IRS Rules That Impact Investment Fund Is Not Charitable Activity

Over the last decade, impact investing has become a significant focus of many nonprofits, just as it has captured the attention of investors who care about social benefit or environmental results as much as financial results. The IRS recently issued a ruling that is a warning to public charities engaged in developing impact-investing opportunities and may discourage foundations seeking to make program-related investments (PRIs) by investing in certain impact funds. At the very least, public charities should reassess the investment terms of funds that they manage to ensure that such investments are focused on the charitable purpose or impact. Any investments that are also focused on investor returns should be channeled through a for-profit SPV or a fund that is not managed by a public charity.