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TAX FOUNDATION FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2021 AND 2020 TABLE OF CONTENTS Page No. INDEPENDENT AUDITOR'S REPORT 1 - 2 FINANCIAL STATEMENTS Statements of Financial Position 3 Statement of Activities, Year Ended December 31, 2021 4 Statement of Activities, Year Ended December 31, 2020 5 Statement of Functional Expenses, Year Ended December 31, 2021 6 Statement of Functional Expenses, Year Ended December 31, 2020 7 Statements of Cash Flows 8 Notes to the Financial Statements 9 - 17 Independent Auditor's Report To the Board of Directors Tax Foundation Washington, DC Opinion We have audited the accompanying financial statements of Tax Foundation, (a non-profit organization), which comprise the statements of financial position as of December 31, 2021 and 2020, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tax Foundation as of December 31, 2021 and 2020, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Tax Foundation, and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Tax Foundation’s, ability to continue as a going concern within one year after the date that the financial statements are available to be issued. Tax Foundation Independent Auditor's Report Page Two Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with generally accepted auditing standards, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Tax Foundation’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Tax Foundation’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit. Washington, DC April 22, 2022 2021 2020 CURRENT ASSETS Cash and cash equivalents 1,299,474 $ 1,560,626 $ Investments 3,795,939 2,919,493 Contributions receivable 443,000 - Accounts receivable 118,000 37,372 Prepaid expenses 55,755 127,657 Total Current Assets 5,712,168 4,645,148 PROPERTY AND EQUIPMENT Furniture and equipment 493,138 493,138 Leasehold improvements 645,581 645,581 Sub-total Property and Equipment 1,138,719 1,138,719 Less accumulated depreciation and amortization (847,537) (750,219) Total Property and Equipment, Net 291,182 388,500 OTHER ASSETS Beneficial interest in split interest agreement 49,745 45,996 Deposits 36,751 36,751 Total Other Assets 86,496 82,747 TOTAL ASSETS 6,089,846 $ 5,116,395 $ CURRENT LIABILITIES Accounts payable 114,979 $ 17,188 $ Accrued expenses 176,463 248,808 Capital lease liability, current portion 3,589 3,342 Deferred rent and lease incentive, current portion 109,059 97,763 Total Current Liabilities 404,090 367,101 NON-CURRENT LIABILITIES Capital lease liability, net of current portion - 4,171 Deferred rent and lease incentive, net of current portion 554,962 664,020 Total Non-Current Liabilities 554,962 668,191 Total Liabilities 959,052 1,035,292 NET ASSETS Without donor restrictions 4,579,233 3,328,619 With donor restrictions 551,561 752,484 Total Net Assets 5,130,794 4,081,103 TOTAL LIABILITIES AND NET ASSETS 6,089,846 $ 5,116,395 $ LIABILITIES AND NET ASSETS TAX FOUNDATION STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2021 AND 2020 ASSETS The accompanying notes are an integral part of these financial statements. -3- Without Donor With Donor Restrictions Restrictions Total REVENUE AND SUPPORT Grants and contributions 4,874,736 $ 939,500 $ 5,814,236 $ Fundraising Event: Annual dinner 923,704 - 923,704 Less: direct costs (378,959) - (378,959) Net Revenue From Fundraising Event 544,745 - 544,745 Investment income, net 380,759 - 380,759 Honoraria and reimbursements 1,428 - 1,428 In-kind contributions 11,000 - 11,000 Net assets released from restrictions 1,140,423 (1,140,423) - Total Revenue and Support 6,953,091 (200,923) 6,752,168 EXPENSES Program Services: Federal tax policy 1,564,173 - 1,564,173 Marketing and communication 1,072,159 - 1,072,159 State tax policy 789,951 - 789,951 Global tax reform 449,361 - 449,361 Total Program Services 3,875,644 - 3,875,644 Support Services: General and administration 884,154 - 884,154 Fundraising 942,679 - 942,679 Total Support Services 1,826,833 - 1,826,833 Total Expenses 5,702,477 - 5,702,477 CHANGE IN NET ASSETS 1,250,614 (200,923) 1,049,691 NET ASSETS, beginning of year 3,328,619 752,484 4,081,103 NET ASSETS, end of year 4,579,233 $ 551,561 $ 5,130,794 $ TAX FOUNDATION STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2021 The accompanying notes are an integral part of these financial statements. -4- Without Donor With Donor Restrictions Restrictions Total REVENUE AND SUPPORT Grants and contributions 3,474,410 $ 1,841,000 $ 5,315,410 $ Fundraising Event: Annual dinner 298,000 - 298,000 Less: direct costs (43,696) - (43,696) Net Revenue From Fundraising Event 254,304 - 254,304 Investment income, net 369,611 - 369,611 Honoraria and reimbursements 2,490 - 2,490 Net assets released from restrictions 1,429,687 (1,429,687) - Total Revenue and Support 5,530,502 411,313 5,941,815 EXPENSES Program Services