September 19, 2006, Introduced by Rep. Huizenga and referred to the Committee on Commerce.
A bill to regulate state private foundations; to prescribe
standards for determining the intent of donors to state private
foundations; to provide for reporting of financial and other
information by state private foundations; to prescribe standards of
conduct and administration of state private foundations and to
prohibit certain actions; to provide for enforcement,
investigation, and promulgation of rules by the attorney general;
and to provide remedies for violations.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"charitable foundations accountability act".
Sec. 3. (1) As used in this act:
(a) "Administrative expenses" means either of the following:
(i) Except as provided in subparagraph (ii), expenses incurred
by a state private foundation other than grants for charitable
purposes.
(ii) If a state private foundation is a private operating
foundation for purposes of federal income tax, expenses other than
grants or expenditures directly related to carrying out the
foundation's charitable works that qualify the foundation for
private operating foundation status.
(b) "Annual report" means the charitable asset consumption
report required under section 21.
(c) "Board" means the board of directors or board of trustees
of a state private foundation and its members.
(d) "Compensation" means the entire economic benefit given by
a state private foundation to a fiduciary, employee, or contractor
for services provided to or on behalf of the state private
foundation. Compensation includes the fair market value of goods,
services, facilities, business opportunities, and other things of
value given to or placed at a person's disposal, including, but not
limited to, expense accounts, fringe benefits, and other similar
benefits.
(e) "Director" and "trustee" have the same meaning.
(f) "Fiduciary" means any of the following:
(i) With respect to a trust, foundation, or corporation that is
not a state private foundation, a person that is subject to
obligations imposed under this act, under other applicable state or
federal law, or under the common law of charitable trusts,
concerning fiduciaries of charitable trusts.
(ii) With respect to a state private foundation, any of the
following:
(A) An officer, director, trustee, or member of a committee
with board-delegated authority of the state private foundation.
(B) A person acting on behalf of the state private foundation
who has the capacity to exert substantial influence over the
determination whether the foundation awards a grant or grants or to
make recommendations to final decision makers about those awards.
(C) A person acting on behalf of the state private foundation
who has the capacity to exert substantial influence over the
affairs of the state private foundation.
(D) A person who participates in decisions of the foundation
regarding compensation, contracts, or investments in amounts of
$75,000.00 or more.
(E) A person who is a fiduciary of or who is assigned
fiduciary obligations of due care, loyalty, good faith, or
obedience for the state private foundation under other applicable
law.
(g) "Independent person" means a person who is not an
interested person or a state disqualified person.
(h) "Interested person" means either of the following:
(i) A person under contract to be compensated by or currently
being compensated by a state private foundation or on behalf of a
state private foundation for services rendered within the previous
12 months, whether as a full- or part-time employee, independent
contractor, or other service provider, excluding any reasonable
compensation paid to a director or trustee solely for services
rendered in the capacity of director or trustee.
(ii) A brother, sister, ancestor, descendant, spouse, brother-
in-law, sister-in-law, son-in-law, daughter-in-law, mother-in-law,
or father-in-law of a person described in subparagraph (i).
(i) "Material donor" means a person who contributed an amount
equal to or greater than 20% of the state private foundation's
assets in its first year of existence or who, after the first year
of the state private foundation, contributed an amount of 20% or
more of the fair market value of the state private foundation's
assets, as of the date of the gift.
(j) "Material facts" that must be disclosed to the attorney
general under section 21 in connection with a transaction involving
an interested person include, but are not limited to, all of the
following:
(i) A description of the services or goods provided to or by
the state private foundation in the transaction.
(ii) The price for the services or goods paid or owed by or to
the state private foundation.
(iii) The estimated fair market value of the goods or services
and the method used to estimate fair market value.
(iv) The benefit the state private foundation receives in the
transaction.
(v) Whether the board of the state private foundation approved
the transaction or whether a committee with board-delegated
authority approved the transaction.
(vi) Whether the interested person participated in any fashion
in any deliberation or vote to approve the transaction.
(vii) The factual basis of the board's determination to approve
the transaction.
(viii) Any disclosures made to the board by the interested
person concerning the transaction.
(ix) A description of the steps taken to investigate
alternative transactions and of any alternatives considered by the
board or committee and a statement as to why any alternatives
considered were not adopted.
(k) "Organization" means a corporation, limited liability
company, partnership, unincorporated association, or any other
legal entity.
(l) "Pattern of giving" means the character, amount, size in
relation to other gifts, and intended purpose of individual
charitable gifts made by a donor during the donor's lifetime or
described in testamentary documents or other documents of the donor
or made by a state private foundation or other charitable
organization if the donor agreed or assented to the gift while
serving as a trustee or officer of that organization.
(m) "Person" means an individual or an organization.
(n) Except as provided in subsection (2) or otherwise provided
in this act, "prohibited transaction" includes any of the
following:
(i) Self-dealing, as defined in section 4941 of the internal
revenue code, 26 USC 4941.
(ii) A transaction between a state private foundation and a
state disqualified person, including, but not limited to, accepting
or participating in the authorization of a loan, lease, or other
economic benefit by the state private foundation to a state
disqualified person.
(iii) A vote that violates a state private foundation's proxy
voting policy.
