U.S. Treasury Clarifies Rules on Mission-Related Investing

Wednesday, September 23, 2015

A growing number of private foundations are using mission-related investments (MRIs) to leverage their resources, despite the challenge of interpreting often vague IRS regulations. Private foundations got some welcome assistance last week when the Treasury Department released clarifying guidance on MRIs.

GWP’s colleagues at Council on Foundations, Council of Michigan Foundations and Mission Investors Exchange have been working with key Treasury officials to emphasize the importance of giving foundations clear ‘rules of the road.' Treasury officials appear to be getting the message. According to COF, “The guidance recognizes that foundations are increasingly aligning their investment decisions with their charitable purposes, and clarifies that this alignment can be part of a prudent investment policy. Under Internal Revenue Code Section 4944 and its accompanying regulations, a private foundation investment is not considered "jeopardizing" if the foundation managers exercise ordinary business care and prudence in providing for the long-term and short-term financial needs of the foundation.”

The new Treasury guidance also makes clear that foundation managers need not limit themselves to investments that offer the highest return, lowest risk, or most liquidity: they can consider "all relevant facts and circumstances" so long as they demonstrate they are advancing the foundation’s charitable purposes. In summary, the new guidance acknowledges that a private foundation’s endowment is not only the financial driver of its operations, but an additional means for the foundation to achieve its mission.