PLANNED GIVING COUNSEL FEBRUARY 14, 2006 HANK RAATTAMA

1. PLANNED GIVING COUNSEL FEBRUARY 14, 2006 HANK RAATTAMA M2360821.PPT

2. Outline • 2006 Legislation • 2006 IRS • Revocation of Exempt Status Regulations • Compensation • American University • American Red Cross • IRS Audit Letter • Governance • American University • American Red Cross • Governance Project M2360821.PPT

3. Tax Relief Act of 2005 • Senate – S. 2020 11/18/05 • 1st Draft – nothing • 2nd Draft – 3 provisions • Final – 46 provisions – 55 of 144 pages • Dean A. Zerbe • Senator Santorum • House – H.R. 4297 12/08/05 • Nothing – • John Buckley – Minority Tax Counsel – Ways and Means "Support for governance reforms in the House has changed to the vanishing 'point' and there is even less support in the Senate" 10/31/06 • 2/3/06 Senate takes up HR4297 – Amends HR4297 by substituting S2020 for HR4297 plus about $70B other changes. • 2/8/06 House sends amended HR4297 to conference and appoints conferees Reps. Thomas, McCrery, Camp, Rangel and Stark. • Senate expected to bring up Tax Bill on 2/13/06 M2360821.PPT

4. CONGRESS 2006 The Senate Tax Relief Act of 2005 (S. 2020/HR4297) contains only narrow reforms and several provisions that encourage charitable contributions. Although only a small percentage of EOs will be impacted by these changes, those affected must prepare now. Procedurally, the Senate amended/replaced H.R. 4297 with S. 2020, because tax legislation must originate in the House Art. I, Section 7 Const.). The House will then take up amended H.R. 4297 and send it to conference. The Senate will do that same. The Conference Bill will then go back to the House and Senate. TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS Subtitle A--Charitable Giving Incentives Sec. 301. Charitable deduction for nonitemizers. Sec. 302. Tax-free distributions from individual retirement plans for charitable purposes. Sec. 303. Modification of charitable deduction for contributions of food inventory. Sec. 304. Basis adjustment to stock of S corporation contributing property. Sec. 305. Modification of charitable deduction for contributions of book inventory. Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations and public disclosure of information relating to unrelated business income. Sec. 307. Encouragement of contributions of capital gain real property made for conservation purposes. Sec. 308. Enhanced deduction for charitable contribution of literary, musical, artistic, and scholarly compositions. Sec. 309. Mileage reimbursements to charitable volunteers excluded from gross income. Sec. 310. Alternative percentage limitation for corporate charitable contributions to the mathematics and science partnership program. . Subtitle B--Reforming Charitable Organizations Part I--General Reforms Sec. 311. Tax involvement by exempt organizations in tax shelter transactions. Sec. 312. Excise tax on certain acquisitions of interests in insurance contracts in which certain exempt organizations hold an interest. Sec. 313. Increase in penalty excise taxes on public charities, social welfare organizations, and private foundations. M2360821.PPT

5. CONGRESS 2006(Cont'd) Sec. 314. Reform of charitable contributions of certain easements on buildings in registered historic districts. Sec. 315. Charitable contributions of taxidermy property. Sec. 316. Recapture of tax benefit for charitable contributions of exempt use property not used for an exempt use. Sec. 317. Limitation of deduction for charitable contributions of clothing and household items. Sec. 318. Modification of recordkeeping requirements for certain charitable contributions. Sec. 319. Contributions of fractional interests in tangible personal property. Sec. 320. Provisions relating to substantial and gross overstatements of valuations of charitable deduction property. Sec. 321. Additional standards for credit counseling organizations. Sec. 322. Expansion of the base of tax on private foundation net investment income. Sec. 323. Definition of convention or association of churches. Sec. 324. Notification requirement for entities not currently required to file. Sec. 325. Disclosure to State officials of proposed actions related to exempt organizations. Part II--Improved Accountability of Donor Advised Funds Sec. 331. Excise tax on sponsoring organizations of donor advised funds for failure to meet distribution requirements. Sec. 332. Prohibited transactions. Sec. 333. Treatment of charitable contribution deductions to donor advised funds. Sec. 334. Returns of, and applications for recognition by, sponsoring organizations. Part III--Improved Accountability of Supporting Organizations Sec. 341. Requirements for supporting organizations. Sec. 342. Excise tax on supporting organizations for failure to meet distribution requirements. Sec. 343. Excess benefit transactions. Sec. 344. Excess business holdings of supporting organizations. Sec. 345. Treatment of amounts paid to supporting organizations by private foundations. Sec. 346. Returns of supporting organizations. M2360821.PPT

