If tickets are obtained for personal use by or on behalf of a disqualified person, the IRS can impose a penalty tax on the disqualified persons who engage in the act of self-dealing. The penalty, payable by the disqualified person who used the tickets (not by the foundation), will be equal to 10% of the amount involved.3 Further, the disqualified person must pay the foundation back for the ticket or otherwise correct the self-dealing violation. If the self-dealing act is not undone or “corrected” within a certain period of time known as the “taxable period,”4 the IRS may impose confiscatory second-tier taxes, currently 200% of the amount involved. Finally, the IRS may impose an additional 5% penalty on any foundation manager who “participated” in the self-dealing transaction “knowing” that the act was self-dealing.

#2: Taxable Expenditures
In addition to the prohibition on financial transactions with disqualified persons, the Code also imposes penalties on a foundation’s “taxable expenditures” (i.e., any expenditure that does not further charitable purposes5). So, even if the foundation’s use of an event ticket confers a benefit on someone who is not a disqualified person, that use may still violate the law if it does not further a charitable purpose. If the use of a ticket is a taxable expenditure, it carries a penalty, payable by the foundation, in the amount of 20% of the expenditure. In addition to the penalty, the IRS rules and regulations governing taxable expenditure violations require that the violation be corrected (which could include having the funds returned to the foundation), as is the case with self-dealing violations.

#3: The “Reasonable and Necessary” Exception
Foundation board members often have excellent reasons to attend a charity fundraising event, such as a need to monitor the use of foundation grants, interact with other donors, or meet the grantee’s board and staff so they can learn more about the charity and its programs. Sometimes, a charity desires the presence of foundation representatives because they might attract other influential donors. If the economic benefit received by the disqualified person is reasonable and necessary, and in furtherance of the foundation’s charitable purposes, using the foundation tickets is allowable. Accordingly, it will not constitute self-dealing if, for example, a board member attends an event to represent the foundation in an official capacity and to carry out work that is reasonable and necessary for fulfilling the exempt purposes of the foundation.

It is important to note that the above exception to the self-dealing rules only applies to, and tickets should only used by, foundation staff, officers, directors, and others who have an official role on the foundation and attend events for foundation purposes, not for personal reasons. Spouses or other family members who do not serve the foundation in an official capacity, and would attend the events purely for personal reasons, are not covered by this exception to the self-dealing rules and may not use foundation tickets. Because such family members likely are disqualified persons, they could be personally liable for self-dealing penalties if they were to receive the foundation’s tickets.

Want to see the rest of the list?
Check out the complete article to learn more about navigating the legal issues from the improper use of foundation tickets.

Have a Compliance Question About Private Foundations?
Schedule a call with us or reach us at 800-839-0054. Foundation Source clients, please contact your Private Client Advisor for assistance. Together, let’s #begiving.

1 Section 4941(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), imposes a tax on each act of self-dealing between a disqualified person and a private foundation.
2 The term “disqualified person” includes directors, officers, trustees, substantial contributors, persons with a 20% or greater interest in an entity that is a substantial contributor, the family members of all such individuals, and certain entities partially or wholly owned, directly or indirectly, by disqualified persons.
3 The calculation of the “amount involved” for an act of self dealing varies depending on the type of transaction that triggered the self dealing violation. See section 4941(e)(2) of the Code and the section 53.4941(e)-1(b) of the Treasury Regulations.
4 Section 4941(e)(1) defines the taxable period as the period beginning with the date on which the act of self-dealing occurs and ending on the earliest of: (i) the date of mailing a notice of deficiency regarding the initial self-dealing tax, (ii) the date on which the initial self-dealing tax is assessed, or (iii) the date on which correction of the act of self-dealing is completed.
5 Among other transactions defined as “taxable expenditures,” section 4945(d)(5) includes within the definition “any amount paid or incurred by a private foundation for any purpose other than one specified in section 170 (c)(2)(B)”.

The post 9 Ways Private Foundations Can Avoid the Compliance Pitfalls of Fundraisers and Galas appeared first on Foundation Source.

As a leader within this sector, we have long been a part of these conversations, providing guidance and helping to summarize which giving approach(es) may be best based on one’s goals, values and passions. It’s important to note that choosing one approach to giving does not mean you can’t pursue the others or even use them together to maximize efforts.

For instance, working with more than 2,000 private foundation clients for over two decades, we’re in a unique position to witness the remarkable diversity of resources, personalities, interests and influences that exist in this vast melting pot of philanthropy. We have observed five common approaches to giving taken by private foundations in their quest to make a difference.