Federal tax policy 1,305,296 - 1,305,296 Marketing and communication 1,049,296 - 1,049,296 State tax policy 706,371 - 706,371 Global tax reform 399,389 - 399,389 Total Program Services 3,460,352 - 3,460,352 Support Services: General and administration 601,854 - 601,854 Fundraising 685,755 - 685,755 Total Support Services 1,287,609 - 1,287,609 Total Expenses 4,747,961 - 4,747,961 CHANGE IN NET ASSETS 782,541 411,313 1,193,854 NET ASSETS, beginning of year 2,546,078 341,171 2,887,249 NET ASSETS, end of year 3,328,619 $ 752,484 $ 4,081,103 $ TAX FOUNDATION STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2020 The accompanying notes are an integral part of these financial statements. -5- Program Services Total General Total Federal Marketing and State Global Tax Program and Support Tax Policy Communication Tax Policy Reform Services Administration Fundraising Services TOTAL Personnel Costs: Salaries 986,706 $ 607,054 $ 434,463 $ 232,486 $ 2,260,709 $ 433,017 $ 407,923 $ 840,940 $ 3,101,649 $ Payroll taxes 73,633 45,470 32,569 17,411 169,083 30,952 30,580 61,532 230,615 Employee benefits 46,049 38,020 26,448 14,877 125,394 (5,438) 24,796 19,358 144,752 Retirement benefits 36,026 22,107 15,834 8,465 82,432 15,946 14,867 30,813 113,245 Total Personnel Costs 1,142,414 712,651 509,314 273,239 2,637,618 474,477 478,166 952,643 3,590,261 Accounting - - - - - 101,439 - 101,439 101,439 Advertising 93,430 62,989 37,576 32,746 226,741 14,772 52,178 66,950 293,691 Bank and credit card fees - - - - - 11,572 - 11,572 11,572 Charitable registration - - - 8,114 8,114 2,397 - 2,397 10,511 Conference and meetings 2,272 1,599 1,010 757 5,638 1,263 1,515 2,778 8,416 Depreciation and amortization 30,959 20,872 12,451 10,851 75,133 4,895 17,290 22,185 97,318 Direct mail expenses - 74,180 - - 74,180 77,543 247,308 324,851 399,031 Dues and subscription 5,304 22,341 27,904 17,562 73,111 9,970 14,693 24,663 97,774 Equipment rental and maintenance 4,504 3,036 1,811 1,578 10,929 713 2,515 3,228 14,157 Grant writing - - - - - - 25,898 25,898 25,898 Insurance 5,671 3,991 2,520 1,890 14,072 3,467 3,465 6,932 21,004 IT Support 14,099 9,505 5,670 4,941 34,215 2,230 7,874 10,104 44,319 Legal 1,440 971 579 505 3,495 230 804 1,034 4,529 Occupancy 117,467 79,195 47,244 41,170 285,076 18,572 65,601 84,173 369,249 Office supplies 1,757 1,237 781 586 4,361 976 1,172 2,148 6,509 Other expenses 4,073 2,746 1,638 1,427 9,884 2,914 - 2,914 12,798 Printing and reproduction 15,839 11,146 7,040 5,280 39,305 8,799 10,560 19,359 58,664 Professional fees 101,578 44,500 125,000 41,050 312,128 94,468 - 94,468 406,596 Staff development 12,388 8,352 4,982 4,342 30,064 1,959 6,919 8,878 38,942 Telecommunications 1,009 5,833 - - 6,842 45,959 75 46,034 52,876 Travel 9,969 7,015 4,431 3,323 24,738 5,539 6,646 12,185 36,923 Total Expenses 1,564,173 $ 1,072,159 $ 789,951 449,361 $ 3,875,644 $ 884,154 $ 942,679 $ 1,826,833 $ 5,702,477 $ TAX FOUNDATION STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2021 Support Services The accompanying notes are an integral part of these financial statements. -6- Total General Total Federal Marketing and State Global Tax Program and Support Tax Policy Communication Tax Policy Reform Services Administration Fundraising Services TOTAL Personnel Costs: Salaries 847,095 $ 607,054 $ 434,463 $ 232,486 $ 2,121,098 $ 161,749 $ 407,923 $ 569,672 $ 2,690,770 $ Payroll taxes 63,501 45,470 32,569 17,411 158,951 11,182 30,580 41,762 200,713 Employee benefits 51,245 38,020 26,448 14,877 130,590 9,918 24,796 34,714 165,304 Retirement benefits 30,872 22,107 15,834 8,465 77,278 5,436 14,867 20,303 97,581 Total Personnel Costs 992,713 712,651 509,314 273,239 2,487,917 188,285 478,166 666,451 3,154,368 Accounting - - - - - 108,727 - 108,727 108,727 Advertising - 19,687 - - 19,687 3,502 - 3,502 23,189 Bank and credit card fees - - - - - 7,135 - 7,135 7,135 Conference and meetings - - - - - 8,551 - 8,551 8,551 Charitable registration - - - 9,930 9,930 10,099 - 10,099 20,029 Depreciation and amortization 32,677 24,244 16,865 9,487 83,273 6,324 15,811 22,135 105,408 Direct mail expenses - 140,894 - 124 141,018 137,319 58,315 195,634 336,652 Dues and subscription 1,415 22,341 27,904 17,562 69,222 649 14,693 15,342 84,564 Equipment rental and maintenance 4,506 3,228 2,310 1,236 11,280 860 2,169 3,029 14,309 Insurance 6,848 4,908 3,512 1,879 17,147 1,308 3,298 4,606 21,753 IT Support 926 13,350 - - 14,276 21,562 1,496 23,058 37,334 Occupancy 115,690 82,906 59,335 31,751 289,682 22,090 55,712 77,802 367,484 Office supplies 4,440 3,182 2,277 1,219 11,118 848 2,139 2,987 14,105 Other expenses - 188 - 9,711 9,899 7,389 - 7,389 17,288 Printing and reproduction - 14,528 494 - 15,022 312 1,344 1,656 16,678 Professional fees 133,999 - 75,000 37,408 246,407 68,104 40,000 108,104 354,511 Staff development 386 499 - 400 1,285 6,106 - 6,106 7,391 Telecommunications 