Strategic Source Online

April 2004

Alert: Excessive Compensation to Foundation Employees and Trustees Continues to be a Focus of Both Congress and the IRS

A recent case involving the Grand Marnier Foundation, located in New York, is a good example. Six directors of the Foundation were forced to pay back a total of $1.5 million to the NY Attorney General's office to settle a lawsuit that accused them of excessive compensation over a 10 year period of time. Three of the directors will be replaced.

One outspoken commentator has recommended that Congress impose severe restrictions on compensation, including an $8,000 limit on the total compensation any trustee would be permitted to receive from a foundation, prohibiting any family member of a family foundation from receiving any compensation as trustee or staff, excluding trustee compensation from the calculation of the 5% minimum payout, and more disclosure on the 990-PF returns. It's unlikely that any of these recommendations would be adopted by Congress, at least as proposed, but it again indicates that level that some would like to take this issue. The message here is clear – compensation must be fair, reasonable, and appropriate, independent of any consideration of family status, and with the advice and counsel of knowledgeable foundation advisors.

In 2002, IFF Advisors completed the largest compensation study of family and independent foundations every performed in California. 

NY OAG: Attorney General Reaches $1.5 Million Settlement...

ASF: New York's Review of Nonprofit Groups

IFF Advisors: 2002 California Foundation Compensation Study

Update: CARE Act and Charitable Contribution Legislation Still Not Reconciled by the Two Houses

The Senate bill that would allow tax-free IRA/charitable rollovers (S.476, known as the “CARE Act”), and the House bill (H.R.7, known as the Charitable Contribution Legislation) have not been reconciled by the two houses. Senate Minority Leader, Tom Daschle, refuses to allow a conference committee unless he is assured that the Democrats will not be ignored. Along with election year politics, the budget deficit is complicating the situation and making compromise more difficult than ever. The President continues to support it, however; he introduced the proposal again in his fiscal 2005 budget proposal to allow individuals 65 years and older to make tax-free contributions from their IRAs outright to charity. But, don't hold your breath on this one.

The Hill: Daschle Stalls the CARE Act Despite Bipartisan Support

Reminder: To Claim Contributions Over $250 Requires a Receipt or Letter of Acceptance

Contributions to a charity, including your own foundation, for amounts over $250 require a contemporary written acknowledgement. So be sure you provide yourself a receipt (or written acceptance) of your contribution.

IRS: Charitable Contributions

Planning Idea: How is your board doing? Are they prepared for their responsibilities? Evaluated on their performance? Rewarded for meeting or exceeding expectations and counseled when they fail to do so?

A recent report published by the Center for Effective Philanthropy, in Cambridge, MA, reveals that the chief executives at many of the largest private and public foundations believe that the boards of family foundations are less likely to focus on their members' effectiveness as they do on maintaining harmony, good relations, and donor intent. There is less accountability. Only 48% of family foundations use an audit committee, compared with 70% of independent private foundations and 72% of community funds. 42% of family foundations permit discretionary board grants, with little or no staff involvement, compared to 31% of independent foundations. (Reported in the Chronicle of Philanthropy, March 4, 2004).

Though the governance rules of Sarbanes-Oxley don't directly apply to private foundations, the behavior of board members in these organizations will increasingly be examined through the standards set in that statute. These findings suggest that there is much work to be done to prepare trustees and directors for the responsibilities entrusted to them.

For additional information, obtain a copy of the report “Foundation Governance: The CEO Viewpoint:"

The Center for Effective Philanthropy: The Foundation Governance Project

Events & Programs

Previous Issue

Refer Your Colleagues


For more information, please contact us.

Copyright © 2002-2008, IFF Advisors, Inc., All Rights Reserved. OWA