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Permanently Restricted Assets Should Be Classified as Permanently Restricted Under UPMIFA

FASB recommendation to distinguish between permanently and temporarily restricted has no basis in law

Charities and their accountants are struggling to understand how to account for donor-restricted endowments held by charities under the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) which has now been adopted in about 43 states. 

The Financial Accounting Standards Board has given considerable discretion to the boards of directors of the charities to determine how much should be treated as permanently restricted, and how much should be classified as temporarily restricted.  In our opinion, that bifurcation does not reflect the board’s power under the law and will lead to huge variation in financial statements across the country.  In our opinion, the funds should all be listed as permanently restricted, with an appropriate disclosure in the footnotes of the board’s power to appropriate from the fund for current expenditures.

Charities Respond to Senate Committee With Varied Views on Proposed Reforms

Consensus seems to support additional funding for IRS to enforce present regulations

Representatives of major charity umbrella groups, lawyers and other consultants provided a wide range of responses to the Senate Finance Committee White Paper proposing charitable reforms at a closed-door “roundtable” with Committee staff in Washington, July 22. (For a description of the proposed reforms, see Ready Reference Page No. 74, July 1-15, 2004.)

Grassley Questions Status Of Nonprofit Hospitals

Senator complains about lack of reporting standards,country club dues, and ‘billions of dollars in tax breaks’

Sen. Chuck Grassley (R-IA) issued a statement highly critical of nonprofit tax-exempt hospitals while releasing answers of 10 major nonprofit hospitals prior to a Senate Finance Committee hearing on September 13. He questioned whether the public was receiving measurable benefits in return for “billions of dollars in tax breaks.”

A partial text of the statement follows:

Non-profit doesn’t necessarily mean pro-poor patient. Non-profit hospitals may provide less care to the poor than their for-profit counterparts. They may charge poor, uninsured patients more for the same services than they charge insured patients. They sometimes give their executives gold-plated compensation packages and generous perks such as country club memberships. All of this calls into question whether non-profit hospitals deserve the billions of dollars in tax breaks they receive from federal, state, and local governments.

Volunteer Contract Can Define Commitments

A simple one-page document can formalize the relationship, help reduce potential for liability, and give a graceful way to decline help from problem people.

Volunteers can be a great asset, or a great liability. You may be able to enhance their value by formalizing the mutual commitments in a clear and understandable document that provides the basis for their work.

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The Uniform Management of Institutional Funds Act Sets Rules for Charitable Endowments

Proposed changes would expand factors to be considered for standard of care, would allow donors to enforce restrictions, and ease process of removing restrictions in certain cases

The Unifrom Mangement of Institutional Funds Act, first promulgated by the National Conference of Commissioners on Uniform State Laws in 1972 and subsequently adopted in the same or modified form by 46 states, has long established the basic rules of mangement of charitable endowments.

In simple and direct language, the Act defines an "institutional fund", provides broad powers of investment, permits delegation of investment management, establishes a prudent investor standard for investment managers, and deals with the release of restrictions.

Foreign Grants Require Special Considerations

Both public charities and private foundations should take special precautions to avoid tax, criminal penalties

U.S. taxpayers and domestic charities often seek to support charitable activities abroad. But making grants for charitable activities in foreign countries subjects both U.S. taxpayers and U.S. charities to additional rules.

Contributions by U.S. donors are deductible if made to U.S. charities that conduct activities abroad, but are usually not deductible if made directly to foreign charities. Tax treaties with Canada, Mexico and Israel allow deductions for gifts to certain charitable organizations in those countries, but generally deductions are available only for gifts to U.S. charities.

Grantmakers May Not Support Terrorism

Welter of new and revised rules make it difficult to know how to comply with governmental expectations

By Virginia P. Sikes and Don Kramer
Montgomery McCracken

Even before 9/11, federal statutes and regulations prohibited support for terrorist organizations, but after the World Trade Center attack, the regulation and potential penalties have become even more severe.

Charities providing grants at home or abroad should familiarize themselves with the basic rules and take reasonable steps to try to avoid violations that can cost their exempt status or even send someone to jail.

New UPMIFA Sets Rules For Management of Charitable Funds

Act expands prudent investment standards, changes authority to spend portions of endowment

The National Conference of Commissioners on Uniform State Laws (“NCCUSL”) has approved some major revisions to the Uniform Management of institutional Funds Act (See Ready Reference Page: “UMIFA Sets Rules for Charitable Endowments.”) to adopt more modern standards for prudent investing and to allow more flexibility in spending endowment funds.

UMIFA was originally approved in 1972 and was considered highly successful in providing standards for charities to use in managing their investments and spending from endowments. It has been adopted, with some variations, in 48 states.

The new Act is the result of four years of work and debate by a national drafting committee and incorporates modern portfolio theory from the Uniform Prudent Investor Act and the Uniform Principal and Income Act to permit “more efficient management of funds for charitable purposes,” NCCUSL says. To differentiate the new act from UMIFA, it has been named the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”).

This Ready Reference Page summarizes the important provisions of the Act.

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Can’t Get No Satisfaction?

Revised Uniform Commercial Code clarifies some of the rules

Many businesses, including nonprofit businesses, face the dilemma associated with receiving or sending a check marked “In Full Satisfaction” in the midst of a disagreement with a vendor. The situation usually starts out with a dispute between a buyer and a seller of goods that ends up with the buyer sending the seller a check for less than the entire amount that the seller claims is due. The check or the accompanying letter ordinarily includes language to the effect that deposit of the check constitutes full satisfaction of the disputed amount. Cash the check and forever hold your peace.

The seller typically has not agreed to the proposed compromise but is reluctant to return the money in hand. The seller wants to deposit the check and still be able to claim the balance due. Is the seller stuck with the compromise if it deposits the check?

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