6. IRSOTHER IRS STUFF FY 2006 EO IMPLEMENTING GUIDELINES 2006 INITIATIVES • EASEMENTS - Valuation • CHARITABLE TRUSTS - Fraud • ABUSIVE TAX AVOIDANCE TRANSACTIONS (ATAT)* "ACCOMMODATING PARTNERS"*"ABUSIVE TRANSACTIONS ACCOMMODATION PARTIES"** • HOSPITALS – EXECUTIVE COMPENSATION – 600 soft contacts 130 Soft Audits – Churches and Politics – Political Activity Compliance Initiative (PACI) • ENFORCEMENT – ENFORCEMENT – ENFORCEMENT (enforcement budget increased 23% compared to ½% overall) EO Financial Investigations Unit (FIU) Compliance Strategies and Data Analysis Unit (CSDA) Exempt Organization Compliance Area (EOCA) Soft Audits • Notice 2006-15 (2/3/06), indefinite stay for Rev. Proc. 2005-24 • Foreign Grants • Determination Letters – TE/GE Determination System (TEDS) • 990 finalized – 2/1/06 M2360821.PPT

7. Proposed Regulations (REG. 111257-05) 9/9/05 Private benefit – § 1.501(c)(3)-1(d)(iii)Whether revocation of exempt status isappropriate because of excess benefit transactions – IRC Reg. § 1.501(c)(3)-1(g)(iv) – example #3 FACTS: O is an educational organization. C, the founder, is employed by O. Significant funds were diverted to pay C's personal expenses. The O board did not inquire and did not know about the payments, although two board members were aware of the payments. The payments were excess benefit payments in § 4958. O took no action to recover the excess benefits. • The exempt activities are significant. • The excess benefit transactions are significant relative to exempt activities. • There were repeated excess benefit transactions. • The Board did not establish safeguards to protect against the excess benefit transactions been implemented. • Conflicts of interest policy • Procedure instituted to discover transactions • Internal controls • The excess benefit transaction was not discovered and/or corrected. M2360821.PPT

8. Proposed Regulations (REG. 111257-05) 9/9/05 Private benefit – § 1.501(c)(3)-1(d)(iii)Whether revocation of exempt status isappropriate because of excess benefit transactions – IRC Reg. § 1.501(c)(3)-1(g)(iv) – example #3(Cont'd) If your governance system is good, you will be able to prevent excess benefit transactions and if one is not prevented, a good governance system will prevent loss of exempt status. M2360821.PPT

9. Compensation2000 soft audit letters40% audits "A second challenge we face is the excessive compensation of some executives of tax exempt organizations. I use this as an example of something we have seen across much of the tax exempt sector. Of course an exempt organization is entitled to pay reasonable compensation based on the value of services it receives. However, there are indications that organizations have allowed key executives too great a voice in determining their own compensation or have otherwise not done due diligence in setting compensation levels." Mark Everson 12/15/05 M2360821.PPT

10. Grassley Letter to American Red Cross(12/29/05) Compensation • Please provide copies of Ms. Evans' employment contract, deferred compensation and severance plans and any other compensation arrangements, including expense reimbursements. Please provide a copy of Ms. Evans' severance package or proposed severance package. • For the past three years for individuals listed in Part V of Form 990 "List of Officers, Directors, Trustees and Key Employees," and Part I "Compensation of the Five Highest Paid employees Other Than Officers, Directors and Trustees", please answer the following: • Explain how you established the amount of compensation and benefits. • Describe the nature of the components for each amount reported under compensation; contributions to employee benefit plans & deferred compensation; and, expense account and other allowances. • Describe the duties and responsibilities that each individual performed for the Red Cross. • Do the amounts reported represent the total economic benefits each individual received from the Red Cross for the year? If no, please explain what other benefits were received, including the fair market value of those benefits. • Did the Red Cross establish the rebuttable presumption under section 53.4958-6 of the Foundation and Similar Excise Taxes Treasury Regulations as to the compensation and benefits reported for any of the individuals? If yes, please provide copies of all supporting documentation. • If the answer is no to "e" for any of the individuals, do you have documentation supporting the reasonableness of the compensation and benefits reported? If yes, please provide a copy of this documentation. • Did the Red Cross board approve the amount of compensation and benefits reported? If yes, please provide a copy of the approval for each individual. • Did the Red Cross have an employment contract or any other compensatory agreement with any of the individuals? If yes, please provide a copy of the contract or agreement. • Does the amount of compensation and benefits reported agree with the amount reported on each individual's Form W-2 or Form 1099? If no, please explain the difference. • Did any of these individuals use any property that the Red Cross owned or leased (such as an automobile, aircraft, real estate, credit card, etc.) for any purpose other than to further the organization's exempt purposes? If yes, did the Red Cross include the value of this usage in the amount of compensation and benefits reported? Was the value included on the individual's Form W-2 or Form 1099? If your answer to either of these questions is "No" please explain. • Please provide copies of all correspondence between the Red Cross or its chapters and the IRS for the last three years. M2360821.PPT

