What is Giving in L.A.?

Giving in LA Giving in L.A. is a go-to source, an aggregator for strategies and points of view about trends and issues in giving, challenges for philanthropists and philanthropic organizations, tools and techniques for individuals or families, insights and opinions from experts, and more – all centered on Los Angeles County.

January 22, 2015 ~ 0 Comments

Macro Impact Coming From Microloans in LA

Yunus and Borrowers2

Los Angeles entrepreneurs and Grameen America borrowers with Grameen founder Professor Muhammad Yunus.

What is entrepreneurship, after all? Bigness is not the issue. Poor people are the ones who take challenges every day. The guy who sells a hot dog on the street is as much an entrepreneur as anyone else. — Muhammad Yunus, Nobel Peace Prize Laureate and Grameen America Founder

We need to rethink our image of the entrepreneur.

We all know the stories of the savvy young entrepreneurs changing technology. Major financial institutions and venture capitalists take a gamble on their incredible ideas with the goal of seeing a handsome return on investment. But there is another entrepreneurial movement in our midst. It may not be as sexy, but the socioeconomic return on investment is boundless — and felt in our neighborhoods and communities every day.

It starts with $1,500.

I’ve seen what a loan of this size did for Sarah, a housekeeper with no formal business training or credit. She decided to grow her tiny business by buying a carpet cleaning machine to reduce her costs. She discovered that she could rent the machine to other housekeepers and repaid her loan in six weeks. She then turned around and bought another machine for herself, adding another revenue stream to her family. Her family is more secure and more hopeful. She sees more opportunities ahead.

This is what an entrepreneur does. And this is what our country is built upon — the initiative of the immigrant who pursues the American dream.

This is the beauty of microfinance — really a misnomer since the potential to change lives is far greater than the word implies. Borrowers like Sarah have nowhere to turn for capital and support. The “payday” lenders charge 400 percent interest. Borrowers like Sarah need a chance to earn a livelihood and improve the well-being of their families and communities. These “micro” loans keep hope alive and the doors of small businesses open. These “micro” loans create jobs and give thousands of women a sense of purpose in their lives.

Officially launched in Los Angeles County, Grameen America is bringing this to our entrepreneurs — all of whom are women and many of whom are immigrants. Grameen’s globally-successful model is aimed at giving low-income women business owners the incentive they need to start or grow a business. With first-time loans of up to $1,500, Grameen America is not only helping entrepreneurs achieve the American dream, but helping communities thrive.

I can’t think of a better place to unleash this concept than in Los Angeles, where our future is being driven by small business entrepreneurs, especially immigrants.

Los Angeles is a city of dreams. We have among the highest entrepreneurial activity in the country. We have more than 300,000 women-owned businesses. Los Angeles is now home to the largest diaspora outside of 39 countries; but also the largest population of families in poverty in the United States.

Grameen America has recognized that this mix of great need with great opportunity is a perfect storm to make a big and lasting impact. A story like Sarah’s can transform a family and a community. This is a long-term, sustainable investment in the dignity and promise of L.A. entrepreneurs, in addition to the region’s economic well-being.

We have already piloted $4.2 million in loans in Los Angeles County and plan to expand that to $650 million in the next few years. Grameen America borrowers here have a repayment rate of 98 percent — not something most traditional banks can say.

There are no collateral requirements, credit checks or notarized documents.

Here’s why the model works: The loan is combined with financial training that teaches borrowers about loans, savings and credit building. They form groups of five for weekly peer support meetings to stay on track for repayment. These women are empowered to take control of their finances and invest wisely in their businesses. They are given the opportunity to learn from small groups of women who are going through the microloan process and share best practices.

In other words, these women are set up to succeed. It’s a success where everyone wins. Women improve their businesses and the lives of their families and, ultimately, strengthen the local economy.

The concept of microlending goes back to 1976. Muhammad Yunus, an economics professor and social entrepreneur from Bangladesh, believed microlending could be a viable business model. He started with a $27 loan to 42 women in the Bangladeshi village of Jobra and quickly saw the huge difference a small loan could make in their lives.

Seven years later, he officially established Grameen Bank (“Village Bank”). He went on to win the Nobel Peace Prize in 2006 for pioneering this revolution and for his “efforts to create economic and social development from below.” Grameen was founded on the principle that everyone can be an entrepreneur.

Yunus has said: “Grameen is a message of hope, a program for putting homelessness and destitution in a museum so that one day our children will visit it and ask how we could have allowed such a terrible thing to go on for so long.”

Recognizing the need for this program in the United States, he expanded microfinance in 2008 through Grameen America, which now has branches in 11 U.S. cities with plans to scale and incorporate technology to make lending, borrowing and repayments even easier.

