Washington Snapshot - April 17, 2015
News from the Hill
Yesterday, the House of Representatives passed a bill that would exempt donations to 501(c)(4)s, (5)s, and (6)s from the gift tax. As POLITICO points out, this would exempt a broad category of political organizations from the gift tax.
Current law is ambiguous on whether donors to 501(c)(4)s, (5)s, and (6)s must pay a gift tax on their gifts, though they do not pay income taxes on the donations. Donations to 527 “Super PAC” organizations are explicitly exempt from gift taxes, but the tradeoff is that donations to these organizations must be disclosed, including donor names and contribution amounts.
Our policy team will continue to follow this emerging development and keep you posted on whether the Senate takes up the bill.
House Votes on Estate Tax
Yesterday, the House voted to permanently repeal the Estate Tax. The Hill reports that the vote broke down largely along party lines. The Committee on Ways and Means issued a statement, saying “when a family is dealing with the loss of a loved one, the last thing they should have to worry about is the federal government coming in and undercutting their livelihood. In the words of my friend Congressman Kevin Brady, this is the wrong tax at the wrong time, and it's hurting the wrong people.”
The President has threatened to veto the bill, and the bill is unlikely to garner the 60 votes necessary to prevent a Democratic filibuster in the Senate.
Trending in Legal Affairs
The Public support Test of DAF Grant Recipients
A community foundation was approached by a potential donor who wanted to establish a donor advised fund that would make grants to an existing public charity. The donor planned to recommend annual grants to the organization and could likely be the organization’s largest contributor. Concerned that the significant annual contributions from the donor advised fund would affect the organization’s public support test, the foundation queried: would the grants from the donor advised fund tip the charity into private foundation status?
The IRS presumes that a charitable entity is a private foundation unless it can demonstrate that it should be classified as a public charity. To meet and maintain public status, a charity must continually demonstrate that a certain minimum amount of their total support is "public support” and comes from a broad cross-section of the public, not from just one source.
With this in mind, the Council’s legal team advised the community foundation – itself a public charity – that, generally, grants from it to the organization would not tip the organization into private foundation status. This is because grants from other public charities are considered public support, and the funds from the donor advised fund are “under the discretion and control” of the community foundation.
While grants from donor advised funds housed at community foundations will typically not tip charities into private foundation status, the legal team recommends avoiding the appearance of earmarking funds. To avoid this, community foundations must let donors know that once funds are contributed to the foundation, the foundation will have sole discretion and control over the grants. Donors may make recommendations, but the foundation has the ability to “veto” those recommendations or to make smaller grants to the particular public charity. The legal team recommends this be documented in a fund agreement.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
Philanthropy News and Op-Eds
Post Philanthropy Week Interview with Jonathan Lorenzo Yorba
This week, Council member relations director, Kim Bluitt, interviewed Jonathan Lorenzo Yorba, President & CEO of The Community Foundation Serving the Counties of Riverside & San Bernardino about highlighting impact at Philanthropy Week in Washington.
Yorba said during the interview, “It was an honor to be able to speak face-to-face with our national elected officials about how philanthropy and the federal government can work together in partnership to address the many needs of the communities that collectively comprise the United States. Walking around the Capitol, the Supreme Court, the Library of Congress and other impressive buildings on Capitol Hill provided inspiration and generated awe.”
Vermont Nonprofits Continue to Fight Charitable Deduction Changes
A report in the Burlington Free Press this week further highlighted nonprofit and business leaders’ complaints about proposals to cap the charitable deduction. One local business leader was quoted saying, “We’re convinced that the scramble to fill the leaking bucket that we have and the lack of rigor in assessing cause and effect will leave us in a terrible place socially and economically.”
For its part, the Senate Finance Committee in Vermont is now considering the House passed legislation and has proposed several changes including “the elimination of charitable deduction and the creation of a 5 percent income tax credit for donations of over $5,000 made in Vermont.”
We will continue to report on developments in Vermont.
Report on DAFs from Manhattan Institute
In a report released last week, Howard Husock of the Manhattan Institute explored the growth of donor advised funds in recent years. The report focused on the growth of commercial donor advised funds (“NDAFs”), but did include reference to DAFs managed by community foundations as well.