1. Checkbook Philanthropy: The simplest way to give. You write checks to your charities of choice, often at year-end in response to annual appeals or to help in a crisis or disaster. This type of giving doesn’t require evaluation or reporting from the recipient.

2. Strategic Philanthropy: With this proactive giving approach, you’re in the driver’s seat for determining the problems you want to address and how to solve them, rather than reactively supporting initiatives driven by a charity. This approach also involves robust reporting so you can measure your charitable impact. Ideas: Make grants and loans to charities, start a scholarship program, conduct research, or establish a food pantry.

3. Trust-Based Philanthropy: Giving in this way means you view your grantees as the charitable experts. You grant them unrestricted funding, trusting them to deploy your support most effectively. You’re also more transparent in your communication and you streamline your reporting requirements so grantees can focus on what’s really important – achieving charitable impact.

4. Venture Philanthropy: With this exciting and results-driven approach, you partner with your grantees as if they’re business startups seeking investment. Not only do you grant them funding, you work with them hands-on to tackle a challenging issue that may or may not be achievable. The risk is higher than other charitable pursuits but if successful, the reward is impactful.

5. Disruptive Philanthropy: Take this route when you want to shake up the status quo and tackle a longtime problem in a bold new way. It’s about questioning previous attempts to solve the problem and funding ambitious, high-risk efforts for a solution. Innovation, creativity and collaboration are key to this approach’s success.

In short, foundation giving can take many forms – and it can evolve over time as your goals and resources change.

Questions about your approach to giving?
We’d love to help! Schedule a call with us or reach us at 800-839-0054. Together, let’s #begiving.

The post Effective Altruism and Examining Different Approaches to Foundation Giving appeared first on Foundation Source.

You’ll have more time this year for strategic philanthropic and financial planning.
Effective planning requires time—something there never seems to be enough of during the year-end holidays. While the actual process of starting a foundation is easy with the help of experts—Foundation Source can help you do so in less than a week—why try to squeeze it in during the holidays when, likely, you’re already extra busy? Setting it up sooner will afford you, your foundation members and your professional advisors ample time to best plan for how you can maximize your charitable giving and benefit your finances.

You’ll build awareness of your foundation.
With your foundation established before giving season, you’ll be ready to engage with the myriad charities that will surely solicit your support. While you likely can’t assist all of them, welcome the chance to learn about them and promote your foundation to increase visibility of your charitable focus. Another great way to build awareness? Ensure your good works have a great website.

You’ll start and secure your family’s legacy
Private foundations are designed to operate in perpetuity, making them the ideal tool for creating a lasting legacy. When you link your name with your philanthropy through a foundation, it expresses your values and provides a blueprint for future generations to carry your charitable vision forward. Plus, the State of Delaware’s database, a preferred location for the incorporation of foundations, has limited names…so the sooner you can lock yours in, the sooner your legacy will be secured.

Want to see the rest of the benefits?
Check out our infographic.

Did you know…
We can help you create a private foundation in less than a week! Call 800.839.0054 or send us an email at info@foundationsource.com. Together, let’s #begiving.

The post The Busy Giving Season Is Starting Soon: Here’s How to Make the Most Of It appeared first on Foundation Source.

Similarly, foundations can shine the spotlight on inspiring and effective work of their grantee partners; in doing so, they can draw more attention to solutions that are being employed to address community problems.

So how can foundation’s use their voice to move the needle in their community and on priority topics? They can develop communications strategies and deem them an essential part of their strategic toolbox.

A thoughtful communications plan can help a foundation:

• reinforce its values
• further its mission
• increase efficiency
• enhance grantee relationships
• amplify grantees’ good works
• increase support from other funders and decisionmakers

Our Philanthropic Advisory Services team works closely with our clients on how to deploy effective communications. When developing a communications plan, here are some best practices to keep in mind.

Define Communication Goals
Before diving into specific tactics, a foundation should step back and define what they want to achieve through communication. These goals should align with the foundation’s overall mission and objectives but focus specifically on how communication can support and amplify their work.

For instance, is the focus on looking to raise awareness about a particular issue a foundation addresses, such as education or environmental sustainability? Does the foundation want to build a network of like-minded organizations and funders to collaborate on large-scale initiatives? Do they need to clarify their funding application process to grantees? Or perhaps the aim is to establish itself as a thought leader in a specific sector, providing valuable insights and guidance to others in the field.

By clearly defining its communication goals, a foundation can ensure that all efforts are aligned and purpose driven.