(iv) Voting a proxy in a manner that promotes the personal or
private interest of a state disqualified person.
(v) Participating on behalf of a state private foundation in a
grant determination involving another organization in which the
participant is a fiduciary or has a substantial interest.
(vi) Participating on behalf of a state private foundation in
considering or awarding a contract or other economic benefit to
another organization in which the participant is a fiduciary or has
a substantial interest.
(o) "Restrictions" on a gift means limits or conditions on the
use of a gift intended by a donor that arise from a donor's express
statements, a contract or other written instrument, representations
by a recipient of a charitable gift to induce the gift, a donor's
pattern of giving, a source recognized under another state or
federal law, or any other source.
(p) "State disqualified person" includes any of the following:
(i) A disqualified person, as that term is defined in section
4958 of the internal revenue code, 26 USC 4958.
(ii) An employee who has received economic benefits from or on
behalf of a state private foundation of more than $75,000.00 in the
preceding 12 months or who is contractually entitled to receive
more than $75,000.00.
(iii) A contractor of a state private foundation who receives
more than $75,000.00 or whose compensation is tied to the
foundation's financial performance.
(iv) An organization that is distinct from a state private
foundation if any of the following are met:
(A) Any fiduciary of the state private foundation has a
substantial interest as an owner, stockholder, creditor, or partner
of that organization or an affiliate of that organization.
(B) Any fiduciary of the state private foundation serves as
officer or other employee of that organization or an affiliate of
that organization.
(C) Any fiduciary of the state private foundation has received
or is contractually entitled to receive payments as an independent
contractor from that organization or an affiliate of that
organization.
(v) A person who has substantial authority on behalf of a
state private foundation to determine whether or not to award a
grant to a charitable organization or to make a recommendation on a
grant application to the final decision makers of the foundation.
(q) "State excess benefit transaction" means a transaction in
which a state private foundation directly or indirectly provides an
economic benefit to or for the use of any state disqualified person
and the value of that economic benefit exceeds the fair market
value of the goods, services, or other consideration received by
the state private foundation in exchange for that economic benefit.
The term does not include a transaction that meets all of the
following:
(i) The state private foundation directly provides an economic
benefit to a state disqualified person in exchange for specific
goods, services, or other consideration.
(ii) The value of the economic benefit provided by the state
private foundation does not exceed the fair market value of the
specific consideration received by the state private foundation.
(iii) The state private foundation clearly indicates that it is
providing the economic benefit in exchange for that specific
consideration at the time it provides the economic benefit.
(r) "State private foundation" means a charitable organization
that is exempt from taxation under section 501 of the internal
revenue code, 26 USC 501, as a private foundation and meets both of
the following:
(i) Is incorporated or otherwise organized, formed, or created
under the laws of this state or has received gifts from 1 or more
material donors in this state.
(ii) At any time during its fiscal year, holds total assets
whose fair market value is more than $7,500,000,000.00.
(s) "State qualifying distribution" means an amount awarded as
a grant for charitable purposes. The term does not include
administrative expenses or compensation to a fiduciary of a state
private foundation.
(t) "Substantial interest" in an organization means an
interest as any of the following:
(i) Partner.
(ii) Owner of 10% or more of the ownership interests in the
entity or owner of an ownership interest that has a fair market
value of more than $50,000.00.
(iii) A bondholder or creditor whose interest has a fair market
value of more than $50,000.00.
(iv) An employee or contractor who receives compensation or has
a contractual right to receive compensation of more than $50,000.00
for services rendered in the preceding 12 months.
(v) A state disqualified person with respect to that
organization.
(2) As used in this act, "prohibited transaction" does not
include any of the following:
(a) A lawful action of the board or authorized committee of a
state private foundation fixing reasonable compensation of a
fiduciary, officer, employee, or contractor.
(b) A transaction that is part of a public or charitable
program of the state private foundation if the transaction meets
both of the following:
(i) Is approved or authorized by the state private foundation
in good faith.
(ii) Results in a benefit to 1 or more state disqualified
persons solely because the state disqualified person is in the
class of uncertain and indefinite persons intended to be benefited
by the public or charitable program.
(c) A transaction between a state private foundation and a
state disqualified person of which the state disqualified person
has no actual knowledge, if the transaction does not exceed
$25,000.00 and the state disqualified person does not receive more
than $25,000.00 in any 12-month period from the state private
foundation.
Sec. 4. (1) This act does not modify the requirements of any
other statute applicable to charitable trusts, foundations, or
corporations, including, but not limited to, any of the following:
(a) 1915 PA 280, MCL 554.351 to 554.353.
(b) The supervision of trustees for charitable purposes act,
1961 PA 101, MCL 14.251 to 14.266.
(c) 1965 PA 169, MCL 450.251 to 450.253.
(d) The charitable trustees powers act, 1971 PA 78, MCL 14.271
to 14.287.
(e) The charitable organizations and solicitations act, 1975
PA 169, MCL 400.271 to 400.294.
(f) The uniform management of institutional funds act, 1976 PA
157, MCL 451.1201 to 451.1210.
(g) The nonprofit corporation act, 1982 PA 162, MCL 450.2101
to 450.3192.
(2) General principles of law and equity applicable to
charitable trusts, foundations, or corporations supplement the
provisions of this act.