I’m heartened by the stories of economic and personal triumph around the world — including in my own backyard — that start with a microloan and supportive services and convert that into a macro opportunity for dignity and independence. I’m excited that we in Los Angeles are unlocking the spirit and ambition of our entrepreneurs every day. Our whole community benefits as these entrepreneurs turn their dreams into reality.

In the spirit of this season of giving, I urge you to get involved by learning more or contributing at www.GrameenAmerica.org.

John E. Kobara is Executive Vice President and Chief Operating Officer of the California Community Foundation, which has partnered with Grameen America to launch microfinance in Los Angeles. This article originally appeared as part of his blog on Huffington Post, in which he writes regularly on philanthropy and Los Angeles County. You can follow him on Twitter @jekobara.

August 29, 2014 ~ 0 Comments

Black Youth at a Crossroads: Helping Students BLOOM

vIRGIL-rOBERTSLast week, the Los Angeles Unified School District announced a much-needed policy change. Minor infractions committed by students will no longer be treated as criminal offenses. This is a step in the right direction, but if we want to keep young people out of the justice system and in school–where they belong–there is still much to be done.

I was a defiant child who was expelled from school. Because someone took an interest in me, I survived the crisis and went on to graduate from Harvard Law School. It was a challenging, exhilarating journey, directed by several key influences in my life.

During the 1950s, when I was growing up, my home town of Ventura was one of California’s many small agricultural towns. My parents were among a handful of black folks–African Americans–who came to California as migrant farm workers, picking cotton half the year then heading to the coast in the winter to pick lemons and oranges.

Neither of my parents finished elementary school, so my mother was very active in our education. She wanted for me what she could not have for herself. She kept a chart in the kitchen, and anytime my brothers or I used poor grammar–like saying “ain’t”–-she would make a mark on the chart. At the end of the week, the one who used the best language would get a candy bar.

Teachers took an interest in me. I was a smart kid, but mischievous. I’d bring my little bean-shooter to school and shoot beans and throw spit wads at people. My second grade teacher, Mrs. Rice, could see that I was bored, so she started bringing in Reader’s Digest. Rather than giving me the spelling words the other kids had, she’d hand me the vocabulary list from Reader’s Digest. When she moved to another elementary school, I wound up getting in trouble. Before long, I was expelled. So I took a bus every day to the school where Mrs. Rice was teaching.

Because my mother, Mrs. Rice and others believed in me, I was the first in my family to graduate from college.

The desire for education once was very strong in the African American community. Now we somehow seem to have developed a culture that celebrates ignorance. I find that to be very disturbing. The thing my parents and grandparents thirsted for most was education. We’ve got to figure out how to rekindle that desire, that thirst for learning that we once had in our communities.

If we’re going to do something for our communities of color, we have to figure out how to make the public education system work properly, because it’s the one institution that touches the lives of almost every low-income kid. We also have to be thoughtful about how we deal with mischievous kids who may end up being kicked out of school for being “willfully defiant,” which I clearly was, even as a second-grader.

With the BLOOM (Building a Lifetime of Options and Opportunities for Men) Initiative, we’re taking an active, positive interest in young black boys who are at a crossroads. Given the benefit of some intervention and support, these young men can become productive citizens. I’m enthusiastic about it because I can see myself in the youths we’re trying to serve. That’s why I’m bullish that we’ve got to reach more kids, that we can do more, because I know first hand the difference that constructive intervention can make. At the right time in your journey, it can change your direction, your aspirations, your life.

 

Virgil Roberts is an L.A. attorney, community leader and advisory committee member for the BLOOM Initiative through the California Community Foundation.

August 5, 2014 ~ 4 Comments

“Easier than Getting a Library Card?” Critical Considerations on Using the IRS Form 1023-EZ

1023-EZ Bannerby Ofer Lion

With the release of Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, applying for tax-exempt status has never been faster or easier. As Tim Delaney, president and CEO of the Council of Nonprofits, put it, “It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card.”[1] While this new form offers a number of benefits in terms of simplicity and speed, it also comes with some serious potential drawbacks. This post offers some critical considerations you might take into account in deciding whether your organization can and should utilize the new form.

Attesting to a Legal Conclusion under Penalties of Perjury

Form 1023-EZ requires the filer to attest to numerous legal conclusions about the organization under penalties of perjury. If there is any question about the organization’s qualification for tax-exempt status, filing a traditional Form 1023 may actually be the preferred route, as it allows the organization to “test” its detailed qualifications with the IRS and make any adjustments required in the course of its review.