8,111 5,813 4,160 2,226 20,310 1,549 3,906 5,455 25,765 Travel 3,585 877 5,200 3,217 12,879 1,135 8,706 9,841 22,720 Total Expenses 1,305,296 $ 1,049,296 $ 706,371 $ 399,389 $ 3,460,352 $ 601,854 $ 685,755 $ 1,287,609 $ 4,747,961 $ Support Services TAX FOUNDATION STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2020 Program Services The accompanying notes are an integral part of these financial statements. -7- 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets 1,049,691 $ 1,193,854 $ Adjustments to reconcile changes in net assets to net cash provided for operating activities: Depreciation and amortization 97,318 105,408 Net investment income (312,289) (332,932) Beneficial interest in split interest agreement (3,749) (3,749) (Increase) decrease in assets: Contributions receivable (443,000) - Accounts receivable (80,628) 176,826 Prepaid expenses 71,902 (39,973) Increase (decrease) in liabilities: Accounts payable 97,791 (65,902) Accrued expenses (72,345) 136,596 Capital lease liability (3,924) (2,330) Deferred rent and lease incentive (97,762) (86,741) Net Cash Provided by Operating Activities 303,005 1,081,057 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment - (11,927) Purchases of investments (567,120) (52,657) Proceeds from sales of investments 2,963 29,999 Net Cash Used for Investing Activities (564,157) (34,585) NET CHANGE IN CASH AND CASH EQUIVALENTS (261,152) 1,046,472 CASH AND CASH EQUIVALENTS, beginning of year 1,560,626 514,154 CASH AND CASH EQUIVALENTS, end of year 1,299,474 $ 1,560,626 $ TAX FOUNDATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 2021 AND 2020 The accompanying notes are an integral part of these financial statements. -8- TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 -9- NOTE A – ORGANIZATION AND NATURE OF ACTIVITIES Tax Foundation (the “Foundation”) is a 501(c)(3) nonprofit research and educational organization that was incorporated on September 14, 1990. The Foundation researches and analyzes various aspects of federal, state and local tax policies to assess the impact that such policies have on the economy, businesses, individuals and families. This compilation and analysis of tax policies is the first stage in the process of educating business executives, policies makers and the public about the role tax policies play in their lives and to help them differentiate sound tax policies from inefficient and destructive tax policies. The Foundation's operations are funded primarily through contributions from private foundations, corporations and individuals. Program Descriptions Federal Tax Policy - This program promotes sound tax policies in Washington D.C. The Foundation provides objective data and analysis on tax policies, using several tools, including modeling of economic and budgetary effects, research and writing, Capitol Hill Briefings, and Congressional Testimonies. The Foundation established itself as the go-to resource on federal tax issues for policymakers. In 2021, despite in-person limitations, the staff conducted more than 70 Capitol Hill meetings and briefings, testified three times, and produced dozens of reports and blog posts on a variety of issues that received 14,900 citations in leading media outlets. Marketing and Communication - The Foundation’s marketing team makes tax policies engaging and accessible to taxpayers, legislators, and the media through innovative, multi- channel campaigns. The Foundation’s team delivers high-quality content to the right people, at the right time, in a format that promotes deeper understanding using tools like social media, digital advertising, interactive web experiences, and email. In 2021, the Foundation earned 30,725 media citations in the world's top news outlets, including The Wall Street Journal, The Washington Post, The New York Times, NBC News, Fox News, and NPR—a 51 percent increase over 2020; its experts conducted 112 radio and TV interviews and placed 22 op-eds; taxfoundation.org was visited 23.1 million times; its social media accounts earned 28 million impressions and grew to 89,347 total followers; its digital advertising resulted in 22.2 million impressions and drove 1.9 million video views; and its email newsletter grew to 53,839 subscribers. State Tax Policy - This program promotes state tax reform with comprehensive annual reports, research, policy analysis, and in-depth state-specific studies. In 2021, the Foundation testified or presented to officials—mostly virtually—79 times in 28 states and the District of Columbia. The Foundation is often looked to by legislators, taxpayers, and the media to recommend tax reform options or provide analysis of tax plans. The Foundation’s analysis and studies, such as the State Business Tax Climate Index, inform the tax reform debate across the country and have been crucial to major tax changes in many states. Foundation experts were a vital resource