(3) A state private foundation shall not adopt articles of
incorporation or bylaws that contain, or amend its articles or
bylaws to contain, any provision that is inconsistent with or
contrary to this act.
Sec. 5. (1) A state private foundation shall have a board of
directors or board of trustees. The board is responsible for
establishing policy, managing the assets, and conducting the
affairs of the state private foundation.
(2) The board of a state private foundation shall consist of
at least 25 individuals. The composition of the board shall meet
all of the following:
(a) At most 12 and not more than 49% of the directors are
interested persons.
(b) None of the directors serve as fiduciary of an
organization that meets any of the following:
(i) Has applied for a grant of more than $50,000.00 from the
state private foundation within 1 year preceding the director's
appointment.
(ii) Has a grant application requesting more than $50,000.00
currently pending with the state private foundation.
(iii) Has received a grant of more than $50,000.00 from the
state private foundation within the 3 years preceding the
director's appointment.
(c) At least 5 and not fewer than 20% of the directors are
currently licensed by the Michigan board of accountancy and not
more than 40% of those persons are interested persons. The governor
has the right but not the obligation to select 1 independent
director in this classification.
(d) At least 3 and not fewer than 15% of the directors are
active members of the state bar of Michigan, and not more than 33%
of those persons are interested persons. The governor has the right
but not the obligation to select 1 independent director in this
classification.
(3) The term of office of a director of a state private
foundation shall be 4 years or less, and the foundation shall
stagger the terms so that the terms of at least 6 directors expire
each year. A state private foundation is not required to shorten
the term of any director serving on the effective date of this act,
but the state private foundation shall increase the number of
directors as necessary to permit the election or appointment of a
sufficient number of additional directors to satisfy the
requirements of this section.
(4) A state private foundation in existence on the effective
date of this act shall confirm in writing that it is in compliance
with this section to the attorney general within 90 days after the
effective date of this act. Beginning in the first calendar year
after the effective date of this act, each state private foundation
shall confirm in writing that it is in compliance with this section
to the attorney general. In addition, a state private foundation
shall notify the attorney general within 10 days of any
noncompliance with this section that continues for more than 7
days.
(5) The attorney general may petition a court for an
appropriate order to cure any noncompliance with this section,
including, but not limited to, an order increasing the number of
directors or appointing specific individuals to the board to meet
the requirements of this section.
Sec. 7. (1) At least 15 and not fewer than 60% of the members
of the board of a state private foundation, a majority of whom are
not interested persons, constitute a quorum for a meeting of the
board.
(2) The board by majority vote of the directors then in office
may delegate the management of specific activities of the state
private foundation to a committee if all of the following are met:
(a) The committee manages the activities or exercises the
powers of the state private foundation subject to the authority and
direction of the board.
(b) The board requires reports of the activities of each
committee at least quarterly and reviews and approves or
disapproves those reports and activities.
(c) The state private foundation does not engage contractors
to assist in performing committee functions unless the committee
approves the engagement and the contractor is the agent of and
reports to the committee only.
(3) A state private foundation shall permanently retain
preparatory materials, agendas, and detailed minutes of meetings of
the board and any committee with board-delegated powers.
Sec. 9. (1) A state private foundation shall make
distributions in a manner consistent with all restrictions and
conditions on the use of charitable assets intended by donors of
those assets. A state private foundation's failure to use a donor's
gift, including appreciation and undistributed income attributable
to that gift, in conformity with restrictions and conditions
intended by the donor constitutes a breach of fiduciary by the
state private foundation, its trustees, and its officers.
(2) A state private foundation shall not release or otherwise
modify any restriction or condition on the use of charitable assets
intended by a donor, unless 1 of the following applies:
(a) A court of this state issues an order in a proceeding to
which the state private foundation and attorney general are parties
releasing or modifying the restriction or condition on the basis of
or an affirmative demonstration that it is impossible or
impracticable to comply with the restriction or condition.
(b) The foundation receives the express, knowing, written,
personal consent of the donor to release or modify the restriction
or condition.
Sec. 11. All of the following rebuttable presumptions of
intent to restrict or condition the use of a charitable gift to a
state private foundation apply in any action to enforce, determine,
release, or modify a restriction or condition on the use of a
charitable gift intended by a donor:
(a) It is presumed that a donor intends that all appreciation
and income attributable to his or her original gift is used
consistently with any restriction or condition applicable to the
original gift and in accordance with the donor's intended purposes.
(b) If a testamentary document or other instrument relating to
a gift to a state private foundation, or the articles of
incorporation, articles of association, or other organizational
document of the state private foundation, does not specify an
identifiable charitable purpose or purposes for which the
foundation must use its assets, but instead provides only that the
foundation's assets be used for broad purposes such as
philanthropy, charity, welfare, education, religion, or science, it
is presumed that a material donor intends that the foundation use
the assets in a manner that is consistent with his or her pattern
of giving. Clear and convincing evidence of any of the following
may be introduced in the action to support or rebut the presumption
described in this subdivision:
(i) The existence or absence of any established pattern of
giving by the material donor.
(ii) Gifts made with the assent of the material donor by the
state private foundation while the material donor is or was a
director or has or had the capacity to exert substantial control
over the grant-making activity of the state private foundation.
