Foreign Gift and Contract Reporting Legal Requirements Overview
Federal and Pennsylvania laws require the University of Pennsylvania to report gifts and contracts from foreign sources exceeding $250,000 annually. Reports must be submitted twice a year to the U.S. Department of Education, detailing all monetary and non-monetary gifts received. Penn is expected to disclose all relevant transactions with foreign entities, including subsidiaries and foundations, impacting various university divisions. It's crucial for all Penn affiliates to adhere to these reporting obligations.
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FOREIGN GIFT AND CONTRACT REPORTING LEGAL REQUIREMENTS Presented to Penn Development and Alumni Relations October 14, 2021 Training (updated November 18, 2021) Robert F. Firestone, Esq. Office of the General Counsel Elizabeth Duggins Peloso Office of Research Services 1
Todays Presentation: (1) Summary of Existing Federal Law (2) Summary of Existing Pennsylvania Law (3) DAR and Central Division of Finance Processes and Deadlines Who Does What, and Sends What to Whom? (4) I Have a Question : Additional Resources Available to the Penn Community 2
Current Federal Law: 20 U.S.C. 1011f (called Section 117 of the Higher Current Federal Law: 20 U.S.C. 1011f (called Section 117 of the Higher Education Act). Education Act). Penn needs to report gifts from, and contracts with, a "foreign source," Penn needs to report gifts from, and contracts with, a "foreign source," where the aggregate amount Penn receives from that foreign source is where the aggregate amount Penn receives from that foreign source is $250,000 or more during the calendar year. $250,000 or more during the calendar year. Report Twice Every Calendar Year to U.S. Dept. of Education Report Twice Every Calendar Year to U.S. Dept. of Education (by July 31, for previous Jan. 1 to June 30 [6 mos.]; and by January 31, for previous Jan. 1 (by July 31, for previous Jan. 1 to June 30 [6 mos.]; and by January 31, for previous Jan. 1 through Dec. 31 [12 months]) through Dec. 31 [12 months]) 3
Gift is defined to include a gift of money OR PROPERTY (non Gift is defined to include a gift of money OR PROPERTY (non- -monetary). Includes gifts of securities, land/real property, equipment and goods. Includes gifts of securities, land/real property, equipment and goods. Value non Value non- -monetary gifts at Fair Market Value at the time the non monetary gifts at Fair Market Value at the time the non- - monetary property is received, or transferred to Penn (e.g., when title to monetary property is received, or transferred to Penn (e.g., when title to stocks are transferred; when property title is transferred; etc.) stocks are transferred; when property title is transferred; etc.) monetary). Penn is defined to include all of its intermediaries if Penn is defined to include all of its intermediaries if any part directly or indirectly benefits directly or indirectly benefits the university: the university: Include the UK and Hong Kong Foundations Include the UK and Hong Kong Foundations Include gifts to Penn Wharton China Center; UPenn International; Include gifts to Penn Wharton China Center; UPenn International; Penn Praxis; Univ. of Penn. Press; Morris Arboretum; Annenberg Center for Penn Praxis; Univ. of Penn. Press; Morris Arboretum; Annenberg Center for Performing Arts (Penn Live Arts); etc. Performing Arts (Penn Live Arts); etc. (Health System components (Health System components gifts DAR knows about vs. contracts) gifts DAR knows about vs. contracts) any part of the gift of the gift 4
Threshold: $250,000 or more, in the aggregate, RECEIVED during Threshold: $250,000 or more, in the aggregate, RECEIVED during calendar year. All parts of Penn have to report every gift and contract, calendar year. All parts of Penn have to report every gift and contract, even if only for $1, from a foreign source, so gifts and contracts from even if only for $1, from a foreign source, so gifts and contracts from the same foreign source can be the same foreign source can be aggregated aggregated across all other parts of Penn. Do not apply your own minimum financial threshold (e.g. Penn. Do not apply your own minimum financial threshold (e.g. only gifts of $25,000 or more.) Aggregating is done by the central only gifts of $25,000 or more.) Aggregating is done by the central Division of Finance from all the data from DAR and rest of Penn: Division of Finance from all the data from DAR and rest of Penn: Hypothetical Example: Takeda Pharmaceutical Company, incorporated in Japan, entered into a Hypothetical Example: Takeda Pharmaceutical Company, incorporated in Japan, entered into a $90,000 contract with Wharton Executive Education to train Takeda finance professionals. Takeda $90,000 contract with Wharton Executive Education to train Takeda finance professionals. Takeda Pharmaceutical Co. also makes a $200,000 gift to Penn Nursing to support a lecture series in hospice care for Pharmaceutical Co. also makes a $200,000 gift to Penn Nursing to support a lecture series in hospice care for seniors. When aggregated, this totals $290,000, and, therefore, needs to be reported as two transactions seniors. When aggregated, this totals $290,000, and, therefore, needs to be reported as two transactions (one gift and one contract) with a single foreign source from Japan. (one gift and one contract) with a single foreign source from Japan. across all other parts of 5
