More and more school districts are establishing Foundations which are used to solicit and accept donations to assist in paying for school district programs and projects. However, school districts must be certain that their Foundations operate according to the requirements of applicable laws and regulations.
For example, if the Foundation grosses $25,000 or more in donations per year, it is required to register (and to file annual reports) with the Pennsylvania Bureau of Charitable Organizations under 10 P.S. § 162.1. A Foundation may also apply for sales tax exemption in Pennsylvania if it satisfies the Pennsylvania definition of “purely public charity”. This definition is more restrictive than the IRS requirements for 501(c)(3) status.
If the Foundation will solicit donations, it is required by the PA Solicitation of Funds for Charitable Purposes Act to disclose the following:
- The Foundation’s legal name as registered with the department, and location.
- A full and fair description of the charitable purpose or purposes for which the solicitation is being made, and a source from which written information is available.
- On every printed solicitation or written confirmation, receipt and reminder of a contribution, the following statement must be conspicuously printed verbatim:
“The official registration and financial information of [Entity Name] may be obtained from the Pennsylvania Department of Stat by calling toll free, within
Pennsylvania, 1 (800) 732-0999. Registration does not imply endorsement.”
- If requested, the Foundation must also provide the name and address or telephone number of a representative to whom inquiries could be addressed, and the source from which a financial statement may be obtainedSection 162.12 of the PA Solicitation Act requires every charitable organization, including Foundations, to keep true fiscal records as to its activities in the Commonwealth, as may be covered under the Act, in such form as will enable them accurately to provide the information required under the Act. Such records must be maintained for a period of at least three (3) years after the end of the period of registration to which they relate. We have seen document retention policies regarding federal tax records run anywhere from three (3) to ten (10) years (the statute of limitations is generally three (3) years after later of tax year end or date return was filed, but this can be extended in the event of fraud, for example). See IRS “Compliance Guide for Public Charities”, Publication 4221. In the event a charitable entity, such as a Foundation, intends to invest funds, the Foundation should work with qualified investment managers and adopt an investment policy regarding the funds. “Board members of charitable entities must use the degree of care, skill, caution and diligence that a prudent person would use in handling corporate affairs. Decision makers may rely on information provided by qualified professionals. Board members and senior management have a fiduciary responsibility when handling finances and investments. Fiduciaries who carelessly or negligently invest funds may be personally liable for any losses sustained.” See PA Attorney General Handbook for Charitable Nonprofit Organizations, July 2011. In 1999, Pennsylvania adopted a “Prudent Investor Rule” which governs fiduciaries for non-profit entities. The Rule expressly authorizes the delegation of fiduciary investment authority; however, the scope of investment authority must be clearly articulated and performance of investment managers must be periodically reviewed. It is fairly common practice for charitable boards to establish an investment policy, and to delegate investment authority to a qualified professional – particularly in light of the potential for personal liability for careless or negligent investment practices.The above regulatory and legal requirements may be confusing. However, the requirements are based upon the various laws governing non-profit entities, and especially those involved with issuing scholarships. Our office has directly assisted several of our school district clients in establishing Foundations to assist the school district in the raising of necessary funds for the benefit of the school district and ultimately its students. Please contact our attorneys on MBM’s School Law Team for additional guidance.Back to Newsletters