Keeping your corporate foundation compliant.

AuthorHaskell, Jeffrey D.
PositionFoundations

Companies are increasingly choosing to establish corporate foundations to accomplish philanthropic objectives because of this vehicle's distinct advantages: increased brand recognition, customer loyalty, community goodwill, differentiation from competitors and improved employee morale.

Corporate foundations can enable consistent levels of giving in years both lean and flush by building up reserves when company profits are high. Companies typically take charitable deductions when they make gifts to their own foundations. Moreover, corporate foundations can engage in charitable activities that may not be tax deductible as charitable donations if handled directly by the company.

Broadly, corporate foundations enable organizations to:

* Award scholarships to promising scholars, underserved populations, and even, under certain conditions, to its own employees and children of employees.

* Grant directly, following appropriate procedures, to needy individuals and families.

* Provide relief to victims of natural disasters and violent conflict.

* Give internationally.

* Run charitable activities.

* Match grants made by company employees without the administrative burden of collecting thousands of tax receipts.

* Subsidize, underwrite or fund a course or program of study at a university that furthers its industry.

However, along with the advantages, corporate foundations can also bring an element of risk to parent companies. Like any organization, corporate foundations need close supervision to prevent them from engaging in risky behavior or straying into dangerous territory. Unfortunately, they don't always receive the attention and expertise they need to stay safely in compliance.

Many corporate foundations are managed by individuals who have other jobs within the company. It is also not uncommon for a company's founder and high-ranking executives to have important or leading roles in the corporate foundation.

No matter how dedicated, competent or visionary these managers might be, their primary focus is on the company. As such, they may find it challenging to keep up with Internal Revenue Service (IRS) regulations and stay abreast of every foundation decision. They are therefore less likely to spot potential compliance issues before they become difficult to unwind.

Having a dual role also can make it challenging to keep the company's foundation operations and objectives separate from its primary business. This is of serious concern because the tax-favored status of private foundations -whether they are established by an individual or a company - is conferred with the expectation that they will operate exclusively for charitable purposes. The corporate foundation's activities must further these charitable objectives whether or not such objectives advance the company's commercial interests.

Mixing the company's...

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