11. Grassley Letter to American University (10/27/05) – Compensation • Executive Compensation - For the past three years for individuals listed in Part V of Form 990 "List of Officers, Directors Trustees and Key Employees," and Part I "Compensation of the five Highest Paid employees Other Than Officers, Directors and Trustees", please answer the following: • Explain how you established the amount of compensation and benefits. • Describe the nature of the components for each amount reported under compensation; contributions to employee benefit plans & deferred compensation; and, expense account and other allowances. • Describe the duties and responsibilities that each individual performed for you. • Do the amounts reported represent the total economic benefits each individual received from you for the year? If no, please explain what other benefits were received, including the fair market value of those benefits. • Did you establish the rebuttable presumption under section 53.4958-8 of the Foundation and Similar Excise Taxes Treasury Regulations as to the compensation and benefits reported for any of the individuals? If yes, please provide copies of all supporting documentation. • If the answer is no to "e" for any of the individuals, do you have documentation supporting the reasonableness of the compensation and benefits reported? If yes, please provide a copy of this documentations. • Did the AU board approve the amount of compensation and benefits reported? If years, please provide a copy of the approval for each individual. • Did you have an employment contract or any other compensatory agreement with any of the individuals? If yes, please provide a copy of the contract or agreement. • Does the amount of compensation and benefits reported agree with the amount reported on each individual's Form W-2 or Form 1099? If no, please explain the difference. • Did any of these individual use any property that you owned or leased (such as an automobile, aircraft, real estate, credit card, etc.) for any purpose other than to further the organization's exempt purposes? If yes, did you include the value of this usage in the amount of compensation and benefits reported? Was the value included on the individual's Form W-2 or Form 1099? If your answer to either of these questions is "No" please explain. M2360821.PPT

12. Grassley Letter to American University (10/27/05) – Compensation(Cont'd) • IRC Section 4958 -- Excess Benefit Transactions • Provide copies of Mr. Ladner's employment contract, deferred compensation and severance plans and any other compensation arrangements, including expense reimbursements. • Provide all material, discussion, legal opinions, compensation studies and analysis or other related items used by the AU board, compensation committee or other relevant governing body when making its decisions regarding Mr. Ladner's employment contract, deferred compensation and severance plans and any other compensation arrangements, including expense reimbursements. Provide all material documenting AU's compliance with Internal Revenue Code (IRC) section 4958 with respect to these items, including but not limited to copies of minutes of meetings from AU's board, compensation committee or other relevant governing body as well resolutions or written actions regarding such transactions. Provide a copy of any settlement agreement or release of claims entered into with Mr. Ladner and explain how any amounts paid under such agreement were determined. • Identify consultants, accountants, lawyers and or other outside advisors used with respect to the items requested in "a" and "b" above, and include names, addresses and total fees paid. • Provide a list and brief description of all no-bid contracts issued by AU and its affiliates and subsidiaries over $100,000 for last 11 years. Explain how no-bid contracts are awarded. • Provide copies of any conflicts of interest or similar policies as well as expense reimbursement and travel polices that have been adopted. Include an explanation of how the AU processes expenses and requests for reimbursement. Please explain what, of any, changes to these policies AU is considering. Explain whether such policies were followed and enforced with respect to Mr. Ladner. • How did the board comply with its State law fiduciary duties in its actions regarding the hiring, retention, compensation of, and termination of, Mr. Ladner? M2360821.PPT