Articulate Priorities
Consider the time it takes to review funding requests. The process can become laborious if a foundation receives an abundance that don’t align with its charitable mission. The more clearly they articulate their priorities – what they will and won’t fund – the better that grant-seeking nonprofits will be able to determine if the foundation is the right fit for the type of work they do. Ultimately, the foundation will receive more targeted and appropriate requests and increase efficiency.

Share Expertise
A private foundation can be a catalyst for change, not only by financially supporting its chosen causes but also by shaping the conversation around related issues. One of the most effective ways for a foundation to use its voice is by sharing their sector expertise. For example, if a foundation has deep knowledge in tackling climate change, they may consider publishing opinion pieces, problem statements or research findings that highlight the challenges and potential solutions in this area. In doing so, they’ll position their foundation as a thought leader in the field and, if they target these communications to an audience of other funders and decisionmakers, they might also gain additional support for their cause. To reach a wider audience, they could feature the resources on their foundation’s website and share them through a newsletter or social media platforms.

Showcase Grantees
A foundation’s voice can also help bring attention to the important work that their grantee partners are doing in the communities they care about. This is one of the most powerful ways to maximize charitable impact. By showcasing grantees’ successes and challenges, not only does a foundation validate and celebrate them, but they also may inspire other funders to take notice and support them as well.

Consider highlighting grantees’ work through case studies, success stories or interviews that are featured on a foundation’s website and newsletter. Spotlight them through social media and press releases to reach an even larger audience. Be sure that the foundation’s content explains why the work is essential and how it’s making a difference. In doing so, the foundation will help build a broader understanding and support for the good work it’s funding.

Engage With Other Funders
Collaboration is key in philanthropy, and strategic communication can be instrumental in fostering productive relationships with other funders. Regularly updating other funders on the foundation’s work, either through direct outreach or perhaps networking events, can possibly lead to new partnerships. Sharing insights and lessons learned can also help build a sense of community among funders, leading to more coordinated efforts and amplified impact. When other funders see the results a foundation is achieving, they may be more inclined to join forces, providing additional resources for the causes they champion.

Use Communication Tools
To successfully convey a foundation’s work and goals, try some or all of these tactics:

Website. A foundation’s website is likely the first place people go to learn about their work. Make sure it’s up-to-date, easy to navigate and rich with content that showcases the foundation’s impact and expertise. Consider adding a blog and news section to regularly share updates and insights. Not sure where or how to get started? Foundations can take advantage of customized, cost-effective website services that are built and hosted for them.

Newsletter. A well-crafted newsletter is a useful “push communication” tool for keeping their target audiences informed and engaged. Regular updates on the foundation’s work, grantee achievements and sector insights can help maintain interest and build a loyal following.

Social Media. Platforms like Facebook, LinkedIn, Instagram and Threads offer powerful ways to reach a broad audience quickly. Use one or all of these channels to share news, highlight grantee work and follow and engage with other thought leaders in the foundation’s field. Social media is also a great way to drive traffic to a foundation’s website, grantees’ websites and other resources.

Press Releases, Op-Eds and Pitches. Rally applicable news media to publicize the foundation’s initiatives. Send them press releases, op-eds and compelling pitches to pique their interest and secure coverage.

By defining clear communication goals, a foundation can serve as an influential voice for their grantee partners and maximize the foundation’s impact. Whether it’s sharing expertise, promoting grantees’ work, or engaging with other funders, thoughtful communication can help a foundation achieve its mission, effect meaningful change and advance philanthropy.

Elizabeth Wong is Head of Philanthropic Advisory Services for Foundation Source.

Want to learn more about boosting your foundation’s impact?
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The post Using a Foundation’s Voice: Advancing Philanthropy Through Communications Strategies appeared first on Foundation Source.

#2 Strategic Philanthropy
With this proactive giving approach, you’re in the driver’s seat for determining the problems you want to address and how to solve them, rather than reactively supporting initiatives driven by a charity. This approach also involves robust reporting so you can measure your charitable impact. Ideas: Make grants and loans to charities, start a scholarship program, conduct research, or establish a food pantry.

#3 Trust-Based Philanthropy
Giving in this way means you view your grantees as the charitable experts. You grant them unrestricted funding, trusting them to deploy your support most e‡ectively. You’re also more
transparent in your communication and you streamline your reporting requirements so grantees can focus on what’s really important – achieving charitable impact.

Want more?
Check out the full infographic to see all the diverse ways private foundations can give.

Want to See Other Ways You Can Give Back with a Foundation?
From granting to individuals to direct charitable activities, foundations are a powerful charitable giving vehicle, allowing you so much versality—and the chance to be creative. Check out our white paper on the 10 Things You Didn’t Know You Could Do with Your Foundation.

