We want to remind our readers that we will not be publishing Snapshot next week in light of the Fourth of July holiday. We wish you all a happy Fourth!
Senate Tax Reform Working Groups Will Not Meet Today’s Deadline
The Council has been following the progress of the Senate Finance Committee’s Tax Reform Working Groups in producing reports on comprehensive tax reform. These groups have been meeting since earlier this year to address different parts of the tax code, and were expected to submit their recommendations to the Committee’s leaders today.
Sources close to the Council have informed us that the only group to likely meet this deadline is the international working group—which will submit a report containing reform options rather than concrete legislative proposals. As a reminder, the working groups that will address the parts of the tax code that impact charitable organizations are the “business” and “individual” working groups. The Council submitted comments to both of these working groups in April.
We have been hearing that the deadline is going to be extended a second time, but are not yet able to confirm a new date. We will keep you informed as we receive more information.
Ways and Means Republicans to Discuss Tax Strategy
Republican members of the House Ways and Means Committee plan to continue their discussion of the upcoming tax agenda in an off-site strategy session this July. Committee member and Co-Chair of the House Philanthropy Caucus, Pat Tiberi (R-OH-12), informed sources close to the Council that the topics for discussion will likely include tax reform, Social Security disability benefits, the Highway Trust Fund, and the provisions in the “tax extenders” package—including which should be made permanent.
The Council will continue to push for the permanent extension of charitable "tax extenders."
Does Charities Bill Blur Longstanding Distinctions?
The House passed the Fair Treatment of All Gifts Act (H.R. 1104) on April 15th of this year to exempt 501(c)(4), (5), and (6) organizations from the federal gift tax. In his recent op-ed in The Hill, tax attorney William Fournier argues that if enacted, this bill would chip away at the distinction between private foundations and public charities.
Fournier argues that if gifts to these types of organizations are exempt from the gift tax like private foundation contributions are, they should be subject to the same rules that apply to private foundations. He explains that these restrictions include “a prohibition on transactions with related family members, limitations on the ownership of closely held businesses, prohibitions on lobbying and political activity, a tax on investment income, and a minimum annual payout for the benefit of active charitable activities.” Fournier sees these restrictions as the trade-off for the law exempting private foundation contributions from the gift tax. Yet, as he argues, H.R. 1104 would allow wealthy individuals to avoid the gift tax while also avoiding the checks and balances offered by the private foundation rules.
Fournier’s op-ed offers one interesting take on the potential implications of H.R. 1104, though we are still looking into how it could affect our members. The bill was referred to the Senate Finance Committee and its fate is not yet clear.
Can My Foundation Fund Legal Aid for Individuals?
This past week, the Council hosted a webinar—Can My Foundation Fund Legal Aid?—on the ways and strategies by which foundations can address issues in their communities through funding civil legal services. Given the exceptional interest in this topic, we wanted to share some further insight into providing support directly to individuals for legal expenses.
Legal aid provides assistance to people who would otherwise not be able to afford legal representation or access to the court system. While it is an integral part of the American justice system, especially to the most vulnerable in our society, many legal aid programs are unsustainable or have seen their budgets cut dramatically.
Can public charities fund Legal aid?
It is undisputed that public charities, including community foundations, may fund legal aid programs. Such programs include those sponsored by local bar associations, and nonprofit public-interest law firms. These legal aid organizations are recognized by the IRS as public charities. As such, community foundations may grant to these organizations without the need to exercise due diligence as the foundation can assume monies granted will be used for charitable purposes. Furthermore, funding legal aid programs would likely be considered an activity that lessens the burdens of government.
But can foundations fund legal aid for individuals?
Council Legal Affairs is of the opinion that making a grant to an indigent individual for the purpose of funding his or her legal representation is a charitable purpose. This is especially true in the case of a criminal defendant who, under the Sixth Amendment to the U.S. Constitution, has the right to be represented by an attorney. In this regard, one can argue that funding legal aid for an individual lessens the burden of government.
Similar to “Good Samaritan Fund” programs that many foundations have set up to help community members in need due to unexpected circumstances, the legal team determines that foundations may set up funds to assist low-income individuals obtain access to justice.
What are suggested practices?
We offer the following suggestions:
- Ensure that all referrals come from an existing social service agency or other organization accustomed to reviewing individuals’ needs. Community Foundations should not be assessing income levels and spending requirements.
- Ensure that checks can be processed and delivered quickly.
- Ensure that no one raises money for the fund by promising that any particular individual or family will be receiving aid.
- Consider establishing a rule that payments will only be made for legal services provided to recipients after submission of legal bills.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
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.
Gloria Johnson-Cusack Featured in CNN’s My American Success Story
CNN Money recently profiled our respected colleague, Gloria Johnson-Cusack. This piece tells the story of Gloria’s inspiring journey from growing up in D.C., to becoming CEO of the National Human Services Assembly (NHSA).
Gloria has been, and continues to be, a valuable partner to the Council and our colleagues in the field through policy efforts to strengthen philanthropy—notably, in efforts surrounding the charitable deduction.