13. DEPARTMENT OF THE TREASURY Internal Revenue Service ____________ ___, 2005 ABC Research Foundation P.O. Box 1 Anywhere, FL 00000-0000 Contact Person/ID Number: John Doe/ 00-00000 Contact Telephone Numbers: Telephone: 1-817-000-2320 Fax: 1-817-000-2368 RE: Employer Identification Number: 00-0000000 Tax Year: 2003 (Year ending 12/31/03) Dear Sir or Madam: We are conducting an examination of Forms 990-PF, Return of Private Foundation, filed by certain private foundations, including yours. Our examination will help ensure compliance with section 4941 of the Internal Revenue Code, relating to self-dealing transactions. To achieve this goal, we need you to provide us with the information described below. In Part 1, line 13, column a) you reported $__________ as compensation of officers, directors, trustees, etc. Please submit a breakdown of this amount by each individual payee's name. In addition, if an individual's compensation exceeded $10,000, please answer the following questions and submit the information request ed. • Explain how you established the amount of each individual's compensation. • Describe the nature of the components of each individual's compensation. • Describe the duties and responsibilities that each individual performed for you during the year shown above. • Does the amount of each individual's compensation represent the total economic benefits received from you for the year? If no, please explain what other benefits were received, including the fair market value of those benefits. M2360821.PPT

14. Department of the Treasury ____________ ___, 2005 Page 2 • Provide the social security number for each individual. • Do you have documentation supporting the reasonableness of each individual's compensation? If yes, please provide a copy of this documentation. • Did your Board of Directors (or other governing body) approve the amount of each individual's compensation? If yes, please provide a copy of the approval. • Did you have an employment contract or any other compensatory agreement with any of the individuals? If yes, please provide a copy of the contract or agreement. • Does the amount of each individual's compensation agree with the amount reported on that individual's Form W-2 or Form 1099? If no, please explain the difference. • Did any of these individuals use any property that you owned or leased (such as an automobile, aircraft, real estate, credit card, etc.) for any purpose other than to further the organization's exempt purposes? If yes, did you include the value of this use in the amount of compensation? Was the value included on the individual's Form W-2 or Form 1099? If you answer to either of these questions is "No," please explain. For any box checked below, please provide the information indicated. • In question 3, Part VIII, Form 990-PF, you list one or more individual independent contractors who are also officers, directors, or trustees. Please describe the relationship of these contractors to your officers, directors, or trustees, and describe the services these contractors performed. In addition, describe the components of the compensation reported and provide the information requested in 1, 3, 4, and 5, above, as to the compensation reported to these contractors. M2360821.PPT

15. Department of the Treasury ____________ ___, 2005 Page 2 • In question 3, Part VIII, Form 990-PF, you list one or more independent contractors that are not individuals. Did any of your officers, directors or trustees, or any of their family members, have a financial interest in any of these contractors? If yes, describe the services these contractors performed. In addition, describe the components of the compensation reported and provide the information requested in 1, 3, 4, and 5, above, as to the compensation reported to these contractors. Please send this information within 30 days from the date of this letter to: Internal Revenue Service 123 K Street Ogden, UT 12345 Attn: John Doe If we do not hear from you within 30 days from the date of this letter, we will consider taking appropriate enforcement action. If someone other than an authorized officer will be contacting us, you must send us an executed Form 2848, Power of Attorney and Declaration of Representative, using the above fax number. We have enclosed a copy of this form for your convenience. If you have any questions, please contact the person named in the heading of this letter. Thank you for your cooperation. Sincerely yours, R. C. Johnson Director, EO Examinations Enclosures Form 2848 Publication 1 M2360821.PPT

16. GovernanceThe Chronicle of Philanthropy10/27/05 – Pablo EisenbergAmerican University "Much of the responsibility for this development must fall on university trustees who themselves are increasingly concerned only with raising money. At American University, they seemed to be willing to overlook the president's transgressions as well the need for financial transparency as long as he was raking in the money. Until the leaked letter to several trustees, they had not required thorough audits of the president's office. Even after the revelations of Mr. Ladner's inappropriate expenses, many were reluctant to take action, because they were his friends and he had delivered what the trustees wanted." M2360821.PPT

17. American University "Leaked" ReportThe President's Package $800,000 salary Split dollar insurance policy? Family engagement party $200,000 for personal chef $ 54,000 limousine services Spouse garden club luncheon 1st class travel Vacation home expenses $100,000 social secretary Club dues Settlement Forgive repayment of personal expenses Forgive $1,000,000 premiums on life insurance $1,750,000 deferred compensation $950,000 1 time payment M2360821.PPT