(iii) Express language in a testamentary document or other
separate gift instrument that establishes an intent to include or
exclude a specific charitable purpose otherwise present in the
material donor's pattern of giving.
(c) It is presumed that each donor intends or intended that
the state private foundation will use his or her charitable gift
and proceeds from the investment of that gift for charitable
purposes and will not unreasonably retain that gift and proceeds
from the investment of that gift, whether as original principal,
net appreciation, or undistributed income.
(d) The presumption described in section 15(3).
Sec. 15. (1) A state private foundation shall not make any
expenditure for any administrative purpose unless it is reasonable.
(2) A state private foundation shall reasonably limit its
aggregate annual administrative expenses.
(3) A state private foundation shall not unreasonably amass
assets, whether as principal, appreciation of principal, or
undistributed income. For purposes of this subsection, there is a
rebuttable presumption that state qualifying distributions are
unreasonable if the state private foundation has made state
qualifying distributions of less than 7.5% of the average fair
market value of its assets during the fiscal year.
Sec. 17. (1) A state private foundation shall not provide
compensation to any fiduciary or employee unless both of the
following are met:
(a) The state private foundation determines that employment of
the fiduciary or employee is necessary to the accomplishment of the
state private foundation's charitable purposes.
(b) The compensation is reasonable in relation to the services
actually provided by the fiduciary or employee on behalf of the
state private foundation. Compensation paid for like services by
other tax-exempt private foundations is a factor in assessing the
reasonableness of compensation under this subdivision.
(2) An individual shall not participate in any vote or
deliberation of the board or any committee regarding that
individual's compensation.
(3) A state private foundation shall not award compensation to
any individual that will exceed $75,000.00 annually unless it
complies with all of the following:
(a) The foundation determines that the employment is necessary
for the accomplishment of the state private foundation's charitable
purpose.
(b) The amount of the compensation is set by a compensation
committee composed in accordance with this act or by a different
board committee, other than the finance committee, that meets all
of the following requirements:
(i) The committee includes at least 9 individuals who are
appointed by the board and do not receive any compensation from the
state private foundation in excess of any compensation received by
members of the board for service as a director.
(ii) Except for members serving as independent directors for
the state private foundation, the committee is composed entirely of
individuals who have no economic interest or relationship with a
fiduciary, an interested person, or any separate entity with which
the fiduciary or interested person has a substantial interest as
owner, shareholder, or creditor.
(iii) The committee does not include the president or chief
executive officer, the treasurer or chief financial officer, or any
other member of the staff of the foundation.
(c) A majority of the committee votes to approve the total
compensation package and votes, separately, to approve base salary
and to approve any, other compensation or benefits in addition to
base salary that in the previous complete year contributed or in
the current year will contribute or is substantially likely to
contribute either more than $10,000.00 or more than 5% to the
individual's compensation. The factors described in this
subdivision may include, but are not limited to, any of the
following:
(i) Incentives based on financial performance, each of which
must be clearly defined.
(ii) Deferred compensation.
(iii) Taxable fringe benefits.
(iv) Contributions to pension plans or similar retirement
benefits.
(v) Any taxable expense that exceeds $5,000.00.
(vi) Any type of retention bonus.
(vii) Base salary.
(4) A state private foundation's articles of incorporation or
bylaws must prohibit committee members from disclosing any member's
vote on any aspect of any compensation agreement to any individual
not on the committee.
(5) A state private foundation shall not approve any
compensation to a contractor who is an interested person with
regard to the state private foundation, or approve payments of
$75,000.00 or more in any fiscal year to any other contractor,
unless the committee determines that the goods or services provided
by that contractor are necessary and that the compensation is
reasonable under the circumstances.
(6) A consultant or contractor engaged to assist in a state
private foundation's compensation decisions shall be engaged by and
report solely to the committee described in this section.
Sec. 19. (1) A state private foundation shall do the
following:
(a) Prepare annual financial statements using generally
accepted accounting principles that are audited in conformity with
generally accepted auditing standards by an independent certified
public accountant licensed or certified by the Michigan board of
accountancy. For any nonaudit services performed by the accounting
firm conducting the audit, the accounting firm and its individual
auditors shall adhere to the standards for auditor independence set
forth in the latest revision of the government auditing standards
issued by the comptroller general of the United States. The
attorney general may prescribe additional standards for auditor
independence in the performance of nonaudit services, including
standards different from those set forth in the comptroller
general's government auditing standards.
(b) Make its audited financial statements available for
inspection by the attorney general and by members of the public
within 9 months after the close of the fiscal year to which the
statements relate.
(c) Make its annual audited financial statements available to
the public in the same manner that is prescribed for IRS form 990
under section 6104(d) of the internal revenue code, 26 USC 6104,
and any associated regulations.
(d) Have an audit committee appointed by the board that meets
all of the following:
(i) Has at least 9 members who are appointed by the board and
do not receive any compensation from the state private foundation
in excess of any compensation received by members of the board for
service on the board.
(ii) Does not include any interested person except for
independent directors of the state private foundation.
(iii) Includes at least 3 independent persons who are currently
licensed or certified by the Michigan board of accountancy and who
are not state disqualified persons with respect to the state
private foundation; are not accountants, auditors, or attorneys
engaged by the foundation within the previous 3 years; and are not
fiduciaries of the foundation.
