Joint statement from Diane Yentel, Vice President for Public Policy & Government Affairs, Enterprise Community Partners, and Mary Jo Cook, President and C.E.O., Pacific Community Ventures
On Tuesday the Internal Revenue Service (IRS) issued new guidance for tax-exempt foundations on “mission-related investments” (MRIs) which seek a risk-adjusted financial return alongside social or environmental goals that are consistent with the foundation’s charitable purpose.
The guidance, which applies to Section 4944 of the Internal Revenue Code, makes clear that foundations are free to pursue MRIs without facing a tax penalty, so long as the foundation’s managers “exercise ordinary business care and prudence…in providing for the long-term and short-term financial needs of the foundation.” Specifically, foundation managers are not required to select only investments that offer the highest rates of return, the lowest risks or the greatest liquidity. Certain MRIs—even those that produce slightly below-market returns—are consistent with the manager’s fiduciary duty, so long as they “support, and do not jeopardize, the furtherance of the private foundation’s charitable purposes.” Even if the foundation realizes a loss on an MRI at a later date, it cannot be deemed a “jeopardizing investment” if the foundation manager fulfilled their fiduciary duty at the time the investment was made.
As co-sponsors of the Accelerating Impact Investing Initiative (AI3), we commend the IRS for issuing this important guidance. By clarifying the fiduciary rules surrounding MRIs, the new guidance could encourage more foundations to align their investment strategies with their charitable purpose. We welcome the new guidance as a step toward improving and expanding the market for impact investing in the U.S.