A Practical Guide to International Philanthropy
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Since the publication of A Practical Guide to International Philanthropy, a number of relevant developments have occurred which would have been included in the original. Updates to the text of the book follow below.

Chapter One

Under the heading Motivation, on Page 14, carryover paragraph, add the following new paragraph:

"An extensive analysis of the subject by The Chronicle of Philanthropy[1] concluded that limitations on the value of the charitable deduction for wealthy Americans would have a mixed effect. A number of economists who have spoken on the subject expressed the view that the real difference would be seen "at the margins." That is limitations on deductibility, or, indeed, outright loss of the charitable deduction, “would have little if any effect on core giving by wealthy Americans, who strongly support their churches, community foundations, etc. Such limitations would be expected to be felt when such individuals considered new charities or causes, outside of their usual charitable focus.”

Chapter Two

Under the heading “Public charities versus private foundations,” on Page 18, carryover paragraph, add the following after the third full sentence:

"Additionally, in Jersey, Channel Islands, The Foundations (Jersey) Law 2009 allows for the creation of foundations having purposes which are charitable, non-charitable, or both charitable and non-charitable."[2]

Chapter Three

After the heading Limited Liability Companies, on page 27, add a new section:

Hybrid entities

In response to legal constraints on for-profit corporations and on charities, a number of states are experimenting with hybrid entities.[3] California, for example, recently adopted a statute permitting so-called flexible-purpose corporations, new companies which are part social benefit and part low profit enterprises. These entities can raise private capital and can have shareholders (nonprofit corporations typically do not), which can receive a share of profits on an ongoing basis or a share of the corporate assets if the corporation liquidates. Significantly, directors are not held to a high standard of fiduciary duty towards shareholders to maximize profit if they deliberately engage in enterprises which have social benefits. Michigan, for example, permits so-called low-profit, limited liability companies, referred to colloquially as L3C's, which are designed to achieve the same purposes but using a limited liability company structure, rather than a corporate structure. As will be discussed in greater detail, infra, these entities also appear to be a "workaround" of limits on public charities and private foundations utilizing charitable resources for for-profit enterprises.

Chapter Four

Under the heading Incremental Regulatory Initiatives, 3. Future Trends… Administrative initiatives, at the end of the second full paragraph on page 45, delete the last sentence and substitute the following:

Notwithstanding all of the foregoing initiatives, the IRS remains subject to criticism for not doing enough. For example, one of its former top managers, Mr. Marc Owens, now a prominent Washington, DC tax lawyer set forth a lengthy "bill of particulars" in a lengthy article in The Chronicle of Philanthropy.[4]

Under the heading Incremental Regulatory Initiatives, 3. Future Trends… State legislative initiatives; add a new paragraph on page 46 at the end of that section:

The Uniform Law Commission, which operates as part of The National Conference of Commissioners on Uniform State Laws, has been addressing the perceived absence of regulation of charities at the state level through one of its committees. Following a meeting in April, 2011, the Committee circulated for comment a draft "Protection of Charitable Assets Act." Among other things, the draft Act required charities and others holding charitable assets to register with the State's Attorney General in any state where charitable assets are located so that the Attorney General "will have basic information about the charitable assets which the Attorney General has a duty to protect." The committee gave the following reasons for this registration requirement:

  • "First, the list of registered charities can serve as a quick resource of information for the Attorney General and for the public.
  • “Second, a potential donor may consult the list of registered charities to determine whether a charity requesting a donation is current is filings with the Attorney General.
  • “Finally, the requirement to register serves as a reminder to someone organizing a charity of the seriousness of the fiduciary role individual undertakes when acting as a director or trustee of a charity."

The pattern for growing regulation is a familiar one: articulate new duties, impose new requirements, all in the name of transparency and full disclosure. It might also be appropriate for someone to ask whether layering regulatory requirement upon requirement might have a negative effect on charitable formation and giving. Additional disclosure regimes should be expected to present yet another barrier for families were considering establishing private foundations. 

[1] Chiu, L. and Perry, S., "Changes in Charitable Deduction May Have Mixed Impact on Giving," The Chronicle of Philanthropy (October 6, 2011).

[2] See the Bedell Group client briefing, International Private Client Update, Philanthropy accessible through the Bedell website, www.bedellgroup.com.

[3] Strom, "A Quest for Hybrid Companies that Profit, but Can Tap Charity," New York Times (October 13, 2011).

[4] Williams, "Former IRS Nonprofit Watchdog Seeks to Retool Government Oversight of Charities, The Chronicle of Philanthropy (October 29, 2009).

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