Want to learn more about the ways we support philanthropists with private foundations?
Schedule a call with us or reach us at 800-839-0054. Together, let’s #begiving.

The post 5 Ways Private Foundations Can Give appeared first on Foundation Source.

1. only for the Ultra-High-Net-Worth
2. difficult and time-consuming to establish
3. burdensome to operate
4. expensive due to continual investment in staff and infrastructure

Today’s foundations benefit from advancements in technology as well as guidance and outsourcing from philanthropy experts like Foundation Source. These professionals can provide varying degrees of support according to one’s needs and philanthropic goals. They can work directly with an individual or family or can partner with financial advisors to help them provide charitable giving guidance to their clients. (A growing number of financial advisors are adding philanthropy expertise to their practice. They’re realizing it can help them engage more personally with their clients by addressing meaningful topics like family values, motivations for giving and how to establish a charitable legacy. These discussions help to provide more holistic financial advice.)

The private foundations of today are a whole new and exciting ball game – and a realistic charitable giving option for more people than one might expect. Let’s discover the truth about them by dispelling these five common myths.

Myth #1: You need at least $5 million to start a foundation.

Fact: Today more than 67% of all private foundations have less than $1 million in assets. While foundations’ administrative costs used to require initial funding of at least $5 million, it’s now practical to start a foundation with less than $1 million in assets, thanks to savings realized through online foundation management platforms such as our Impactfully platform and professional outsourced support and advisory services such as those provided by our Foundation Source experts.

Myth #2: Private foundations are time-consuming, difficult and expensive to set up.

Fact: With the help of philanthropic experts like Foundation Source, a private foundation can be established and operational in less than one week.

Simply put, a donor needs only to do three things to start a foundation:

1. determine a name for their foundation
2. complete a brief set-up questionnaire to denote who will fund the foundation and where its investment account will reside
3. fund the foundation to begin giving

Myth #3: Private foundations are a burden to operate.

Fact: With today’s technology solutions and expert guidance and outsourcing, running a foundation is much easier and more enjoyable than it was decades ago. For example, Foundation Source’s robust Impactfully platform offers a dynamic operational dashboard that helps foundations consolidate their operations and administration and efficiently manage their grantmaking. With it foundations can, for example, file their taxes; review their financial accounts; engage with their nonprofit partners, board members and staff; create, distribute and review grant applications; and measure the impact of their giving.

For additional support, foundations can turn to expert philanthropic advisors for guidance in myriad charitable giving issues such as developing a charitable focus or mission, running an effective board meeting or communicating with a grantee.

Myth #4: Private foundations require continual investment in staff and infrastructure.

Fact: Such an investment is optional, thanks to the flexible nature of foundations as well as outsourcing support. From a flexibility standpoint, when one starts a foundation, they can essentially do as much or as little with it as they wish, from simply making straightforward annual charitable donations to elaborately managing myriad philanthropic initiatives.

For donors who choose the latter and aim to do great things with their foundation but don’t want to hire staff and manage charitable programs, outsourcing from management solution providers like Foundation Source is available. These experts can serve as the foundation’s virtual staff or work in partnership with its founders and advisors. They can file taxes, monitor compliance; handle back-office responsibilities; and, in our case, provide the foundation with a purpose-built platform.

Myth #5: Only cash can be donated to a private foundation.

Fact: Private foundations can be funded with a wide variety of assets. And unlike other giving vehicles that often require liquidation of donated assets, private foundations can continue to hold them. This can be particularly advantageous if the assets are expected to continually increase in value. These assets could include:

• Publicly traded securities
• Alternative assets, including private equity and hedge funds
• Real estate
• Tangible assets (art, jewelry, collectibles)
• Intangible personal property (copyrights, patents, royalties)
• Life insurance and annuities
• Cryptocurrency

Running a private foundation can be one of life’s most rewarding experiences. And with the help of robust technology platforms and philanthropic experts who can assist with the legal, accounting and compliance requirements of private foundations, donors can focus on the deeply satisfying part of their giving – effecting positive change in the world.

Want to learn more about starting a private foundation?
Read about the benefits and considerations of a private foundation beyond tax savings.

Also be sure to subscribe to our blog so you don’t miss a beat!

Have a Question?
Schedule a call with us or reach us at 800-839-0054. Together, let’s #begiving.

The post Fact or Fiction: Setting the Record Straight About Private Foundations appeared first on Foundation Source.

Questions in the meantime?
We’re always happy to talk about your giving goals! Contact us or call us 800-839-0054. Together, let’s #begiving.

