H 72, The Education Foundation Regulatory Relief Act
On January 29, 2013 a bill I sponsored, H 72 – the Education Foundation Regulatory Relief Act, was introduced in the House. This bill passed the House on February 11, 2013 70-0 and was approved without dissent by the Senate. It has now been signed by the Governor.
This bill amends Idaho Code Section 63-3029A that currently offers an Idaho income tax credit for voluntary donations to various components of our state’s educational infrastructure that are tax-exempt under Section 501c(3) of the Internal Revenue (IRS)Code. In order to take advantage of these credits, eligible entities are required to form separately governed nonprofit IRS tax-exempt foundations.
For some of these organizations, the cost of creating the foundation as well as the annual state and federal compliance requirements can make it difficult or impossible to create a foundation or when started the operational costs can eat up a significant portion of their annual revenue.
Additionally, these small foundations often rely on volunteers as they many times have no paid staff, permanent accountants or bookkeepers. And, over-the-years, many small organizations have lost their tax-exempt status through failure to file IRS Form 990 annually.
Under IRS regulations, there is another alternative. It is to have a charitable cause form a dedicated account within an umbrella foundation known as a “community foundation.”
The community foundation then handles the numerous costly and time-consuming management responsibilities such as investment plans, IRS compliance, settling estate gifts and bequests, while at the same time, the community foundations requires the funds within the account to be used exclusively for the purposes and needs of the designated school, library or museum.
Idaho has only one statewide community foundation, the Idaho Community Foundation (ICF). It was founded 25 years ago to provide the benefits of a community foundation in Idaho. No other similar organization exists statewide. It is also important to note that the ICF is accredited by the Community Foundations National Standards Board and thus certified to be in compliance with national standards for statewide community foundations.
Under the changes to the law provided in H 72, if a qualified 501(c)(3) entity chooses to create a dedicated fund within the ICF, it can receive ICF help with all aspects of required foundation creation and operation.
It should also be noted this bill does not change current law regarding contributions to the ICF. This is not a new tax credit for any entity. Only those tax credit provisions currently in the law will continue for qualified 501(c)(3) foundations.
Also, this bill does not change current law regarding how a school can qualify for the tax credit.
And again, this bill will not require nonprofits to create a fund in the ICF. It simply provides an option to create an ICF dedicated fund.
I visited with representatives of several school districts received no negative comments regarding the bill. In fact more than one district has indicated it would have saved them time and money had the law been changed, as provided in H 72, before they formed their foundation. They look forward to visiting with the ICF regarding creating a dedicated fund should the language in H 72 become law.
Several organizations, including IACI, Food Producers, and the Association of School Superintendents have reviewed this bill and have indicated their support. Also, testimony before the House Revenue and Tax Committee indicated this change in the law would facilitate the process of giving to these foundations as well as have a positive impact on the Idaho’s small rural communities in a number of ways.