M E M O

TO:	Bill Schambra

FROM:	Yvonne Engel

DATE:	October 2, 2000

RE:	Tipping of FDE

The Foundation for Democratic Education (FDE) has requested a $1,153,280 grant to support general operations. In completing our Grantee Tax Exempt Status form, they indicated a grant of this size would exceed 25% of their aggregate income over the past four taxable years. This Bradley grant could cause FDE to loose its current 170(b)(1)(A)(vi) public support status. Losing their public support status would cause them to become a private foundation. As a private foundation, their donors would no longer be able to count grants made to them as qualifying distributions on their own Private Foundation tax returns.

FDE responded promptly to our request for additional financial information. Analysis of their 1998 tax return indicates their annual support has increased steadily over the past four years. Their tax return accurately includes past Bradley grants in their "private money over 2%" figure. While they do not meet the 33 and 1/3 percent of support test for typical publicly supported 170(b)(1)(A)(vi) organizations, they do pass the alternative "facts and circumstances" test as filed with their recent IRS income tax return.

IRS regulations state, "A PF can rely upon its grantee organization's proof, or its determination letter stating that it is a public charity, until a notice of its revocation is published in the weekly Internal Revenue Bulletin or is otherwise made public." However, their determination letter states "a grantor or contributor may not rely on this determination if he or she was in part responsible for, or was aware of, the act or failure to act that resulted in your loss of section 170(b)(1)(A)(vi) status or acquired any knowledge that the IRS had given notice that you would be removed from this classification."

In the case of FDE, because we have asked for clarification from them that we will not cause them to lose their public support status with a grant of $400,000 and they have provided that, we have done our due diligence. We are making a grant to a currently qualified tax exempt organization; the Foundation for Democratic Education is listed on page 879 of the 1999 Cumulative Index. We also subscribe to and monitor the IRS bulletins for revocations; they have not been revoked. In addition, the IRS has upheld their public support status since November of 1984 using the "facts and circumstances" test, which requires only 10% of their income to come from the general public.

In my opinion, we should be able to award the $400,000 you are recommending this November and pay it all during their next fiscal year, 12/1/00-11/30/01. However, I would not venture higher than $400,000 per year until they have a broader base of support.

The IRS uses the amount paid, versus the amount awarded for grants during any fiscal year. To be on the safe side, we could perhaps pay half of the grant immediately, and monitor their support base during the year to be sure we will not cause them to lose public support status. If, toward the beginning of the last quarter of their fiscal year, it appears they have received funds from other sources, we can pay the remaining portion of the grant. If it appears they did not receive funds from other sources, we can pay the balance of our $400,000 award the first month of their next fiscal year -- December, 2001. Either way, on our tax return we would indicate payment during 2000 (this December) and again sometime during 2001, whether it's December or earlier.

I hope this information is helpful.

Yvonne