
prior year undistributed income has been or will be distributed before year end.
•
Foundations should review the allocation of operating and administrative expenses
between net investment income and charitable expenditures. By reviewing these
allocations, a foundation may determine that certain expenses can qualify as a
charitable expense thereby reducing the mandatory distribution requirements and
possibly enabling the foundation to qualify for a reduction in the federal excise tax
from 2 percent to 1 percent.
•
Avoid the federal excise tax by donating publicly traded appreciated stock with a low
cost basis to a grantee.
•
For grants subject to expenditure responsibility, i.e. certain grants to foreign
organizations and grants to other private foundations, make sure that expenditure
responsibility requirements were met.
•
Review all investments in limited partnerships to see if the foundation is subject to
unrelated business income tax, which would be at corporate rates. Also review tax
exposure to states in which the Foundation would not normally be required to file in.
Furthermore, if a foundation has unrelated business income (“UBI”), consider utilizing
the charitable contributions deduction on the 990T. There may be income shown on
line 1 of Schedule K-1, which is ordinary income from trade or business, yet UBI may
not be indicated on Schedule K-1. A phone call to the partnership or investment
manager may be necessary.
•
Investments in limited partnerships and foreign hedge funds should also be reviewed
to determine if any foreign filings are required. Two common filings are form 926
(Return by a U.S. Transferor of Property to a Foreign Corporation) and form 8865
(Return of U.S. Persons with Respect to Certain Foreign Partnerships).
•
Each individual state may have a different time frame as to when a filing is required;
therefore, the time for filing state reports may differ from the time for filing the
990PF tax return.
•
Foundations that invest in foreign securities should ask their investment advisors to
file for refunds for any foreign taxes withheld. Depending on the country,
foundations may by eligible for a refund of all or a portion of foreign taxes withheld
by the source country.
•
If the excise tax for the current year is $500 or greater, estimated tax payments for
the subsequent year are required. These estimated tax payments are due the
fifteenth day of the fifth, sixth, ninth and twelfth month of the Foundation’s fiscal
year.
•
Foundations that have paid directors, officers or management should consider having
a compensation study done by an independent consultant every few years to provide
a reasonable basis for the compensation being provided.
Should you have any questions, please feel free to contact Chris Petermann or Tom
Blaney at (212) 286-2600.
About Our Practice:
O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long
history of serving clients both domestically and internationally and providing specialized professional
services of the highest quality. With roots tracing to 1891, seven offices located in New York, New
Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm
provides a complete range of accounting, auditing, tax and management advisory services.
O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United
States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area
according to Crain's New York Business and the Westchester and Fairfield County Business Journals.
O’Connor Davies is dedicated to serving the not-for-profit sector and serves more than 1,400 notfor-profit clients including over 250 Private Foundations and grantmaking organizations.
O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally
independent firms and does not accept any responsibility or liability for the actions or inactions on
the part of any other individual member firm or firms.
IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that
unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence
(including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid
any penalties imposed by the Internal Revenue Code, or (ii) to promote, market, or recommend to
another party any transaction or matter addressed herein. Our firm provides the information in this
e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax
advice, accounting services, investment advice, or professional consulting of any kind.
The information provided herein should not be used as a substitute for consultation with
professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional adviser who has been provided with all
pertinent facts relevant to your particular situation.
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