Private Foundation Issues, Solutions,

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Private Foundation Issues, Solutions,
Alternatives

• Presented by Carol Bradford, Vice President,
  External and Donor Relations, CCF
• Reynolds Cafferata, Partner, Rodriguez,
  Horii, Choi Cafferata LLP
• Barry Peterson, Director, Charitable
  Business Development, CCF
• Date November 19, 2009

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• Webinar will be recorded
• Attendees are muted during the webinar
• Ask questions by typing text into your chat
  screen and your questions will be read by CCF
  staff
• We invite your feedback
• Thanks!

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Upcoming Webinars

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Your Presenters
Carol Bradford Vice President External and Donor
Relations Carol Bradford oversees the external
and donor relations department that provides
technical assistance and support to donors,
professional advisors and nonprofit organizations
seeking to set up funds, create planned gifts or
make gifts of complex assets.
Barry Peterson Director Charitable Business
Development Barry Peterson oversees the
charitable business development team that assists
donors and professional advisors with technical
aspects of charitable and planned gifts including
complex gifts, such as real estate, closely held
stock, and life income plans.
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Our Featured Presenter

• Cafferata's practice is concentrated in the area
  of charitable tax, trust and corporate law. He
  has experience advising charitable organizations
  and individuals regarding
• Planning complex charitable gifts and charitable
  trusts
• Creating and operating donor advised funds,
  private foundations and support organizations
• Creating policies for gift acceptance and risk
  management, unrelated business income taxes, and
  self-dealing and intermediate sanctions excises
  taxes
• Endowment management and state law compliance
• Cafferata also has considerable experience
  providing corporate fiduciaries guidance in the
  management of charitable trusts, as well as
  representing charities and fiduciaries in
  contested probates and judicial reformation of
  trusts.

Reynolds Cafferata Partner, Rodriguez, Horii,
Choi Cafferata LLP
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What Is California Community Foundation (CCF)?

• Established in 1915, California Community
  Foundation (CCF) is one of the oldest and largest
  community foundations in the nation. As the
  premier giving partner in Los Angeles, we offer
• A proven track record of experience
• 53rd largest foundation in the nation
• Stewarding nearly 1 billion in assets for 1800
  donors, families, corporations and non-profits
• More than 5000 grants and 150 million provided
  to philanthropic causes in LA and beyond
• Leading funder of
• Iraq/Afghanistan veterans
• Individual artists
• Permanent affordable housing
• Scholarships
• A range of innovative solutions to maximize the
  impact of your philanthropy, including
• Sophisticated charitable vehicles and fund
  choices
• Flexible options for giving to causes and
  non-profits locally and globally
• Personalized donor education and grant making
  assistance
• Customized services evolve with your philanthropy

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CCF and the Foundation Industry

• 717 Community Foundations
• Approx.100,000 US foundations
• CFs 4.6 billion in grants
• 10 of all foundation grantmaking (2008)
• CCF
• 2nd in grantmaking
• 5th in gifts
• 8th in assets (2007)

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Private Foundation Issues, Solutions,
Alternatives

• Private Foundation Issues
• Anonymity Privacy
• Self-Dealing and Disqualified Persons
• Required Distributions
• Scholarships
• Grants to non-charities
• International grants
• Investments
• Private Foundation Solutions
• Private Foundation Alternatives

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Private Foundation Issues

• Anonymity Privacy
• How often do you see clients who want to make
  large anonymous donations? What are the
  motivations behind it?
• Does CCF have anonymous funds?
• How do anonymous donors work with CCF?
• How do you approach the issue of privacy for a
  client who is contemplating starting a private
  foundation?  Do you brief them on what
  information is made publicly available?
• In the conversations you have with donors and
  advisors around privacy, are they aware that
  private foundation tax returns are publicly
  available? 
• Community foundation tax returns are also
  publicly available on Guidestar?  How is this
  different than a private foundation?

Worst pick up line ever "You know all those
anonymous gifts to charitiesthat was me."
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Private Foundation Issues

• Self-Dealing and Disqualified Persons
• Who are disqualified persons? 
• Can you give an example of a scenario involving a
  donors closely-held corporation and their
  private foundation?
• In California many folks have substantial real
  estate holdings can they rent empty office space
  to their private foundation?  
• Board compensation and hiring family members as
  staff
• Do many private foundations get set up for these
  reasons for example, so family members can be
  hired or compensated?
• What are some of the potential pitfalls here? 
  How is reasonable compensation determined?
• Travel expenses for family
• Whats permissible and what guidance do you give
  clients on this issue?

