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Guidance to foundations on PRIs: IRS invites ABA Section on Taxation to develop new examples of PRIs

By Lisa Hagerman, Thursday, March 25

As Peter Berliner, Managing Director, PRI Makers Network noted in his March 2010 PRI Makers Newsletter, the IRS invited the ABA's Section on Taxation to develop new examples of PRIs. The PRI Taskforce, co-chaired by David Chernoff of the MacArthur Foundation and Rob Wexler of Adler & Colvin, has submitted an updated set of 17 proposed new examples (download PDF here). The executive March 3, 2010 draft executive summary notes the key points addressed by the examples include:

1. If an activity is charitable when conducted in the U.S., it is likewise charitable if conducted in a foreign country;
2. Efforts to preserve and protect the natural environment and endangered species serve a charitable purpose;
3. Raising the living standards of needy families in underdeveloped or developing countries serves a charitable purpose;
4. The recipients of loans and working capital need not themselves qualify for charitable assistance because they are “merely the instruments” by which the charitable purposes are served;
5. The presence of a seemingly high projected rate of return should not, alone, prevent an investment from qualifying as a program-related investment because determination of the significant purposes for an investment requires a facts and circumstances analysis that takes into account all of the objective facts and circumstances of an investment, including evidence of the motive behind the investment, and the potential production of income or property appreciation is merely a factor in the analysis;
6. Program-related investments may be properly accomplished by or through loans to individuals, tax-exempt organizations, or for-profit domestic or foreign organizations, as well as by or through equity investments in for-profit domestic or foreign organizations, including limited liability companies;
7. Providing credit enhancement, whether in the form of a guarantee, letter of credit, or otherwise, for a borrowing by a third party that accomplishes a charitable purpose may qualify as a program-related investment; and
8. The existence of an “equity kicker” as part of the overall return does not prevent an investment from qualifying as a program-related investment.

The IRS is in the process of reviewing the examples and will decide which they will add to existing PRI regulations and their exact wording.
 

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