(iv) Includes at least 3 independent members of the state
private foundation's board.
(v) Is separate from and contains no more than 3 members of
the finance committee of the state private foundation. An
individual described in this subparagraph is not eligible to serve
as chair of either the finance or audit committee.
(2) The audit committee described in this section is
responsible for recommending to the board the retention and
termination of an independent auditor and may negotiate the
independent auditor's compensation on behalf of the state private
foundation. The board may reject the audit committee's
recommendation of an independent auditor under this subsection only
for good cause. The audit committee shall confer with the auditor
to satisfy each member of the committee that the financial affairs
of the state private foundation are in order, shall review and
determine whether to accept the audit, shall assure that any
nonaudit services performed by the auditing firm conform with
standards for auditor independence, and shall approve performance
of any nonaudit services by the auditing firm.
(3) A state private foundation shall change its independent
auditor at least every 5 years and shall not engage a former
auditor for at least 3 years.
(4) The audit committee described in this section shall
establish procedures for accepting and investigating complaints
from anonymous or identified persons regarding possible violations
of formal policies of the state private foundation or of violations
of this act or other applicable law. The audit committee shall
promptly report apparent violations of the law to appropriate law
enforcement agencies and to the attorney general.
(5) For each member of an audit committee described in this
section, a state private foundation shall within 60 days of the
commencement of his or her service furnish to the attorney general
a summary of that individual's experience and training relevant to
serving on the audit committee.
Sec. 21. (1) A state private foundation shall annually file a
charitable asset consumption report with the department of attorney
general. The state private foundation's report shall include all of
the following:
(a) The name and federal employer identification number of the
foundation.
(b) A mailing address for the state private foundation's main
office and for the foundation's registered agent.
(c) The total fair market value of all of the foundation's
assets for the most recent completed fiscal year, including the
highest and average fair market value of those assets during the
reporting period and the preceding 3 reporting periods.
(d) The total revenue of the foundation for the reporting
year, as reported in the foundation's internal revenue service form
990-PF.
(e) The foundation's total distributions for the preceding
reporting period on a cash basis, including, but not limited to,
any federal and state qualifying distributions.
(f) Any information required by this act concerning material
donors, including, but not limited to, the following information:
(i) A description of the general pattern of giving of each
material donor.
(ii) A detailed schedule supporting the state private
foundation's compliance in the preceding year with each material
donor's restrictions on use of charitable gifts, including, but not
limited to, the foundation's uses of appreciation and income.
(g) A list and classification of all directors of the
foundation that demonstrate the foundation's compliance with
section 7.
(h) A separate schedule listing each director and officer of
the foundation and any other employee of the foundation who
receives more than $75,000.00 in annual compensation. The schedule
shall include all of the following for each individual listed:
(i) His or her name.
(ii) His or her city, village, or township; state or province;
and country of residence.
(iii) Each other organization of which he or she serves as
fiduciary.
(iv) Any payments he or she accepted during the reporting
period from any charitable organization for speaking, consulting,
or performing any other service.
(i) The state private foundation's total administrative
expenses for the last year as reported in the foundation's internal
revenue service form 990-PF.
(j) For each director and officer of the foundation, and for
each employee and contractor receiving compensation of more than
$75,000.00, a schedule of all payments made by or on behalf of the
state private foundation to that director, officer, employee, or
contractor that includes all of the following:
(i) The name of the director, officer, employee, or contractor.
(ii) The total compensation paid to that person.
(iii) The person's base compensation, if applicable.
(iv) A description of any reimbursement paid to the person for
travel or other expenses.
(v) Deferred compensation or any other accrued economic
benefit paid or payable to the person.
(vi) Any other payment or compensation paid to the person,
including, but not limited to, bonuses, incentive payments, or
unpaid loans.
(k) A schedule that describes any grants or distributions to
charitable organizations by the state private foundation,
classified by the charitable purpose and interest primarily
benefiting from each grant, and including the geographic location
by state and country of expected charitable and noncharitable
economic benefits.
(l) A schedule of any transactions between the state private
foundation and any interested person that includes the material
facts associated with each transaction.
(m) A schedule of each organization whose activities receive
more than 50% of their total funding from or are substantially
controlled by the state private foundation.
(2) A state private foundation shall file its annual report
and any other reports and information required under this act by
July 15 of each year if its books are maintained on a calendar year
basis, or by the fifteenth day of the seventh month following the
close of its fiscal year if its books are maintained on a fiscal
year basis. However, if a state private foundation has received an
extension from the internal revenue service for the filing of its
internal revenue service form 990-PF for the reporting year, the
state private foundation may obtain an extension from the
department of attorney general to file any information required
under this act that is derived from that internal revenue service
form. A state private foundation may receive only 1 extension under
this subsection for a reporting year.
(3) Each individual who served as a director or officer of a
state private foundation during the reporting period for the annual
report shall certify that he or she has read all parts of the
report and shall affirm that, to the best of his or her knowledge
after reasonably diligent inquiry, the information in the annual
report is complete and accurate.
(4) If requested by the attorney general, a state private
foundation shall furnish additional information and documentation
to the attorney general, including, but not limited to, any of the
following:
(a) Minutes or records of the board or any committee related
to specific actions or decisions.