Process: Process: Central University Division of Finance. Central University Division of Finance. DAR and all Schools, Centers, and other administrative units gather data and send to DAR and all Schools, Centers, and other administrative units gather data and send to (e.g., sponsored research agreements) with all of the data received from DAR, Schools, Centers (e.g., sponsored research agreements) with all of the data received from DAR, Schools, Centers and other administrative units, and prepares a single report for the University of Pennsylvania as a and other administrative units, and prepares a single report for the University of Pennsylvania as a whole and single institution of higher education. whole and single institution of higher education. Then Central University Division of Finance aggregates all of the centrally Then Central University Division of Finance aggregates all of the centrally- -available data available data 6
Multi Multi- -year gifts: year gifts: Q: Penn signed a gift agreement, in which Jane Smith, a Canadian citizen, promises to pay Penn Q: Penn signed a gift agreement, in which Jane Smith, a Canadian citizen, promises to pay Penn $150,000 every year for 5 years, pledging to pay a total of $750,000. When does DAR report this to $150,000 every year for 5 years, pledging to pay a total of $750,000. When does DAR report this to Division of Finance? When does Division of Finance report this to the federal and state Division of Finance? When does Division of Finance report this to the federal and state governments? governments? A: For gifts, the federal government s guidance is to report the gift when the amount Penn A: For gifts, the federal government s guidance is to report the gift when the amount Penn receives receives equals or exceeds $250,000 in a single calendar year from the same foreign source. Penn equals or exceeds $250,000 in a single calendar year from the same foreign source. Penn is using the same guidance to determine when to report to Pennsylvania, except the threshold is is using the same guidance to determine when to report to Pennsylvania, except the threshold is $100,000 in Penn s fiscal year from the same foreign source. $100,000 in Penn s fiscal year from the same foreign source. So DAR should report the gift to Central Finance as soon as Jane Smith pays the first $1, and report So DAR should report the gift to Central Finance as soon as Jane Smith pays the first $1, and report however much DAR receives (let s assume $150,000) during the calendar year (for federal however much DAR receives (let s assume $150,000) during the calendar year (for federal reporting) or fiscal year (for PA reporting). If the amount is under $250,000 for the calendar year, reporting) or fiscal year (for PA reporting). If the amount is under $250,000 for the calendar year, then Central Finance will not report at all to the federal gov t. If the amount is over $100,000 but then Central Finance will not report at all to the federal gov t. If the amount is over $100,000 but under $250,000 during the fiscal year, then Central Finance will report to Harrisburg, but not to D.C. under $250,000 during the fiscal year, then Central Finance will report to Harrisburg, but not to D.C. (This is the current guidance; if there is more guidance from D.C. or Harrisburg, this will be (This is the current guidance; if there is more guidance from D.C. or Harrisburg, this will be updated.) updated.) 7
Federal Definition of a Foreign Source: Federal Definition of a Foreign Source : Any foreign government (including an agent of a foreign gov t), and Any foreign government (including an agent of a foreign gov t), and Any foreign individual, and Any foreign individual, and Any foreign legal entity Any foreign legal entity HOW do you determine if an individual or legal entity is a "foreign source"? HOW do you determine if an individual or legal entity is a "foreign source"? by the individual's principal residence. by the individual's principal residence. If an individual: by his/her If an individual: by his/her country of citizenship country of citizenship, or, if that is not known to Penn, then , or, if that is not known to Penn, then known to Penn, then by the legal entity's principal place of business. known to Penn, then by the legal entity's principal place of business. If a legal entity: by the If a legal entity: by the country of incorporation or legal formation country of incorporation or legal formation, or if that is not , or if that is not Report every gift received to Central University Division of Finance, even if $1, IF it is from a foreign Report every gift received to Central University Division of Finance, even if $1, IF it is from a foreign source. The first question to ask is: is this a gift from, or contract with, a foreign source ? Yes or No. source. The first question to ask is: is this a gift from, or contract with, a foreign source ? Yes or No. If Yes, report to Central University Division of Finance, even if $1. If Yes, report to Central University Division of Finance, even if $1. 8
