Nonprofit Basics: What Nonprofits Need To Know About Expenditure Responsibility Grant Requirements
Welcome to EO Radio Show – Your Nonprofit Legal Resource. Today, I'm talking about the meaning of expenditure responsibility or ER grants made by private foundations. The term expenditure responsibility refers to the rules that a private grant-making foundation follows to avoid the onerous penalty tax on a grant or transaction that would otherwise be a taxable expenditure if made by the private foundation.
Taxable expenditures include various types of grants and expenses paid by private foundations, which the Internal Revenue Code prohibits. These types of prohibited payments include lobbying, politicking, and candidate campaign expenses; grants to individuals for travel, study, or other similar purposes unless specific requirements are met; and grants that are not for charitable purposes.
A final bucket of grant types that can cause a foundation to be penalized under these rules are grants made to organizations that are not classified as a public charity or an operating foundation unless the foundation exercises expenditure responsibility with respect to that grant.
So, this is where the ER rules come into play. Expenditure responsibility is comprised of five requirements. We'll walk through all five elements in this episode.
IRS pages on Expenditure Responsibility:
- Terms of Grants - Private Foundation Expenditure Responsibility
- Terms of Program-Related Investments: Private Foundation Expenditure Responsibility
- Violations of Expenditure Responsibility Requirements - Private Foundations
- Pre-Grant Inquiry
- Treasury Regulations on Taxable Expenditures
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