(b) Correspondence to and from the internal revenue service or
any other federal, state, local, foreign, or international law
enforcement agency.
(c) Records relating to handling and consideration of grant
applications.
(5) A state private foundation may request confidential
treatment of any information provided under subsection (4) and the
attorney general may grant the request if the foundation
demonstrates that release of the information would cause the
foundation harm, would imperil the safety or privacy of employees
of the foundation or others, or would embarrass innocent parties
for reasons unrelated to operation of the foundation. A state
private foundation requesting confidential treatment of an entire
document or a compilation of information under this subsection must
demonstrate that specific information in the document or
compilation is confidential or, if seeking protection of an entire
document, that redaction of names or other sensitive information
does not adequately protect the interest in question.
Sec. 23. (1) A state private foundation shall make any
information necessary to apply for any grant consistent with the
state private foundation's charitable purpose that the state
private foundation anticipates awarding during the foundation's
annual application period readily available and accessible to the
public.
(2) A state private foundation shall provide a copy of the
information required in subsection (1) to the attorney general
annually and shall provide any information related to particular or
specific programs or goals for which the state private foundation
will be seeking applications during that year.
(3) A state private foundation shall retain a copy of each
approved and disapproved grant application, and any supporting
memoranda and other writings related to the determination on the
application, for at least 5 years and make those documents
available to the department of attorney general on request.
(4) If a state private foundation disapproves all or any part
of a grant application, the foundation shall provide the grant
applicant with a summary of the basis for disapproving the grant
application within 30 days after the foundation's disapproval.
Sec. 25. (1) A state private foundation shall not do any of
the following without first obtaining an order from a probate court
of this state approving of that action:
(a) Make a distribution or engage in a transfer of assets for
a purpose other than a proper charitable purpose or to avoid
complying with this act or other state law.
(b) Move or title substantial assets of the foundation out of
this state.
(c) Relocate the principal place of business of the foundation
out of state.
(d) Make a distribution, grant, or transfer of assets in any
fiscal year if the total value of those assets exceeds 10% of the
fair market value of the foundation's assets.
(2) After investigation, the attorney general may stipulate to
the entry of an appropriate order by a probate court under
subsection (1).
(3) Whether or not an action described in subsection (1) is
contested, the court must affirmatively find that the action is in
the best interest of the public and consistent with all
restrictions and conditions intended by donors, and that the state
private foundation provided notice to the attorney general at least
45 days before any hearing related to the action, or within any
shorter period to which the attorney general agreed in writing.
Sec. 27. (1) A state private foundation shall pay an annual
oversight fee to this state. The amount of the oversight fee is an
amount equal to the attorney general's actual costs and expenses
for reviewing, monitoring, and ensuring and verifying compliance by
the state private foundation with this act and any other legal
requirements, or $50,000.00, whichever is higher.
(2) Fees collected under this section shall be credited to the
general fund of the state to be appropriated by the legislature to
the department of attorney general for the oversight activities
described in subsection (1).
Sec. 29. (1) Each fiduciary or contractor who is a state
disqualified person of a state private foundation owes a heightened
duty of loyalty to the foundation and is required to subordinate
his or her personal interests and those of his or her friends,
business associates, family members, and any other organization to
the interests and legal obligations of the foundation.
(2) A fiduciary or contractor who is a state disqualified
person of a state private foundation shall not participate in a
prohibited transaction with the state private foundation.
(3) A state disqualified person shall not participate in a
state excess benefit transaction.
(4) Each state private foundation shall adopt a conflict of
interest policy for state disqualified persons. All of the
following apply to the policy:
(a) The policy shall prohibit a state disqualified person from
engaging in any prohibited transactions as defined in this act and
may add additional prohibitions or requirements that are binding on
all state disqualified persons or fiduciaries of the foundation.
(b) The policy shall contain a statement that a violation of
the policy constitutes a breach of fiduciary duty to the state
private foundation and may subject a person to legal or equitable
relief, including, but not limited to, an order for restitution of
benefits, disgorgement of profits, damages to the organization
arising from diverted income, removal from office of the state
disqualified person and any individual who materially supported the
transaction, and fines as provided in this act.
(c) A state private foundation shall annually submit a copy of
its conflict of interest policy for state disqualified persons to
the attorney general with its annual report. The state private
foundation shall certify that each state disqualified person of the
foundation, including, but not limited to, each member of any
executive, management, audit, or grant committee, has received a
copy of the policy and has provided the foundation written
acknowledgement of the provisions of the policy.
(d) In addition to subdivision (c), each state private
foundation in existence on the effective date of this act shall
within 90 days after the effective date of this act submit a copy
of its conflict of interest policy to the attorney general, signed
by each state disqualified person in the manner described in
subdivision (c).
(5) Each state private foundation and each state disqualified
person of the foundation are jointly responsible for providing to
the attorney general an annual report for each state disqualified
person. Each state disqualified person and an officer on behalf of
the foundation shall sign the report under penalty of perjury. The
report shall recite all of the following:
(a) That the state private foundation has not and will not
indemnify any state disqualified person for expenses related to
complying with or violating this section.
(b) That each state disqualified person is protected under the
provisions of section 37.