FAQs from Development Regarding Foreign Source Definition: FAQs from Development Regarding Foreign Source Definition: based upon citizenship. Penn isn t discriminating; we want the individual s gift! But Penn, by law, based upon citizenship. Penn isn t discriminating; we want the individual s gift! But Penn, by law, has to try to determine and report his/her citizenship. has to try to determine and report his/her citizenship. Asking for citizenship Asking for citizenship. . It is not unlawful to ask a person for his/her citizenship. It is unlawful to It is not unlawful to ask a person for his/her citizenship. It is unlawful to discriminate discriminate source for Foreign Gift source for Foreign Gift- -Contract reporting purposes. Contract reporting purposes. But if the person holds dual citizenship and neither are U.S., then he/she IS a foreign But if the person holds dual citizenship and neither are U.S., then he/she IS a foreign source. Pick and report to Division of Finance the citizenship the donor prefers, or which is most source. Pick and report to Division of Finance the citizenship the donor prefers, or which is most closely associated with him/her (e.g., primary residence.) closely associated with him/her (e.g., primary residence.) Dual citizenship for an individual Dual citizenship for an individual. . If a person is both a U.S. and a non If a person is both a U.S. and a non- -U.S. citizen (e.g., Canadian), he/she is NOT a foreign U.S. citizen (e.g., Canadian), he/she is NOT a foreign country of citizenship, even though the person permanently lives and works in the U.S. country of citizenship, even though the person permanently lives and works in the U.S. Green Card Holder (Permanent U.S. Resident status). Green Card Holder (Permanent U.S. Resident status). The individual IS a foreign source for Foreign Gift The individual IS a foreign source for Foreign Gift- -Contract reporting purposes. Report Contract reporting purposes. Report payment is made by Person Y? Etc. CASE BY CASE Analysis payment is made by Person Y? Etc. CASE BY CASE Analysis Agency Issues Agency Issues. E.g.: Donor . E.g.: Donor- -advised funds? Trusts? Pledge from Person X but actual advised funds? Trusts? Pledge from Person X but actual 9
The definition of a foreign government includes agents of a foreign government. The definition of a foreign government includes agents of a foreign government. Foreign government Foreign government- -owned universities, research institutes, consulates, and owned universities, research institutes, consulates, and government agencies are examples of agents of a foreign government and should government agencies are examples of agents of a foreign government and should be reported. be reported. City) entered into a contract for training with SAS Organizational Dynamics department. The Abu Dhabi City) entered into a contract for training with SAS Organizational Dynamics department. The Abu Dhabi Tourism and Culture Authority is a department of the United Arab Emirates (UAE) government. The fact Tourism and Culture Authority is a department of the United Arab Emirates (UAE) government. The fact that it has a location in New York City and the SAS training will be provided in New York does not matter; that it has a location in New York City and the SAS training will be provided in New York does not matter; it is a Foreign Source and is part of a foreign government. The Dubai Ministry of Education entered it is a Foreign Source and is part of a foreign government. The Dubai Ministry of Education entered into a collaborative research agreement with Penn s Graduate School of Education. The Dubai Ministry into a collaborative research agreement with Penn s Graduate School of Education. The Dubai Ministry of Education is also a department of the United Arab Emirates (UAE) government. These two contracts of Education is also a department of the United Arab Emirates (UAE) government. These two contracts would be aggregated, and reported as two contracts with the UAE government, if the aggregated dollar would be aggregated, and reported as two contracts with the UAE government, if the aggregated dollar amount received equaled or exceeded $250,000 in a single calendar year. amount received equaled or exceeded $250,000 in a single calendar year. Hypothetical Example: The Abu Dhabi Tourism and Culture Authority (with offices in New York Hypothetical Example: The Abu Dhabi Tourism and Culture Authority (with offices in New York 10
What the statute requires What the statute requires: : dollar amount of all of the gifts from, and contracts with, the foreign government dollar amount of all of the gifts from, and contracts with, the foreign government received during the calendar year received during the calendar year (A) (A) If the foreign source is a foreign government: the aggregate If the foreign source is a foreign government: the aggregate of all of the gifts from, and contracts with, a foreign source from a particular of all of the gifts from, and contracts with, a foreign source from a particular country. country. (B) (B) For all other foreign sources: the aggregate dollar amount For all other foreign sources: the aggregate dollar amount What the Dept. of Education requires to use its submission website What the Dept. of Education requires to use its submission website: : Threshold Threshold Name and Address of Foreign Source Name and Address of Foreign Source Whether a Gift or Contract (or Restricted Gift or Restricted Contract) Whether a Gift or Contract (or Restricted Gift or Restricted Contract) Dollar Amount of Each Individual Gift or Contract that Aggregates to Dollar Amount of Each Individual Gift or Contract that Aggregates to Foreign Country Foreign Country 11