Husock’s research determined that “on balance, DAFs of all kinds—particularly, though not exclusively, accounts held with NDAFs—provide the preconditions for significant growth in overall U.S. charitable giving.” Husock views this as good news.
Yet, he echoes the Council’s concerns about proposals to further regulate donor advised funds, stating that “DAF growth is not inevitable. Changes in tax law, such as that proposed in the Tax Reform Act of 2014, could discourage the deposit of funds and assets into NDAF-based and community foundation–based DAF accounts, curtailing overall U.S. charitable giving in the process.”
Another article on DAFs in the Chronicle of Philanthropy this week quoted Peter Dunn, executive director of the Central New York Community Foundation, who stressed that small foundations are better able to understand donor intent. He said “if you’re acting on a transactional basis, it may be different… but we make a real point of engaging with folks.”
Events of Interest at Annual Meeting
Community Foundation Preconference
Community foundations have a unique role in philanthropy. They are an essential part of American culture. The community foundation model has come under increased scrutiny as critics question the broader value of endowed philanthropy, with particular attention recently on donor advised funds (DAFs). This policy forum, for community foundation staff and trustees only, will focus on the pressing public policy issues specifically affecting them.
The program will continue the dialogue from the 2014 Fall Conference and is designed to seek collective input from community foundation leaders. With expert guidance from policy and communications experts, participants will discuss and contribute to developing a strategy for addressing particular policy implications for community foundations, including regulation of DAFs.
Join your colleagues to help shape messages and positioning for community foundations within the broader tax reform debate. Explore how community foundations are an integral voice at the local level, regional and national levels can shape policy messaging to lawmakers and prevent harmful regulatory activity.
To register you attendance, simply send an email with your name and contact information to ssanta@cof.org. There is no charge for this event.
Executive Leadership Preconference: Philanthropy and Public Policy - Executive Challenges, Leadership Opportunities
Designed for executive-level foundation leaders (CEOs, Executive Directors, C-suite executives, board members and trustees), this interactive two-day preconference from Friday, April 24th at 12:00 pm through Saturday, April 25th at 12:45 pm will explore three current challenges to philanthropy in the public policy sphere, equipping foundations with strategies to implement and navigate their own mission-driven advocacy efforts in today’s evolving policy arena.
Beginning with an exploration of philanthropy’s historic role in public policy and our significant contributions to civil society, we will explore three current challenges to philanthropy continuing to play the role.
Challenge #1 – The Current Strains on Our Democratic Process and the Implications for Philanthropy
As our regulatory and legislative processes seem strained, as civil discourse continues to polarize, and as citizens feel less connected to their governments, what does this mean for our efforts? What role might philanthropy play to rebuild our democratic process?
Challenge #2 – In the Halls of Legislatures: Challenges for Philanthropy and Reframing Our Message
Second, we’ll explore threads of scrutiny in philanthropic giving, including questioning “what should be considered charitable,” limiting incentives for individual giving, and questioning the value of endowed/long term funds to society. How could this scrutiny affect future investments by philanthropy in public policy?
Challenge #3 – Challenges to Deploying a Policy Agenda
Finally, we’ll turning the lens inward to your organization with an interactive exercise to give and take advice from peers. As foundations invest in public policy, what are the internal opportunities and challenges?
Evolution of American Philanthropy: Saturday Breakouts
Join us on Saturday, April 25th from 1:00pm-5:00pm as we explore the many ways philanthropists can create positive impact beyond grantmaking. Two to Tango: New Forms of Giving in Philanthropy and New Forms of Grantees to Meet Your Mission are back-to-back breakout sessions that will allow philanthropic leaders to explore how foundations are using an array of incentives, investment vehicles, and innovative funding strategies to achieve their missions. The discussions will also involve leaders from emerging hybrid institutions that are utilizing financial capital for social entrepreneurship and business solutions to tackle some of the world's toughest challenges.
Four discussants offering different perspectives and experiences will share opportunities and challenges in learning how to work in the current environment of sophisticated program funding as well as “mixed mission” hybrid organizations. The sessions will be presentations and facilitated discussion to capitalize on the shared goals of community impact by foundations and grantees alike. Expect provocative comments and questioning from all participants as we explore this new terrain.
These sessions are part of the Council on Foundation’s new Evolution of American Philanthropy initiative, focusing on “Emerging Forms of Philanthropy”. You can read a blog post and learn more online.