(c) A statement that any fiduciary may commence an action to
compel the foundation's or a state disqualified person's compliance
with this section.
(d) A statement that any fiduciary is jointly and severally
liable to the foundation for any relief if that person does any of
the following:
(i) Authorizes or votes to permit a transaction in violation of
this section, including a violation of the conflict of interest
policy.
(ii) If the person is related to a state disqualified person,
receives any benefit from the foundation.
(e) A statement that a fiduciary or state disqualified person
may petition a probate court of this state for a declaratory ruling
regarding the legality of a particular proposed transaction. A
fiduciary or state disqualified person must serve a petition
described in this subdivision on the attorney general at least 21
days before any hearing on the petition. However, the court for
good cause shown may permit service by hand delivery at least 7
days before the hearing.
(f) A statement that the fiduciary or state disqualified
person was not involved in, and that no fiduciary is aware of, any
transaction during the reporting period that violated this section,
or a statement that describes in detail each transaction in
violation of this section.
Sec. 31. (1) A fiduciary of a state private foundation shall
exercise due diligence and actively participate in performing all
activities and functions assigned to that fiduciary under state or
federal law or by the state private foundation.
(2) A fiduciary shall be obedient to the charitable purpose or
purposes of the state private foundation and the restrictions and
conditions intended by donors and be familiar with and obey
applicable state and federal laws.
Sec. 32. (1) The attorney general may inspect and copy any of
the books and records of a state private foundation during normal
business hours and at any other reasonable time and may investigate
the operations, transactions, and activities of a state private
foundation.
(2) The attorney general may require an individual to appear
at a time and place specified by the attorney general to give
information under oath and to produce books and records in
possession of the person ordered to appear, including a custodian
of records of the state private foundation or another individual
with knowledge of the contents of any books and records requested
by the attorney general. An assistant attorney general or another
person designated by the attorney general may conduct the
examination and may administer the necessary oath or affirmation to
the witness.
(3) If the attorney general requires the attendance of a
person or the production of documents under subsection (2), the
attorney general shall issue an order that includes the time when
and the place where attendance or production is required and shall
serve the order on the individual, in the manner provided for
service of process in civil cases, at least 5 days before the date
fixed for attendance or production. The order has the same force
and effect as a subpoena.
(4) On application of the attorney general, any court having
jurisdiction over the individual or the state private foundation,
including the circuit and probate courts for the county of Ingham
and the circuit and probate courts for the counties where the state
private foundation's office or resident agent is located or the
person to whom the order is directed resides or is found, shall
enforce an order issued by the attorney general under subsection
(3) in the same manner as a subpoena and may issue an order
requiring the person to appear before the court, to produce
documentary evidence, or to give testimony concerning the matter in
question. Failure to obey the order of the court is punishable by
that court as contempt.
Sec. 33. (1) The attorney general or a fiduciary of a state
private foundation may commence an action against the state private
foundation to determine or to enforce compliance with any
restriction or condition on the use of a charitable gift intended
by a donor. If the court finds that the state private foundation
violated any restrictions or conditions intended by the donor, the
court shall issue an appropriate order that may include any of the
following:
(a) If the court finds that the state private foundation has
made 1 or more expenditures in violation of a restriction or
condition intended by a donor, ordering the state private
foundation to deposit an amount equivalent to the total amount of
distributions and related expenses attributable to the
nonconforming expenditure, with interest, in a segregated account
with the court or with a financial institution approved by and
subject to the jurisdiction of the court. Any money deposited in
the segregated account shall be held exclusively for charitable
distributions and distributed pursuant to court order in a manner
consistent with the donor's intended restrictions and conditions.
(b) If the court finds an unreasonable retention or amassing
of assets by the state private foundation, ordering the state
private foundation to deposit sufficient funds in a segregated
account with the court or with a financial institution approved by
and subject to the jurisdiction of the court to avoid unreasonable
retention or amassing. Any money deposited in the segregated
account shall be held exclusively for charitable distributions and
distributed pursuant to court order in a manner consistent with the
donor's intended restrictions and conditions.
(c) If the court finds a knowing or protracted failure to
honor restrictions or conditions, dissolution of the state private
foundation or other appropriate relief.
(d) Other appropriate additional or alternative relief,
including declaratory or injunctive or other equitable relief, to
ensure that the state private foundation and each fiduciary comply
with any restriction or condition intended by a donor or to prevent
future violations of this act.
(2) In addition to an action described in subsection (1), the
attorney general may commence any other appropriate action against
any of the following to ensure compliance with this act:
(a) A state private foundation.
(b) One or more of the fiduciaries of a state private
foundation.
(3) In an action described in subsection (2), the attorney
general may request appropriate declaratory, legal, or equitable
relief, including, but not limited to, any of the following:
(a) If a prohibited transaction is alleged, a request for full
restitution, including interest, profits, lost income or
appreciation, and fair use of any property wrongly received.
(b) An award of exemplary damages for a knowing violation of
this act.
(c) A civil fine of $10,000.00, or 50% of the value of the
benefit received, whichever is greater, for a fraudulent or
malicious violation.
(4) The attorney general may commence an action described in
this section in either a probate or circuit court of this state,
which shall have concurrent jurisdiction over state private
foundations and the fiduciaries of state private foundations who
are subject to this act.