ADDITIONAL REPORTING for "Restricted or Conditional Gifts or Contracts" ADDITIONAL REPORTING for "Restricted or Conditional Gifts or Contracts" (Here's the actual statutory language:) (Here's the actual statutory language:) DEFINITION: WHAT is a "Restricted or Conditional Gift or Contract"? DEFINITION: WHAT is a "Restricted or Conditional Gift or Contract"? grant, contract, award, present, or property of any kind which includes provisions grant, contract, award, present, or property of any kind which includes provisions regarding regarding-- -- (A) the employment, assignment, or termination of faculty; (A) the employment, assignment, or termination of faculty; (B) the establishment of departments, centers, research or lecture programs, (B) the establishment of departments, centers, research or lecture programs, or new faculty positions; or new faculty positions; (C) the selection or admission of students; or (C) the selection or admission of students; or (D) the award of grants, loans, scholarships, fellowships, or other forms of (D) the award of grants, loans, scholarships, fellowships, or other forms of financial aid financial aid restricted restricted to students of a specified country, religion, sex, ethnic origin, to students of a specified country, religion, sex, ethnic origin, or political opinion. or political opinion. restricted or conditional gift or contract means any endowment, gift, restricted or conditional gift or contract means any endowment, gift, [Preference vs. restriction in subsection (D)] [Preference vs. restriction in subsection (D)] 12
What Information Gets Reported to the Federal Gov't for a Restricted or Conditional Gift or What Information Gets Reported to the Federal Gov't for a Restricted or Conditional Gift or Contract? Contract? description of such conditions or restrictions description of such conditions or restrictions, and the name of the foreign government. (B) (B) For all other foreign sources: the amount, the date, a For all other foreign sources: the amount, the date, a description of such conditions or restrictions such conditions or restrictions, and the country of the foreign source. , and the country of the foreign source. E.g.: a gift to establish a new research Center on Diabetes E.g.: a gift to establish a new research Center on Diabetes a gift to establish an annual lecture program on robotics a gift to establish an annual lecture program on robotics a gift for a a gift for a new newendowed professorship in Chemical Engineering endowed professorship in Chemical Engineering (A) (A) If the foreign source is a foreign government: the amount, the date, If the foreign source is a foreign government: the amount, the date, a a , and the name of the foreign government. description of REMEMBER: Restricted or conditional gifts are a subset of all gifts from foreign sources. Even if REMEMBER: Restricted or conditional gifts are a subset of all gifts from foreign sources. Even if a gift is NOT a restricted or conditional gift from a foreign source, it still must be reported to a gift is NOT a restricted or conditional gift from a foreign source, it still must be reported to Division of Finance as a gift from a foreign source. Division of Finance as a gift from a foreign source. DAR is responsible for reading each gift agreement, and determining if the gift from a foreign DAR is responsible for reading each gift agreement, and determining if the gift from a foreign source is a restricted or conditional gift, and, if so, sending a description of the source is a restricted or conditional gift, and, if so, sending a description of the restriction/conditions to Central University Division of Finance. restriction/conditions to Central University Division of Finance. 13
Current Pennsylvania Law (24 P.S. 6301 Current Pennsylvania Law (24 P.S. 6301- -6307, in effect since 1986): 6307, in effect since 1986): Penn needs to report gifts from, and contracts with, a "foreign source," Penn needs to report gifts from, and contracts with, a "foreign source," where the amount Penn receives in the aggregate from that foreign source where the amount Penn receives in the aggregate from that foreign source is is $100,000 or more during Penn's fiscal year (July 1 to June 30). $100,000 or more during Penn's fiscal year (July 1 to June 30). Report Once Each Fiscal Year (by November 15, for fiscal year ended on Report Once Each Fiscal Year (by November 15, for fiscal year ended on June 30th) June 30th) Threshold: aggregate of $100,000 or more RECEIVED during Penn s fiscal Threshold: aggregate of $100,000 or more RECEIVED during Penn s fiscal year from a foreign source. (However, DAR should report every gift, even if year from a foreign source. (However, DAR should report every gift, even if only $1, from a foreign source, to Central University Division of Finance.) only $1, from a foreign source, to Central University Division of Finance.) 14
WHO is a "Foreign Source"? someone who "is not a citizen or national of the United States or a trust territory or protectorate thereof. Citizenship is required; PA law does not allow Penn to fall back on the individual s principal residence if Penn doesn t know the individual s citizenship. Or could be a foreign legal entity Could be a foreign government Or could be a foreign individual: defined as 15
