After a lot of encouragement from the field, the IRS is ready to issue new regulations regarding program-related investments (PRIs). The regulations don’t change the rules governing PRIs. Foundations will still be able to invest creatively to advance their mission, as well as recycle the money they’re repaid into new grants or PRIs.
So what are these regulations? They are a set of examples of the kinds of investments that many foundations are making right now that qualify as PRIs. Once approved, the regulations bring the number of published examples to 20. Each one provides assurance that similar investments made in the future will also be recognized as PRIs.
If you are a private foundation, this is a big deal. A PRI counts toward your annual pay-out requirements, and a PRI is not considered to be a “jeopardizing” investment that might be subject to a tax penalty.
What impresses me about the proposed regulations is the extent to which they encourage the use of PRIs. PRIs were established in 1969 to permit foundations to bring low-cost capital to disadvantaged communities. They allowed millions of dollars to flow from philanthropy to spur economic development, create jobs, and build housing, among other uses. Since then, more than $4 billion has been invested through thousands of PRIs made by hundreds of foundations across the country.
Today more foundations of all types and sizes are using this tool. The IRS examples reflect a wide array of allowable uses, including developing new vaccines, preventing pollution, disaster recovery, farmer education, and arts promotion. They show ways in which money can be invested with nonprofit organizations, entrepreneurs, and businesses. In fact, they make for surprisingly interesting reading.
Most importantly, the examples help communicate the variety of tools and methods that foundations have at their disposal to accomplish their goals.
Want to learn more? For a general guide on the legal aspects of program-related investing, download Strategies to Maximize your Philanthropic Capital: A Guide to Program-Related Investments on our website.
Peter Berliner is managing director of Mission Investors Exchange. He is one of the featured speakers at the July 26 webinar, “Key Strategies to Engage Your Foundation in Mission Investing.”