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Private Foundation Issues

• Attending fundraisers
• What are the common mistakes private foundation
  donors can make when supporting fundraising
  events?
• How does CCF handle this?  Do donors submit grant
  recommendations for fundraising events? 
• Legally Binding Personal Pledges
• Are some donors fulfilling personal binding
  pledges with their private foundation?  Is this a
  common error? 
• Why do they enter these pledges in the first
  place?  Do you advise your clients to consult
  with you for these large gifts?
• Does CCF encounter this issue and what have we
  done?

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Private Foundation Issues

• Required Distributions
• Do many private foundations run into this
  difficulty of meeting their required
  distributions?
• What would you suggest a private foundation do if
  a donor was getting older and had no family
  members who were interested in continuing the
  foundation?
• Does CCF see many donors who have both a private
  foundation and a fund at a community foundation? 
  
• Should we anticipate donor advised fund payout
  requirements?

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Private Foundation Issues

• Scholarships
• Does a private foundation need to obtain prior
  consent from the IRS before setting up and
  scholarships?
• If a private foundation trustee meets an A high
  school student, unrelated to the donor, that
  demonstrates a high need for financial assistance
  in order to attend college, can the foundation
  make a scholarship grant to support that
  individual?
• What if a client is interested in other types of
  grants to individuals such as disaster relief,
  healthcare, prizes and awards?
• How does a donor-involved scholarship fund at a
  community foundation differ in operation from a
  scholarship fund at a private foundation?
• Can you give an example of a scholarship fund at
  CCF that falls outside your typical scholarship
  assumptions?

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Private Foundation Issues

• Grants to non-charities
• How do private foundations support a charitable
  purpose with a grant to a non-charity? 
• Have can this go wrong?
• How do community foundations handle these types
  of grants?  Do all funds meet the donor advised
  fund definition?

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Private Foundation Issues

• International grants
• What does a private foundation have to do to make
  an international grant? And whats the difference
  between expenditure responsibility and
  equivalency determination?
• What method does CCF use and what does the
  process involve?   
• What would you suggest a donor do if they do not
  want to support an existing project or charity
  but want to start a new one?  Are there resources
  out there for donors who want to do really
  grassroots work in places like Asia or Eastern
  Europe?   

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Private Foundation Issues

• Investments
• What are jeopardizing investments and what
  charitable entities does this affect?
• In your opinion, are most private foundations
  aware of these potential violations?
• What impact will events such as the Madoff
  scandal have on the charitable sector?

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Private Foundation Issues

• Code Section 4940. Excise tax based on investment
  income.
• 2 tax on net investment income, required to make
  quarterly estimated payments
• Code Section 4941. Taxes on self-dealing.
• No sale or leasing of property with disqualified
  persons. If you have empty office space, you
  cant lease it, you have to give it for free.
• IRS sees paying a pledge the same as paying your
  credit card bill relieving your debt.
• Tickets/Tables/Golf tournaments, if you purchase
  a table at an event and invite your family and
  friends who are not on the board of the private
  foundation, thats self-dealing.
• Code Section 4942. Taxes on failure to distribute
  income.
• 30 tax on undistributed investment income
  (assumed 5 return), 100 tax if that amount
  remains undistributed by the next year.
• Code Section 4944. Taxes on investments which
  jeopardize charitable purpose.
• These include trading in securities on margin
  trading in commodity futures investments in
  working interests in oil and gas wells the
  purchase of "puts," "calls," "straddles" and
  warrants and selling short.
• Code Section 4945. Taxes on taxable expenditures.
• No lobbying, not even a little
• Paying kids executive compensation, donor has
  an unemployed son who used to make 250k a year
  as an investment banker, check the Council on
  Foundations compensation study.
• California Corporations Code Section 5227. Family
  board members.

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Private Foundations Solutions

• A PARTNER TO INCREASE THE IMPACT OF YOUR GIVING

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Private Foundation Alternatives
Matching Philanthropic and Financial Goals
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Private Foundation Alternatives
Matching Your Philanthropic Financial Goals
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Fundholders Come from Diverse Sources
CCF Specializes in Converting Complex Assets into
Flexible Grantmaking
DONOR SOURCES
CONTRIBUTION OPTIONS
GRANTING OPTIONS
CCF
All beneficiaries must be recognized as
charitable organizations under IRS regulations.
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Questions?
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Contact Us
Visit us on the web www.californiacommunityfoundat
ion.org