HOW do you determine if a donor/contracting party is a "foreign legal entity? NOTE: This is different from the U.S. statute, and potentially more complicated: (1) Any legal entity created under the laws of a foreign government. [or] (2) Any legal entity created under the laws of the United States or of any state or political subdivision thereof if: (i) fifty percent of the ownership of the stock of, or interest in, such legal entity is directly or indirectly owned legally or beneficially by one or more foreign governments or one or more foreign persons; (ii) fifty percent of the membership of any such entity is composed of foreign persons or legal entities created under the laws of a foreign government or agents of such legal entities; or (iii) fifty percent of the assets of such entity are derived from contributions or loans from foreign governments or foreign persons. Actual definition from Pennsylvania law of a foreign legal entity : 16
What information gets reported to Harrisburg? NOTE: Different from federal law. conditions imposed on the college by the terms of the gift. (5) A detailed description of the purpose for which the gift will be used by the college or university, including the identification of the persons whom the gift is explicitly intended to benefit. (1) The name and address name and address of the donor of the gift. (2) The amount and date of the making of each gift. (3) The subject of each gift. (4) A detailed description of any terms, restrictions, requirements or 17
Partial Exception for Penn Alumnus (only available under Pennsylvania law, not federal law): no grant or contract contains any conditions, restrictions, requirements, matching no grant or contract contains any conditions, restrictions, requirements, matching provisions or designations provisions or designations other than that the grant or contract is given for the benefit of the institution as a whole of the institution as a whole, the disclosure report shall be required to disclose only the nationality and country of residence of the foreign source." (Actual statutory language:) "if the foreign source is an alumnus an alumnus, and given for the benefit and date of gift, do not have to be disclosed to Harrisburg if gift meets the conditions above: (1) donor is an alumnus; (2) unrestricted gift no conditions or restrictions or matching provisions; and (3) benefits University of Pennsylvania, not a particular School, Center, or program. However, still have to report the gift if it is $100,000 or more in Penn's fiscal year, and disclose the donor's nationality and country of residence. NOTE: Name and address of donor who is a Penn alumnus, and dollar amount 18
Pennsylvania Penalty for Noncompliance Pennsylvania Penalty for Noncompliance [NOTE: Potentially severe and significant] [NOTE: Potentially severe and significant]: university that willfully or intentionally fails to university that willfully or intentionally fails to disclose the information required . . . shall be disclose the information required . . . shall be subject to a civil penalty of 105% of the amount subject to a civil penalty of 105% of the amount of any undisclosed gift." of any undisclosed gift." Actual statutory language: "Any college or "Any college or 19
Enforcement Actions by Federal Gov't (since 2019 through 2021) Georgetown Texas A&M Cornell Rutgers MIT U. Maryland Harvard Yale U. Texas Case Western Reserve Fordham Stanford U. Alabama Auburn Florida State Georgia State UNLV U. New Mexico U. Wisconsin universities that was late and/or incomplete in disclosing foreign gifts and contracts from past universities that was late and/or incomplete in disclosing foreign gifts and contracts from past years. years. U.S. Dept. of Education has publicly issued a statement identifying Penn as one of 10 U.S. Dept. of Education has publicly issued a statement identifying Penn as one of 10 The data submitted to both Washington DC and to Harrisburg are publicly available. 20
Reporting tools and requirements Use Program code R117 when depositing a payment via BEN Deposits or Creating a journal in the General Ledger CNAC-ORG-BC-0XXXXX-OBJ-R117-CREF Should not be used for 4, 5 or 6 funds Should only be used for Revenue and Cash object codes Submit reports using the Penn template (https://www.finance.upenn.edu/accounting-reporting/reporting-foreign-gifts-and-contracts/ ) When submitting data: If an entity is a Foreign Government or an agent of a foreign government, make sure to add a Y in column D to include the country/government name in column E If the payment is a contract, a start and end date is required. If an end date is not available, please provide the best date that you believe can be used Reports should be sent to Bob Speakman bspeakma@upenn.edu Penn collects foreign gift and contract data for reporting quarterly: Reporting period Internal report due date January 1 March 31 April 15 April 1 June 30 July 15 July 1 September 30 October 15 October 1 December 31 January 15 21
Penn Resources for Foreign Gift and Contract Reporting Division of Finance Website (https://www.finance.upenn.edu/accounting-reporting/reporting- foreign-gifts-and-contracts/ ) FAQs Reporting template Still have questions? Contact Bob Firestone in Office of General Counsel (robert.firestone@ogc.upenn.edu) or Missy Peloso in Office of Research Services (epeloso@upenn.edu) (for interpretive questions) Contact Bob Speakman (bspeakma@upenn.edu ) in Office of Research Services for submission of data and operational questions 22