to policymakers and journalists as states navigated tax policies during the pandemic. TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (Continued) - 10 - NOTE A – ORGANIZATION AND NATURE OF ACTIVITIES (continued) Program Descriptions (continued) Global Tax Reform – This program was launched in 2018 in order to promote pro-growth tax policies throughout the world with a primary focus on Europe. The Global Tax Reform produces in-depth studies of economic data and uses a variety of measures, such as the International Tax Competitiveness Index, to compare tax systems. The Foundation’s experts have provided briefings in countries throughout Europe and are relied upon by media, policy makers, and other policy groups to provide analysis of tax proposals throughout the world. In 2021, the Foundation’s work was cited in 107 countries and received 5,800 international media citations. NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting These financial statements were prepared using the accrual basis of accounting. Therefore, revenue and related assets are recognized when earned and expenses and related liabilities are recognized as the obligations are incurred. Financial Statement Presentation Financial statement presentation follows Financial Standards Accounting Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 958, Not-for-Profit-Entities. In accordance with Topic 958, net assets, revenue, gains and losses are classified based on the existence or absence of donor -imposed restrictions. Accordingly, the net assets of the Foundation and changes therein are classified and reported as follows: Net Assets without Donor Restrictions – Net assets not subject to donor-imposed restrictions or stipulations. Net Assets with Donor Restrictions – Net assets subject to donor-imposed stipulations that may or will be met by either actions of the Foundation and/or the passage of time, or that must be in perpetuity by the Foundation. When a restriction expires, net assets with donor restrictions are reclassified to net assets without donor restrictions and are reported in the statements of activities as net assets released from restrictions. Contributions received with donor restrictions that are met in the same reporting period are reported as support with donor restrictions and increase net assets with donor restrictions. TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 11 - NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and Cash Equivalents For purposes of the statements of cash flows, the Foundation considers money market accounts and all highly liquid investments with original maturities of less than three months to be cash equivalents except for those funds that are part of the investment portfolio. The Foundation maintains its cash and cash equivalents balances in certain accounts which are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the accounts may exceed these limits. However, the Foundation believes it is not exposed to any significant credit risk on cash and cash equivalents. Investments Investments in mutual funds and stocks are reported at fair value, which is based on observable quoted market prices. Interest income is reported when earned. Dividends are recorded on the ex- dividend date. Investment income includes the gains and losses on investments bought and sold as well as held during the year. Contributions and Accounts Receivable Contributions and accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Annually, management determines if an allowance for doubtful accounts is necessary based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Accounts deemed uncollectible are charged off based on individual credit evaluation and specific circumstances of the parties involved. Management believes all accounts receivable are collectable within one year or less; therefore, no allowance for uncollectible accounts has been established. As of the end of the year ended December 31, 2020, accounts receivable totaled $37,372. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and amortization. Expenditures over $2,500 that extend the life of an asset by more than one year are capitalized while repairs and maintenance are expensed. Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives (ranging from three to nine years) of the related assets. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the lease term. Deferred Rent The Foundation recognizes rent expense on a straight line basis over the term of the lease. Deferred rent is recorded as the difference in rent expense on a straight-line basis and cash payments. TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 12 - NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition The Foundation recognizes grants and contributions when cash, securities or other assets, an unconditional promise to give, or notification of a beneficial interest is received. Conditional promises to give, that is, those with a measurable performance or other barrier, and a right of return, are not recognized until the conditions on which they depend have been substantially met. Contributions received with donor stipulations are recorded as contributions with donor restrictions based on the donor's intent. Unless otherwise stated by the donor, individual donations are recorded as contributions without donor restrictions. Contributions with donor restrictions that are met in the same reporting period as when the contribution are received, are reported as contributions with donor restrictions. Revenue from the annual dinner is recognized when the event occurs, and is reported in the accompanying statements of activities net of direct expenses. In-Kind Contributions In-Kind contributions are recorded at fair value of the services or items received. The Tax Foundation recognizes in-kind contributions that create or enhance non-financial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. For the years ended December 31, 2021 and 2020, donated goods totaled $11,000 and $0, respectively. Method Used for Allocation of Expenses The financial statements report certain categories of expenses that are attributable to more than one program or a support function as management and general activities. Expenses of this nature are allocated on a reasonable basis that is consistently applied. Allocated expenses include depreciation and amortization, office and occupancy expenses, which are allocated on the basis of salaries and related costs, determined by estimated of time and effort expended. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of revenue and expenses during the reporting periods and reported amounts of assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 13 - NOTE C – INCOME TAXES The Foundation has been recognized as exempt from federal income tax by the Internal Revenue Service under the provisions of Section 501(c)(3) of the Internal Revenue Code and is classified as an organization that is not a private foundation. The Foundation believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements or that would have an effect on its tax-exempt status. There are no unrecognized tax benefits or liabilities that need to be recorded. The Foundation’s information returns are subject to examination by the Internal Revenue Service (“IRS”) for a period of three years from the date they were filed, except under certain circumstances. The Foundation’s Form 990 returns for the years 2018 through 2020 are open for a tax examination by the IRS, although no request has been made as of the date of these financial statements. NOTE D – AVAILABLE RESOURCES AND LIQUIDITY The Foundation regularly monitors liquidity required to meet its operating needs and other contractual commitments. The Foundation has various sources of liquidity at its disposal including cash and cash equivalents, contributions receivable, accounts receivable and investments. For purposes of analyzing resources available to meet general expenditure over a 12-month period, the Foundation considers all expenditures related to its ongoing program activities and services to support those activities to be general expenditures. The following table reflects the Foundation’s financial assets as of December 31, 2021 and 2020, reduced by amounts that are not available to meet general expenditures within one year of the statements of financial position date because of donor restrictions: 2021 2020 Cash and Cash Equivalents 1,299,474 $ 1,560,626 $ Investments 3,795,939 2,919,493 Contributions receivable 443,000 - Accounts receivable 118,000 37,372 Total Financial Assets 5,656,413 4,517,491 Less: Net assets with Donor Restrictions (551,561) (752,484) Total Financial Assets Available to Meet Cash Needs for General Expenditures within one Year 5,104,852 $ 3,765,007 $ TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 14 - NOTE E – INVESTMENTS AND FAIR VALUE MEASUREMENTS FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 of the fair value hierarchy under FASB ASC Topic 820 is described as inputs to the valuation methodology that are unadjusted quoted prices for identical assets of liabilities in active market that the Foundation has the ability to access. Level 1 – Inputs are based on unadjusted quoted prices for identical assets traded in an active market that the Foundation has the ability to access. Level 2 – Inputs are based on quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets, or model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data. Level 3 - Inputs are unobservable and significant to the overall fair value measurement. The following valuation methods may produce a fair value calculation that may not be indicative of net realizable value reflective of future fair values. Furthermore, although