Corporate Tax Integration and Philanthropy: What Does it Mean?
There has been a lot of buzz recently around the topic of corporate integration—prompted primarily by Senate Finance Committee Chairman Orrin Hatch’s (R-UT) intent to release a corporate integration proposal by the end of June. Though no specifics have yet been released for this plan, we are deeply aware of the potential ramifications that corporate tax integration could have on philanthropy.
This week, we’d like to share an in-depth analysis of how several possible approaches to corporate integration could impact the philanthropic sector. The Council, working with our colleagues in the sector, has been consistently engaged with Chairman Hatch and his staff to address our concerns with certain methods for integration.
We anticipate the Chairman to hold at least two hearings on this topic before he releases his plan. The first of these hearings is scheduled for next Tuesday, May 17th at 10:00am ET. Just moments ago, JCT released a document that provides a discussion of present law and data relating to corporate integration.
Ways and Means Subcommittee Holds Hearing on Tax Reform
As we reported last week, the House Ways and Means Subcommittee on Tax Policy held a hearing on Thursday that provided an opportunity for Members of Congress to present their ideas for reforming the tax code. Thirty-five Members put forward their own individual pieces of legislation.
Representative Holding (R-NC) voiced his support for H.R. 4907, the Grow Philanthropy Act. This bill would expand the IRA charitable rollover to allow for contributions to donor advised funds. Rep. Holding said, “Donor advised funds allow individuals regardless of their means to set up a fund and give to their preferred charities and pass these benefits on for years to come.” To encourage your lawmakers to co-sponsor this important provision, click here to send an email.
Next steps for the Subcommittee have not yet been laid out, however, we know that Chairman Brady (R-TX) still plans to release a tax reform framework in June.
Council to Submit Comments on IRS Priority Guidance 2016-2017
Comments for the Department of Treasury and IRS Priority Guidance Plan will be due next Monday. As in past years, the Council is submitting comments on this plan—which identifies and prioritizes tax issues that the agency will aim to address in the coming years.
A copy of the Council’s comments will be made available online next week.
Giving Greek: To Establish a Fund for a Fraternity, Find Charitable Purpose
A community foundation recently contacted the Legal team about a request from a gentleman in their community to establish a post-lifetime fund to benefit a fraternity—recognized as a 501(c)(7) organization under the internal revenue code (IRC)—at a local college.
As an alumnus of the fraternity, the gentleman was specifically interested in supporting leadership training, recruitment, scholarship assistance for current and future fraternity brothers, as well as provide funding to support the physical infrastructure of the home where these brothers reside.
The question of the community foundation was whether a fund for this purpose would be legal.
The Legal team advised that, since the fraternity is recognized as a (c)(7) organization (as opposed to a (c)(3) organization), this request would not be permissible.
Under the IRC, only 501(c)(3) organizations are recognized as “charitable,” and funds established at community foundations must be established for a charitable purpose. Though the fraternity is a 501(c)(7) and exempt from taxation, it is organized for the benefit of its members, which, generally, is not considered “charitable.” Also, generally speaking, the legal team advised that contributions toward improving buildings without significant historical value are typically not considered “charitable.”
As for a scholarship to benefit the fraternity, however, the Legal team advised this was legally permissible. Under the rules governing grants to individuals, the awards must be made on an objective and nondiscriminatory basis in order to constitute charitable purpose. Additionally, the charitable class, i.e., fraternity members of the house eligible for the scholarship, must be large enough to constitute a competitive grants program.
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.
Michigan Seeks to End Confusion Over Property Tax Exemptions as Turmoil Continues Elsewhere
Legislation in Michigan seeks to remove the subjectivity in how county tax assessors determine what is a charitable institution entitled to exemption from property taxes. Currently, there are more than 40 cases before the Michigan Tax Tribunal contesting the property tax exemptions of nonprofits and foundations. To promote consistency, the legislation proposes statutory definitions of the terms “charitable purpose” and “nonprofit charitable institution,” both of which have been the subject of multiple interpretations by assessors in the state.
The Council of Michigan Foundations (CMF) recently alerted its members that “the subjective nature of interpretation from assessor to assessor poses bigger questions around clarifying decision making on both the nonprofit and assessor sides.” Connecting the challenge to the foundations themselves, the regional association of grantmakers stated, “For CMF members that own their own facilities or support nonprofits that own facilities, solving this question is a high priority.”
Property tax exemption challenges have been growing elsewhere in the country. Legislation pending in Massachusetts would empower local governments to assess nonprofits a payment in lieu of taxes (PILOT) of 25 percent of what the property tax liability would be if the organizations were not exempt. Last year, a New Jersey tax court judge revoked the property tax exemption of a major hospital, triggering dozens of cases throughout the state and legislation to impose new fees on nonprofit hospitals. The property of Princeton University is the subject of litigation before the same New Jersey Judge and Yale University’s non-classroom properties are likely to be the subject of a study the Governor reportedly will commission that looks into the taxing policies of the cities that host Stanford and the Massachusetts Institute of Technology. Finally, the Illinois Legislature may be drawn back into the dispute between local governments and nonprofit hospitals, if a higher court upholds a decision earlier this year that struck down a law that provided clarity to when the medical facilities provide sufficient community benefit to justify their property tax exemption.
Coalition of Foundations Coming Together to Give $125 million in Flint
A story on National Public Radio (NPR) in Michigan this week highlighted an initiative by 10 major foundations to collectively donate nearly $125 million to help with the water crisis in the city of Flint, MI. “This money is really focused on providing a sense of hope for the citizens of Flint. Providing them with a reason to stay in Flint,” noted Ridgway White, President of the Charles Stewart Mott Foundation, which is contributing about $50 million to this project.
Specifically, this funding will go toward supporting a number of projects in Flint, including work to create an efficient and integrated approach to management of the drinking, storm, and waste water systems, support for meeting the health needs of residents exposed to the unsafe drinking water, and bolster early childhood education in an effort to mitigate the effects of lead-exposure in young children.