(5) A state private foundation or a fiduciary of the
foundation may commence an appropriate action in a probate court of
this state in the name of the state private foundation against the
state private foundation or 1 or more fiduciaries to ensure
compliance with this act's requirements.
(6) In an action described in this section, venue is proper in
any of the following counties:
(a) In any action commenced by the attorney general, in Ingham
county.
(b) In an action commenced by the attorney general or by a
state private foundation or a fiduciary of the state private
foundation against the state private foundation or 1 or more
fiduciaries, in the county where any defendant resides; where the
state private foundation maintains its primary place of business;
or, if no defendant resides in this state, in Ingham county.
(7) If the attorney general prevails in whole or in part in an
action described in this section, the attorney general is entitled
to recover reasonable costs and expenses associated with the
enforcement of this act and any other statutes governing charitable
organizations under which the attorney general has enforcement or
administrative authority. As used in this subsection and subsection
(8), "reasonable costs and expenses" includes actual expenses and
the reasonable value of administrative, auditor, accountant,
attorney, and other expert services, whether performed by employees
or independent contractors of the attorney general.
(8) A settlement agreement in an action described in this
section to which the attorney general and a state private
foundation are parties may contain any provisions, including the
payment of the attorney general's reasonable costs and expenses,
that are negotiated in good faith and are just and reasonable under
the circumstances. A provision of a settlement agreement requiring
confidential treatment of any or all terms of the agreement is
presumed to be unreasonable, and the state private foundation has
the burden of establishing by clear and convincing evidence that
the information for which confidential treatment is sought should
be treated as confidential under this section or any other
applicable law or court rule. The court shall approve a settlement
agreement described in this subsection if it appears to have been
reached in good faith and its effects are just and reasonable under
all of the relevant facts and circumstances.
(9) The attorney general is a necessary and indispensable
party to any action arising in whole or in part under this act,
including, but not limited to, an action to enforce, determine,
release, or modify a restriction or condition on the use of a
charitable gift intended by a donor. A court shall not issue an
order granting relief under this act unless the attorney general
has appeared as a party to the action or has waived his or her
right to participate in the action in writing, and the attorney
general has received notice and copies of all documents filed with
the court at least 21 days before any hearing. If the attorney
general appears in an action arising under this act, the court
shall adjourn any hearing in that action for at least 21 days if
the attorney general requests an adjournment to review the
proceedings and documents filed with the court. The court shall
liberally grant reasonable additional requests for adjournment by
the attorney general if requested to review the matter before the
court.
(10) Any order issued without full compliance with this
section may be set aside at the request of the attorney general.
(11) The attorney general may require transfer of any action
arising in whole or in part under this act to any court in which
jurisdiction and venue for an action initiated by the attorney
general under this act is proper.
(12) An action commenced under this section may be tried with
or without a jury.
(13) The attorney general's remedies under this act are
cumulative and do not affect any other cause of action or remedy
provided by law or equity.
Sec. 37. (1) A state private foundation or an officer,
employee, contractor, subcontractor, or agent of a state private
foundation shall not discharge, demote, suspend, threaten, harass,
or in any other manner discriminate against an employee of a state
private foundation in the terms and conditions of that employee's
employment because the employee lawfully does any of the following:
(a) Provides information, causes information to be provided,
or otherwise assists in an investigation regarding any conduct that
the employee reasonably believes constitutes a violation of this
act or other state law concerning charitable trusts, when the
information or assistance is provided to or the investigation is
conducted by any of the following:
(i) The attorney general or another state regulatory or law
enforcement agency.
(ii) An individual with supervisory authority over the employee
or any other individual working for the foundation who has the
authority to investigate, discover, or terminate an employee for
misconduct.
(b) Files, causes to be filed, testifies, participates in, or
otherwise assists in a proceeding filed or about to be filed
relating to an alleged violation of this act or other state law
concerning charitable trusts, if the foundation has any knowledge
of that proceeding.
(2) The employee or the attorney general may bring an action
in a probate or circuit court to obtain appropriate relief to
completely compensate an employee of a state private foundation who
has suffered a violation of this section, including, but not
limited to, any of the following:
(a) Reinstatement of the employee with the same seniority
status that the employee would have had if the violation had not
occurred.
(b) Back pay for the employee and interest as determined by
the court.
(c) Compensation for any special damages sustained as a result
of the violation, including, but not limited to, litigation costs,
expert witness fees, and reasonable attorney fees.
(3) If the attorney general brings an action described in
subsection (2) against a state private foundation, the attorney
general may request a civil fine of not more than $100,000.00 for
each violation of this section, in addition to the relief described
in subsection (2).
(4) If an employee brings an action described in subsection
(2) against a state private foundation, the employee may request a
civil fine of not more than $10,000.00 for each violation of this
section, in addition to the relief described in subsection (2).
(5) An action described in subsection (2) shall be commenced
within 180 days after the date on which the violation occurs.
(6) This section shall not be considered to diminish any
rights, privileges, or remedies of any employee under any federal
or state law or under any collective bargaining agreement.
Sec. 39. The attorney general may promulgate rules under the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, as necessary to implement and administer this act and may
create and disseminate standard forms for use in reporting
information required by this act.