management believes its valuations methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Foundation’s investments in mutual funds and stocks are based on observable market quotations. The following table sets forth by level, within the fair value hierarchy, the assets of the Foundation reported at fair value on a recurring basis in the accompanying statements of financial position as follows: Level 1 Level 2 Total Mutual Funds 1,225,955 $ - $ 1,225,955 $ Stocks 2,569,984 - 2,569,984 Total 3,795,939 $ - $ 3,795,939 $ Assets at Fair Value as of December 31, 2021 TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 15 - NOTE E – INVESTMENTS AND FAIR VALUE MEASUREMENTS - continued NOTE F – BENEFICIAL INTEREST IN SPLIT INTEREST AGREEMENT The Foundation has a beneficial remainder interest in an irrevocable gift annuity held by a third party. The terms of the agreement provide for quarterly payments of $1,550, to the primary beneficiary during their lifetime with the amount remaining to be paid to the Foundation upon the beneficiary’s death. The Foundation has recorded the beneficial interest in this contribution at its estimated fair value using present value techniques assuming a remaining life expectancy of 8.1 years and a discount rate of 8%. For the years ended December 31, 2021 and 2020, the Foundation recorded an asset of $49,745 and $45,996, respectively, related to this split interest agreement, which is included in the accompanying statements of financial position. NOTE G – LEASE COMMITMENTS The Foundation leases its office space under a twelve-year operating lease agreement. The lease commenced in January 2015 and requires monthly rental payments of $32,072, with annual escalations of approximately 2.5% and pass through of increases in operating costs and taxes. In addition, the lease provided for 13 months of rent abatement and a tenant improvement allowance of $85 per square foot or $681,530. In addition, the Foundation entered into an equipment lease on January 2018, with a lease term of monthly payments of $321 for a period of five years. Lease commitments for the Years Ending December 31, are as follows: Level 1 Level 2 Total Mutual Funds 1,827,433 $ - $ 1,827,433 $ Stocks 1,092,060 - 1,092,060 Total 2,919,493 $ - $ 2,919,493 $ Assets at Fair Value as of December 31, 2020 Office Lease Equipment lease Total 2022 463,172 $ 3,852 $ 467,024 $ 2023 474,752 321 475,073 2024 486,620 - 486,620 2025 498,786 - 498,786 2026 511,255 - 511,255 2,434,585 $ 4,173 $ 2,438,758 $ TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 16 - NOTE G – LEASE COMMITMENTS - continued Total occupancy expense recorded by the Foundation for the years ended December 31, 2021 and 2020, totaled $369,249 and $367,484, respectively. NOTE H – NET ASSETS WITH DONOR RESTRICTIONS The Foundation had net assets with donor restrictions as of December 31, 2021 and 2020, as follows: NOTE I – RETIREMENT PLAN The Tax Foundation 401(k) Profit Sharing Plan (the “Plan”) was adopted to provide employees with retirement saving opportunities. All employees who are at least 21 years of age and have completed six months of employment with a minimum of 1,000 hours of service are eligible to participate. Eligible employees may contribute to the Plan up to the maximum limits set by the Internal Revenue Service. The employer matches 100 percent of the salary deferrals up to 5% of the compensation. Retirement expense for the years ended December 31, 2021 and 2020, totaled $113,245 and $97,581, respectively. NOTE J – CONCENTRATION OF FUNDING As of December 31, 2021 and 2020, the amount held in the Foundation's operating account exceeded the amount guaranteed by the Federal Deposit Insurance Corporation by $1,049,474 and $1,310,626, respectively. In addition, as of December 31, 2021 and 2020, grants and contributions receivable of $561,000 and $37,372 included amounts due from thirteen and three donors respectively, totaling $438,000 and $30,000, or 78% and 80% of the balance respectively. The Foundation has not experienced, nor does it anticipate, any loss of funds as a result of this concentration. 2021 2020 Purpose Restricted: Tax and economic literacy project 356,573 $ 465,000 $ Location matters 71,151 50,000 Upgrade to taxes and growth model - 24,290 State Tax Business Climate Index 48,837 13,194 Total Purpose Restricted 476,561 552,484 Time restricted donations 75,000 200,000 Total 551,561 $ 752,484 $ TAX FOUNDATION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 (continued) - 17 - NOTE K – SUBSEQUENT EVENTS The Foundation’s management has evaluated subsequent events for potential required disclosures through April 22, 2022, which is the date the financial statements are available to be issued. There were no additional events or transactions except as noted above that were discovered during the evaluation that required further recognition or disclosure.
