Government Update

Trust wins a court round. The Appellate Division of the New York State Supreme Court ruled that a lawsuit brought against the New York Community Trust by the Community Service Society was barred by the statute of limitations. "This case is an excellent example of why we have statutes of limitations," said Council on Foundations Deputy General Counsel Janne G. Gallagher. "It's hard to go back 30 years and re-create what happened. This ruling affirmed the variance power and the flexibility of boards to exercise it without prior court approval. It also rejected the attorney general's effort to demand oversight over the exercise of the variance power." However, the court affirmed the trial judge's ruling that any exercise of the variance power "must be grounded in a change of circumstance that negatively affects the designated charity to such a degree that it would be likely to prompt a donor of the fund to re-direct it." Provided a community foundation uses this standard, the courts should afford their decisions "maximum deference in review." The text of the decision, In re Application of the Community Service Society of New York (N.Y. App. Div., Sept. 21, 2000) can be found on the New York courts Web site at www. nycourts.com. (To access the file from the New York courts Web site, in the pull-down menu, select Appellate Division, 1st Department. Click on Decisions and key in the case name.)

IRS withdraws private letter ruling released in error. The Internal Revenue Service caused substantial confusion when it erroneously released PLR 200037053, dated June 22, 2000. This ruling did not accurately reflect the discussions between the IRS and the applicant concerning the due diligence the applicant would undertake before approving a grant recommendation from a donor to a donor-advised fund. A corrected ruling superseding the June ruling was issued August 2, 2000, but has not yet been officially released by the IRS. The original ruling also caused controversy because the applicant appeared to be seeking approval for a new "national community foundation." Although the IRS does not identify those who seek private letter rulings, Buzz Schmidt, founder and CEO of Philanthropic Research, Inc. (PRI) (the parent entity of GuideStar), voluntarily identified PRI as the applicant. Schmidt released the correct version of the letter ruling by posting it on the GuideStar Web site and provided a statement clarifying that GuideStar sought the ruling only to facilitate accepting on-line gifts to charities designated by the donor at the time of the gift. The statement notes the "urgent need for new federal tax rules that clearly distinguish on-line giving systems from traditional donor advised funds and establish appropriately demanding fiduciary standards for these two very different types of charitable services." A copy of the text of the correct ruling can be obtained at www.guidestar.org/ruling.html. The IRS is expected to release it formally sometime before the end of the year.