School and Community School and Community Foundation CollaborationFoundation Collaboration

A Presentation for the A Presentation for the

2006 Iowa Community Philanthropy Academy2006 Iowa Community Philanthropy AcademyByBy

Willard L. Boyd IIIWillard L. Boyd III

NNYEMASTER, YEMASTER, GGOODE, OODE, WWEST, EST, HHANSELL & ANSELL & OO''BBRIEN, P.C.RIEN, P.C.

700 Walnut, Suite 1600700 Walnut, Suite 1600

Des Moines, Iowa 50309Des Moines, Iowa 50309

Telephone: 515-283-3172Telephone: 515-283-3172

Facsimile: 515-283-8018Facsimile: 515-283-8018

wlb@nyemaster.comwlb@nyemaster.com

Applicable LawsApplicable Laws

State Nonprofit Laws – Revised Iowa Nonprofit Corporation Act (“RINCA”) –

Iowa Code Chapter 504– Uniform Management of Institutional Funds Act

(“UMIFA”) – Iowa Code Chapter 540A Other State Laws

– Iowa Code section 279.42 – Gifts to Schools Funds to be deposited in trust and agency fund

– Iowa Code section 298A.13 – Trust or Agency Funds– Iowa Code section 359.29 – Gifts to Civil Townships– Iowa Code section 565.6 – Gifts to Governmental Entities

Applicable Laws (cont’d)Applicable Laws (cont’d)

Federal Tax Laws– IRC 501(c)(3)

Support Organizations Affiliation Status Unrelated Business Income Tax

Community FoundationsCommunity FoundationsCommunity Foundation may be set up as

nonprofit corporation or charitable trust– Most foundations set up as nonprofit

corporations

Not deemed a private foundation but instead a public charity

501(c)(3) Tax-Exempt Status

Community Foundations Community Foundations (cont’d.)(cont’d.)

Tax-exempt, autonomous, publicly supported, nonsectarian philanthropic institution

Long term goal of building permanent, named component funds established by many separate donors for the broad-based charitable benefit of the residents of a defined geographic location

Community Foundations Community Foundations (cont’d.)(cont’d.)

Purposes:– RINCA provides that a nonprofit has the

purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of incorporation

– Most nonprofits generally describe their purposes in their articles of incorporation

Receiving, using, managing or administering gifts, grants, bequests

Making distributions

Community Foundations Community Foundations (cont’d.)(cont’d.)

Powers Under RINCA include:– Same powers as an individual to do all things

necessary and convenient to carry out activities of organization

– RINCA specifically provides that nonprofit may be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity

Community Foundations Community Foundations (cont’d.)(cont’d.)

Ability to Contract with Other Nonprofits (Incorporated or Not Incorporated)– Endow Iowa – Iowa Code section 15.301, et seq.– County Endowment Fund – Iowa Code section

15.311, et seq.

Ability to provide a “group exemption” for tax purposes to affiliated organizations

School FoundationsSchool Foundations

Generally set up as nonprofit corporations under RINCA

501(c)(3) Tax-Exempt Status – Public Charity For IRS purposes, can be viewed as a

“supporting organization”– Supporting organization must be organized and

operated exclusively for benefit of, to perform functions of, or to carry out purposes of one or more specified qualified supported organizations

School Foundations School Foundations (cont’d.)(cont’d.)

Purposes and Powers– Established to support a school or school

district– Powers generally allow for:

Aid in fulfillment of teaching and service functions of school(s)

Make grants and loans of property Solicit, accept, administer, and disburse gifts,

grants and bequests or hold in trust Receive government grants Make disbursements to school(s)

Collaboration IssuesCollaboration IssuesParties Involved in Collaboration– Community Foundation– School School District Foundation?– Schools or School Districts?– Community Affiliate Organization?– Donors?

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Services Agreement Between Community Foundation and School Foundation– Administrative services provided by Community

Foundation Staff support Accounting services Investment services

– Issues Fees Restrictions on investments for gifts provided directly to

schools Donor lists UBIT

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Donor Advised Funds – Community Foundation may receive gifts in form of

donor advised funds– Allows donor to remain involved in gift without

assuming administrative and financial burdens of a private or public foundation

– Donor advised funds are part of the legislative recommendations of the Panel on the Nonprofit Sector

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Affiliation Agreement Between Qualified Community Foundation and Community Affiliate Organization– Qualified Community Foundation

provides:Staff supportAccounting servicesInvestment services

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Affiliation Agreement (cont’d.)

– Qualified Community Foundation (cont’d.)

Issues–Fees–Portability• Automatic or discretionary on part of

Qualified Community Foundation• Fees• Notice

–Donor list–UBIT

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Fiduciary Duties of School Foundation Officers and Directors – Issues:– Officers and Directors Have Fiduciary

Duties To Nonprofit– Duties Include:

Duty of CareDuty of LoyaltyDuty of Obedience

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Duty of Care– RINCA requires “each member of the

board of directors, when discharging the duties of a director, [to] . . . act . . . in good faith [and] in a manner the director reasonably believes to be in the best interest of the corporation.”

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Duty of Care (cont’d.)

– RINCA explicitly recognizes that as members of the board and committees of the board directors have both a decision-making function and an oversight function

– Attending meetings regularly, entering discussions

– Reading minutes, learning about entity’s programs.

– Oversight of finances– Inquire as to any questionable activity

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

UMIFA requires Board to consider various factors before making investment decision:– Long-term and short-term needs– Present and anticipated financial requirements– Expected total return– Price level trends– General economic conditions

Board may delegate day to day investment decisions to investment advisor.

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

UMIFA (cont’d)

– Board is required to regularly review portfolio.

– Advisor needs to be given investment policy with guidelines.

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Duty of Loyalty– A director is required to act in the interest of

the corporation and not in his or her own interest or the interest of another person or entity.

– Conflict of Interest Transactions Transactions in which director has personal

financial interest Written conflicts of interest policy

– Full disclosure of interest in transaction to Board– Not participate in voting on transaction

– Corporate Opportunity

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Duty of Obedience– Nonprofit directors and officers have been

determined to owe a duty to carry out the purpose of the organization

– Includes compliance with federal and state laws applicable to nonprofits

– Complying with the terms of the articles and bylaws

Collaboration Issues Collaboration Issues (cont’d.)(cont’d.)

Protections for Directors and Officers– Liability Shield – Iowa Code section 504.901– Business Judgment Rule – Iowa Code section

504.832– Indemnification – Iowa Code sections

504.202; 504.831 et seq.– Liability Shield for Volunteers of

Unincorporated Associations – Iowa Code section 613.19

– Federal Volunteer Protection Act– Directors and Officers Coverage

RESOURCESRESOURCESLarned A. Waterman Iowa Nonprofit

Resource Center– http://nonprofit.law.uiowa.edu/

Iowa Secretary of State– www.sos.state.ia.us/business/nonprofits/

index.htmlCommunity Vitality Center– http://www.cvcia.org/

Panel on the Nonprofit Sector– www.nonprofitpanel.org/

Thank You