In remembrance of the 9/11 attacks that occurred 14 years ago today, the Council would like to take a moment to extend our thoughts to all those who were affected by the tragic events of that day.
Sen. Grassley Maintains His Skepticism of DAFs
In an interview with the Chronicle of Philanthropy earlier this week, Senator Charles Grassley (R-IA), Chairman of the Senate Judiciary Committee and a member of the Senate Finance Committee, expressed his opinion about how a 5% payout rate could limit, rather than encourage, giving from donor advised funds. The Council on Foundations has concerns about such a statement, because while no legislative provision currently exists requiring a 5% payout rate on donor advised funds, we should not take this statement as an indication that there is any less of a threat to previous attempts to regulate donor advised funds.
While the article states that the Senator has no plan to “push for such regulation (meaning a 5% payout rate on donor advised funds),” the Senator does express that changes would make sense as part of a broader tax overhaul effort. He goes on to state that, “[w]e think an attitude is better, because we hope some people would exceed whatever percentage” Congress imposed.
It’s unclear how the Senator would address “attitude” through legislation. However the Senator’s reference to DAFs as a “kind of piggy bank for wealthy people,” coupled with his concern about payout levels for donor advised funds, underscores the need, which the Council is continuously addressing, to monitor this issue and work closely with Senator Grassley and his colleagues to ensure they fully understand the value of donor advised funds as one of many giving options.
The Chronicle piece also cites the Senator’s tax counsel, who commented that Grassley may be hesitant to expand the IRA charitable rollover to DAFs. That said, the staffer noted that the Senator’s office is discussing this idea with Iowa community foundations who have endorsed the idea.
In addition to raising concerns about donor advised funds, Senator Grassley continues to raise the issue of “excessive” compensation of nonprofit executives. For those who have followed the Senator and his concerns about the field, you will recognize this as a longstanding issue of concern for him.
The sentiments expressed by Sen. Grassley in this interview remind us that policymakers continue to have an eye on foundation operations, giving vehicles and the flow of philanthropic dollars into communities and to causes. It highlights the need—now more than ever—for philanthropic leaders to engage with lawmakers to convey the vital role of philanthropy in communities across the country.
For information about making your voice heard and planning a meeting with your Members of Congress, check out our Advocacy Toolkit.
Congress Focuses Attention on Avoiding a Government Shutdown
Returned from the month-long August recess, Congress turns attention to a number of issues, including enacting legislation to continue funding for the federal government before the end of the fiscal year: September 30. This legislation, referred to as a “continuing resolution,” or “CR,” could include some or all of the 12 current appropriations bills, as well as additional items to incorporate any outstanding spending measures.
With just 12 “in-session” days remaining before this deadline, the pressure to reach a bipartisan agreement is building. Much of the debate to reach a compromise is anticipated to touch on whether the severe spending cuts enacted under the Budget Control Act of 2011 should go into effect versus government-wide spending cuts, known as “sequestration.” Another point of contention likely to surface in this compromise process are the levels of spending for defense and domestic programs—which could have an impact on nonprofit organizations that provide or support human and social services that receive funding from the federal government.
Several GOP members in the House have indicated their intent to push for a CR that would keep the government open through mid-December, and are expected to put a spending bill up for a vote sometime next week.
Director of EO Rulings Announces Changes to Application Process
In a memorandum issued earlier this week, the Director of Rulings and Agreements for the Exempt Organizations (“EO”) Division at the IRS, Jeffrey Cooper, issued a memorandum to announce changes to the application process for receiving tax-exempt status.
Moving forward, if an organization seeking exempt status does not respond to an information request by the designated date, it will be deemed to have failed meeting the requirements and its case will be closed by the EO determinations unit without any refund of the user fee. If an organization still wishes to purse tax-exempt status, it must resubmit its materials and fees and open a new case with the IRS.
An Incidental Benefit You Could Drink Your Pumpkin Spice Latte From
The Council’s legal has received several questions from community foundations regarding the types of gifts that are permissible to give to a donor in acknowledgment of a contribution from their donor advised fund (DAFs).
Unfortunately, the tax code is not very clear on this matter. As required under § 4967 of the Internal Revenue Code, an excise tax will be imposed on any donors, donor advisors, or related persons who recommend a distribution from a DAF in which they receive “more than incidental benefit”—though, the Department of Treasury has never defined what is considered “more than incidental benefit.”
However, the Joint Committee on Taxation has offered context for “more than incidental benefit” in its Technical Explanation of the Pension Protection Act. This Explanation cites an IRS Revenue Ruling which allowed a donor to receive a token item, or “low cost article,” such as a logo-bearing coffee mug in return for a charitable contribution. The IRS reasons that receiving an item, costing an amount as insignificant as a coffee mug, has a negligible impact on the donor’s tax deduction.
The legal team advises that—in most cases—community foundations can rest assured that their donors may enjoy a pumpkin spice latte from that branded coffee cup, worry-free.
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.
Exclusive from our colleagues at the National Council of Nonprofits.
Indiana Creates Foundations to Support Government Operations
Indiana is experimenting with the creation of foundations and nonprofits to enable government to secure greater returns on investments and to fund key programs. One new law allows municipal governments to apply the proceeds of municipal property sales to the creation and support of government-run foundations that are permitted to invest the funds in the equity market. In this way, the municipality is permitted to avoid the very conservative state investment rules for governmental entities. The proceeds from the investments can be used to fund government operations.
Separately, Indiana established a statewide foundation for the sole purpose of raising donations to pay for public health initiatives in the state. Currently Indiana is among the states paying the least for public health programs and lawmakers hope that the new foundation can increase the total amount of dollars going towards these programs. The Healthy Hoosiers Foundation reportedly will focus on reducing the state’s infant mortality, obesity and smoking rates, and promote child immunizations. The foundation’s director acknowledges that "no other state funds their health department this way."
It is too early to tell whether these forays into philanthropy by governments in Indiana will have a positive or negative impact on the broader community as they blur the lines between governments and independent foundations. Concern has already been expressed that the foundation for public health fundraising may give legislators a reason to cut public spending, as has been done in other states.
Nonprofit and Philanthropic Leaders Respond to Bush Tax Plan
Yesterday, the Charitable Giving Coalition issued a press release acknowledging Governor Bush’s recognition of the value of the charitable deduction as an important mechanism for supporting communities. As our readers will recall, the Council is a long-time, leading member of the Coalition—a diverse group of nonprofit organizations dedicated to preserving the full value of the charitable deduction.
The Republican presidential candidate released his proposed tax plan, under which he offers several changes to the tax code, including the elimination of the Pease limitation but preservation of the full value of the charitable deduction.
In June, the Council joined onto a Coalition letter to all officially declared presidential candidates urging them to support the preservation of the full scope and value of the charitable deduction as they consider tax policy throughout the course of their campaigns. The Coalition is monitoring proposals issued by individual candidates for provisions that could impact the charitable tax deduction and will respond favorably or critically to those ideas.
This Wednesday, the Council hosted a panel discussion to discuss the role of nonprofit media in a vibrant civil society. Held at the Knight Conference Center in the Newseum, this event brought together leaders from journalism, academia, and philanthropy to discuss the major issues these organizations face and the impact that has on fostering engaged citizens.
Among these issues were the difficulties nonprofit media organizations have faced in the past with receiving tax-exempt status. This event debuted a new status report to serve as an update to the Council’s 2013 report on the IRS and nonprofit media.
The Council would like to thank the John S. and James L. Knight Foundation for their support of this event, our brilliant and engaging speakers, and everyone who participated—both in-person and remotely via the webcast and Twitter.
To view a recording of this event, you can visit our website.