The post Digital Checklist: The Key Dates For Foundations Throughout the Year appeared first on Foundation Source.

Tax Deductions
When you start and fund a private foundation before the end of the tax year, you are eligible for a qualified charitable deduction of up to 30% of your adjusted gross income. This is especially attractive in years when you have excess income or realized capital gains. Once contributed, your assets can continue to grow on a tax-advantaged basis.

Advanced Charitable Toolkit
Commit to your philanthropic goals with a private foundation and unlock a sophisticated suite of giving tools. In addition to making grants to public charities, foundations enable you to award scholarships and prizes, conduct direct charitable activities, make hardship and emergency gifts directly to individuals, support mission-related investments, make low or no interest loans to charities, align the assets in your endowment with your philanthropic mission, and much more.

Start Your Legacy Now
Private foundations are designed to last in perpetuity, making them the gold standard for creating a lasting legacy. When you link your name with your good deeds, it expresses your values and provides a blueprint for future generations to carry your vision forward. Also, the Delaware database, a preferred state of incorporation, has limited names…you can lock in your family foundation name now and ensure your legacy.

Want to see the rest of the benefits?
Check out our complete resource.

Did you know…
We can help you create a private foundation in less than a week! Call 800.839.0054 or send us an email at info@foundationsource.com. Together, let’s #begiving.

The post Top 5 Reasons to Start a Private Foundation Before The Year’s Over appeared first on Foundation Source.

Challenge:

The foundation has its roots in a humble frontier feed store. Founded in the 1890s, the store eventually grew into a sizable company with a household name. Relatives of the three brothers who grew that company founded their foundation in the 1940s, and it has been in operation ever since.

Today, the board of the foundation, which is comprised of descendants of the brothers, pays homage to its history by keeping track of other descendants through familial records. There are now dozens of descendants and, upon reaching the age of 18, they are all eligible to join the foundation as a non-voting member and attend board meetings. The foundation will match up to three member gifts to charity for as much as $1,500 total in a given year. Members are also able to provide feedback via grant committees for organizations that have applied for funding.

The foundation’s tradition of making giving a (very large) family enterprise is one of its most cherished hallmarks. Even so, all that gift-matching and grant committee activity makes for an enormous amount of paperwork and a sizable administrative burden.

Collaboration:

Foundation Source set up their gift-matching program on Applications, our online grants management system for accepting, organizing, tracking, and replying to charitable requests. (Applications is available as an add-on to the robust platform our clients use to manage their foundations.)

Family members use Applications to apply for their gift match. Foundation Source verifies that the family member made a donation and that the recipient organization is eligible to receive grants from the foundation. We also customized Applications so that when a family member is a part of a grant committee, they can log in, review their committee’s applications, and then leave comments for board members.

Outcome:

Thanks to their experience with Applications, the foundation now benefits from a seamless, paperless process for its gift-matching program. The foundation is free to celebrate its heritage without worry that the growth of its family tree will outstrip its administrative capabilities.

The post How a Private Foundation Is Keeping An (Extended) Family Tradition Going Strong appeared first on Foundation Source.

Challenge:

The board of the Charles R. Wood Foundation carries on the work of its late founder by supporting children, the arts, and healthcare in upstate New York.

While traveling in rural North Carolina, the president of the foundation read an article in the local newspaper about Dolly Parton’s Imagination Library program and its outreach to the region. This national program, which is available to any community, mails a book to children under five years of age each month. The purpose of the program is to boost early childhood literacy and foster a love of reading.

As the Charles R. Wood Foundation wanted to promote childhood literacy in upstate New York’s rural counties, they asked their Private Client Advisor at Foundation Source to get them information on how they could get involved.

Collaboration:

The Private Client Advisor contacted the Dollywood Foundation, which was able to provide the demographic research the foundation required to assess regional need. Dollywood also identified possible literary agencies that might be willing to partner with the Charles R. Wood Foundation. Foundation Source coordinated the effort by discussing the program with the Literacy Volunteers of Clinton County, who agreed to handle the child registration process.

Foundation Source has streamlined the entire application process, saving the foundation significant time and administrative effort. The foundation is very pleased with their new process, but we revisit it each year and continue to refine it based on their evolving needs.

Outcome:

The Foundation now supports the Imagination Library program, enabling 3,500 children in Clinton, Essex, Franklin, and Hamilton counties to participate. The foundation is thrilled that Foundation Source could help connect them with the necessary partners to make this project happen, and they appreciate how easy we’ve made it for them to track its results, procuring semi-annual updates for their review.

The post Connecting a Private Foundation to An Opportunity for Literacy appeared first on Foundation Source.