18. GOVERNANCEEXCERPT FROM LETTERFROM SENATOR GRASSLEY TO CHAIRAMERICAN RED CROSS12/29/05 The response to Katrina and the recent resignation of the President and CEO of the Red Cross have understandably raised questions about the Red Cross. Specifically whether the current board and governance structure meets the high level of competence and engagement that Congress and the public should expect from an organization that carries such serious responsibilities. M2360821.PPT

19. GOVERNANCEGRASSLEY REQUEST TO RED CROSS12/29/05 • Please provide copies of all board minutes, including board minutes of any subgroup (such as the executive committee) of the board, for the last five years. Please provide a list of all material provided to board members of the last five years. • Please indicate for all board meetings and subgroup meetings of the board the attendance – for the last five years. Please indicate what board members are elected by chartered units, member-at-large and Presidential appointees. In addition, for Presidential appointees please provide the attendance information of the last ten years. • Please provide copies of all communications between board members and the President and CEO for the last five years. This would include e-mails, faxes, memorandums, etc. • Please provide a detailed discussion of your office – the number of staff that report to you, their duties and salaries. Please compare this to your predecessor. Please provide the number of hours per week that you spend performing your duties as Chairman and provide a detailed discussion of your work and duties as Chairman. Please provide a copy of an organization chart for the Red Cross including reporting chains (including contacts and reporting chains from chapters up into headquarters). • When did the board last do a self-evaluation of the board's work and performance? Please provide a copy of that evaluation. When does the board intend to do another evaluation? • When has the board last conducted an evaluation of the effectiveness of the American Red Cross operations? Please provide a copy of the evaluation. When does the board intend to do another evaluation? M2360821.PPT

20. GOVERNANCEGRASSLEY REQUEST TO RED CROSS12/29/05(Cont'd) • It is my understanding that when Ms. Marty Evans, the former President and CEO of the Red Cross, first took her position at the Red Cross she sought to initiate a series of reforms in governance. Please discuss these reforms and the board's response to these efforts by Ms. Evans. Please provide a copy of Ms. Evans memorandum to you "Guiding Principles for a Successful Board-Management Partnership." Please provide a copy of any response you, your staff, or other board members made to this memorandum. • A Red Cross spokesman states that Ms. Evan's departure was due to coordination and communication issues with the board. The American public deserves more than a papering over of the reasons for her departure. If coordination and communication is at issue, then please provide a detailed discussion of what exactly were these issues. Please provide all written memos, communications, email, etc. that support these concerns cited by the Red Cross spokesman that justify this explanation of Ms. Evan's departure. • Please provide a copy of all internal audits (both completed and in draft form) for the last five years. • Please provide a discussion of whether you believe the current governance and board structure is appropriate and adequate – including any proposed changes to the law. • Please provide me a detailed discussion of how the board will proceed in finding a new President and CEO of the Red Cross and the qualifications that the board is seeking. Please advise who is serving on the search committee. M2360821.PPT

21. Grassley Letter to American University Board (10/27/05)Governance & Transparency • Discuss whether you believe that there is sufficient transparency regarding your highly compensated officers, directors, trustees and employees. What do you to ensure numbers are transparent historically and in the future. Do you believe there was adequate disclosure? • Provide descriptions of all transactions with disqualified persons (as defined in IRC section 4958(f)). Provide copies of legal opinions and minutes from board meetings discussing these transactions. Please provide this for the last three years for compensations, loans, property purchases/leases and services for over $100,000. • I understand that the AU audit of Mr. Ladner was for the most recent three years. However, Mr. Ladner's tenure was for eleven years. Given the extraordinarily troubling findings from the audit of the most recent time period, please inform me of your plans to contact a complete audit of the entire 11 years. • Provide your articles of incorporation, by laws (in effect for past 11 years), application for exempt status, and the IRS determination letter. For the past 11 years, please provide a brief description of individuals who served on the boards, a short biography, qualifications, how the board member was selected and how the board members serve the interests of the community. M2360821.PPT

22. GOVERNANCE PROJECT I. Board and Board Policy – March 30, 2006 Board of Directors – Composition and Operation Conflicts of Interest Self Evaluation Meetings, Management and Minutes Compensation – Board and Staff • The Organization Mission Code of Ethics Legal Audit M2360821.PPT

23. GOVERNANCE PROJECT(Cont'd) III. Staff Executive Director Compensation and Review & Term Staff Whistle Blower Document Retention and Destruction Policy • Fund Raising and Communications Fund Raising Website Transparency Terrorism and Foreign Grants • Finance – June 8, 2006 Finances, Audit Committee and Internal Controls Investments M2360821.PPT