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Private Foundations: Avoid Jeopardizing Investments

jeopardizing investments board meeting

Public charities and private foundations are both classified as 501(c)(3)s by the IRS. However, the different nonprofit operating structures come with different benefits, requirements, and challenges that can make navigating compliance difficult. I’ve written previously on aspects of private foundations including prohibited grants, payout requirements, and avoiding self-dealing. The best way to deal with many of the ins and outs of learning about private foundations is to deal with each individually; today let’s focus on jeopardizing investments.

Don’t Jeopardize the Foundation

Failing to exercise prudence and investing in ways that threaten the foundation’s ability to carry out its exempt purposes—called jeopardizing investment—and can result in a stiff penalty.

Many factors can contribute when determining whether or not an investment can be considered jeopardizing. At the least, a private foundation’s managers must exercise reasonable, ordinary business judgment and prudence in investing a foundation’s assets. Investments should also be made with the short and longterm financial needs of the entity in mind. This is part of baseline fiduciary duty board members must act with by closely overseeing the nonprofit’s finances.

Payout Requirements for Private Foundations

Penalty Payment

In cases of jeopardizing investments, an excise tax of 10% is imposed on the foundation for the IRS-defined taxable period. Foundation managers can also be held personally liable and taxed up to a max of $10,000 (or 10% of the jeopardizing investment) if the “knowing, willfully, and without reasonable cause” participated in the making of the investment.

Furthermore, if the foundation does not take steps to remove an investment, an additional tax can be imposed on both the foundation and the responsible foundation managers.

High-Risk Activities: Proceed with Caution

While no category of investment is outright prohibited, a private foundation’s managers must pay close attention to high-risk activities, such as trading securities on margin, trading in commodities futures, and short selling, among others.

Private Foundations: Prohibited Grants

Get the Right Advice

All of this said, this is general advice and each charitable organization is unique. I highly recommend seeking out an attorney well-versed in nonprofit law to assist with multiple aspects of the charitable organization life cycle from the formation through employee hiring through board development.

Questions? Want to make sure your private foundation is taking the right steps to avoid adverse consequences like audits and taxes on top of everything else there is to keep track of? Don’t hesitate to contact me.

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10 For 990: Pitch to my Most Impressive Twitter Follower

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I’ll never forget that night. Several months ago, a simple notification popped up on my Twitter account. Very rarely have five words caused me such joy: “Soledad O’Brien is following you.”

I was social media starstruck!

Sure, I know that this was likely the doing of a digital tool that auto-follows accounts that tweet about certain subjects. Or, maybe it was one of the social media interns who saw my retweets of @soledadobrien and decided to throw me a follow as a fan. Since she follows 447k accounts I have no doubt that the impressive individual herself didn’t actually follow me…but hey, we all like to feel liked and heard even if it’s a digital facade.

To understand why this was such a Big Hairy Audacious Deal (if you got the reference to Jim Collins’ concept, applause!), let me put this into context of my small, “local” Twitter account and Ms. O’Brien’s worldwide acclaim.

A Lonely 440+

My Twitter account has merely around 440 followers (at the time of publication). I put out great content, and it’s growing slowly and surely, but would love for more people to join the party. (In fact, if you’re reading this and haven’t followed @FischerGordon yet, check out all the great info I share on estate planning, nonprofit formation and compliance, and charitable giving on top of Iowa-centric news and all around interesting factoids.) But, let’s be honest I have a long way to go to catch up to the likes of the Big Ben clock that simply tweets “bong” in various quantities and the San Francisco fog, apparently named Karl.

Soledad is Superb

In contrast to my lowly follower count, @soledadobrien has a well-deserved follower count at 809k and counting. For those few of you who are unaware, Soledad O’Brien is a world-famous broadcast journalist renowned for her roles as anchor and correspondent for MSNBC, CNN, HBO, and Al Jazeera America. She has been a tremendously well respected presence in broadcast news since 1991. She has covered so many huge stories I can’t possibly list them all. Countless times she’s been on “best of” lists and she’s won a Peabody Award and four Emmy Awards.

Presently, Ms. O’Brien is the host of Matter of Fact with Soledad O’Brien, a show focusing on politics and socioeconomic concerns produced by her very own multi-platform Starfish Media Group.

Newsworthy Nonpxrofit Policy Special Worthy of O’Brien’s Reporting

I would regularly check to see if Soledad O’Brien ever unfollowed me. Maybe the social media software algorithm wised up or the social media intern was tasked with clearing out the followings of accounts with sub-500 followers. But, my coolest follower (sorry everyone else!) is still there! This fact has, of course, let me to the inevitable conclusion: O’Brien must want me on her show! Why else would she follow an attorney who’s on a mission to maximize charitable giving in Iowa?

Why would she want me on her show at all? I’m biased, but I think the 10 for 990 nonprofit policy special (available through March 15) is certainly newsworthy! While not a political scoop, the 10 for 990 deal could benefit (Iowa) nonprofits working toward the betterment of socioeconomic issues and/or advocating for increased engagement in American democracy.

A journalist of O’Brien’s caliber would need some more details before she ever agreed to have me on as a guest. As such, the 10 for 990 offer provides nonprofits the ten policies discussed on the IRS’ Form 990 for the flat fee of only $990. (IRS Form 990 is the tax form nonprofits must complete once they’ve reached a certain monetary threshold. Just like individuals have to fill out a personal income tax form). The 10 policies asked about on the Form 990 include conflict of interest, document retention and destruction, whistleblower, compensation, fundraising, gift acceptance, financial policies and procedures, and investment.

If Ms. O’Brien were to ever interview me on this truly fantastic deal, I would share the benefits of having a qualified attorney craft these important policies and explain the collective responsibilities of nonprofit boards.

Even if you’re not an award-winning journalist turned CEO, I would love to talk to you about this policy special. Because Form 990 is typically due in May, now is the perfect time to get ahead on compliance. Nonprofit executives, board members, and even engaged volunteers should contact me via email or phone (515-371-6077) to learn how this could fit in with your organization’s goals.

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