Of note, the Form 1023-EZ filer is required to attest that the organization:

  • is organized and operated exclusively to further one or more exempt purposes;
  • does not further nonexempt purposes (such as purposes that benefit private interests) more than insubstantially; and
  • is not organized or operated for the primary purpose of conducting a trade or business that is not related to its exempt purpose.

Form 1023, on the other hand, allows an organization to present a full description of its operations, leaving it to the IRS to determine whether it qualifies for tax-exemption. For example, a Form 1023 can describe a financial relationship between the organization and a related person, in the hopes that the IRS will issue a determination letter effectively verifying that the arrangement does not further that person’s private interests more than insubstantially.

Should Private Foundations Respect an “EZ” for Expenditure Responsibility Purposes?

Probably not. Revenue Procedure 2014-40 states that a determination letter issued to an organization that submitted a Form 1023-EZ may not be relied upon if it was based on any inaccurate material information submitted by the organization, such as incorrect information regarding the organization’s organizational documents, exempt purposes, conduct of prohibited and restricted activities or its eligibility to file Form 1023-EZ.

Private foundations often don’t need to exercise expenditure responsibility when making grants to many types of organizations. They may, however, find it difficult to rely on a determination letter issued pursuant to a Form 1023-EZ, since they may not be able to determine whether the organization made an “incorrect attestation” without undertaking the type of in-depth review that once would have been done by the IRS.

Can a Donor Rely on an “EZ” For Deductibility Purposes?

Yes. The instructions to Form 1023-EZ state that donors may rely on a favorable determination letter under section 501(c)(3) until the IRS publishes notice of a change in status.

Will Guidestar and the IRS Business Master File Indicate Whether an Organization Filed a Form 1023-EZ?

We assume that either or both Guidestar.org and the IRS Business Master File eventually will somehow indicate whether an organization received its tax-exempt status using a Form 1023-EZ.

Will Attorneys General Take a Closer Look at “EZ” Filers?

It appears that use of Form 1023-EZ may be viewed as a red flag by state regulators. The National Association of State Charity Officials submitted comments to the Department of Treasury recommending against the Form 1023-EZ when it was proposed, stating, “We believe that the Form 1023-EZ will increase opportunity for fraud and heighten the burden on state regulators to compensate for the reduced standards that will be required of the organization to meet federal tax exemption requirements.”[2]

No Expedite Request? No Need

While an expedite request cannot be filed in connection with a Form 1023-EZ, it appears that there is no need. The early returns indicate that determination letters are being issued to Form 1023-EZ filers in two or three weeks’ time.

Can My Organization Replace a Long-Delayed 1023 with an “EZ”?

As long as a filed Form 1023 has not yet been assigned for review, which can take over a year, the IRS will accept a Form 1023-EZ as a replacement. However, the initial filing fee from the Form 1023’s submission will not be refunded, and the submission date of the 1023-EZ will replace the Form 1023’s filing date for purposes of the 27-month general limit on retroactivity, though it does permit the filer to petition the IRS for an earlier effective date.

The Home Address of Every Director and Officer?

When it comes to information regarding officers, directors and trustees, the Form 1023-EZ may actually require more information. While the instructions to Form 1023-EZ require the filer to “Enter the full names, titles, and personal mailing addresses of your officers, directors, and/or trustees,” the instructions to the traditional Form 1023 specifically provide that “Officers, directors and trustees may use the organization’s address for mailing.” It remains unclear whether the IRS will accept the organization’s address for the officers, directors and trustees of Form 1023-EZ filers.

Can a Form 1023-EZ be Filed to Reinstate an Automatically Revoked Organization?

Yes, but not for retroactive reinstatement. If the organization wishes to apply for retroactive reinstatement, it will need to file the traditional Form 1023, along with an appropriate reasonable cause statement and a confirmation that the required returns have been filed.

Conclusion

While the Form 1023-EZ may look like a panacea to any organization qualified to use it, its use can come with serious disadvantages. While it may be easier than ever to get tax exempt status, your organization should consider these issues before making a decision on whether to file a Form 1023 or a Form 1023-EZ.

[1] Massimo Calabresi, “IRS to Rubber Stamp Tax-Exempt Status for Most Charities After Scandal,” TIME, 07/13/2014, available at http://time.com/#2979612/irs-scandal-tax-exempt-tea-party-political-groups-john-koskinen/.

[2] National Association of State Charity Officials’ comment letter is available at: http://www.nasconet.org/wp-content/uploads/2014/05/FINAL-NASCO-comments-re-Form-1023-EZ1.pdf.

OFER  LION  is counsel in the Los Angeles office of Hunton & Williams LLP. He has served as an adjunct professor at the UCLA School of Law, teaching a course in tax-exempt organizations. He can be reached at olion@hunton.com.