As a national voice for philanthropy, the Council works to create an environment in which philanthropy can thrive by promoting policies that allow the philanthropic sector to remain vibrant, inclusive, innovative, and effective.
Federal Tax Regulations
The Council on Foundations supports a strong philanthropic sector that helps to achieve the greater good. The Council opposes regulations and legislation that are overly burdensome or would harm the sector’s ability to thrive.
Background: Philanthropy plays a unique role in American society, helping to advance the greater good by strengthening communities, supporting innovative problem-solving approaches, and acting quickly when crises and disasters occur. Currently, private foundations are required to distribute an amount roughly equal to 5-percent of their investment assets annually for charitable purposes. Donor-advised funds (DAFs), a charitable giving vehicle created by community foundations and other entities to manage donations by individuals, families, and organizations, do not have minimum payout requirement. The Council on Foundations strongly supports the efforts of our members, as well as other foundations and donors, to increase giving to meet crises, especially the COVID-19 pandemic. Indeed, the Council has joined with other philanthropic organizations to encourage philanthropy to boost giving and increase flexibility.
Increasing the payout requirement for private foundations and creating a new mandate for donor-advised funds would unnecessarily limit philanthropy’s ability to respond to future crises. If similar proposals to impose a 10-percent payout had been adopted following the tragedy of September 11, 2001, or the Great Recession of 2008, philanthropy would now have fewer resources and a significantly reduced ability to respond to Covid-19. If a 10-percent payout for private foundations were to become permanent, such a proposal would amount to a government mandate for countless foundations across the country to shut their doors and stop their charitable giving long before they ever intended. Furthermore, these requirements may conflict with state laws intended to protect original donor intent. The payout rate should be based on facts and research. The research shows that the current 5-percent payout rate is an accurate reflection of the historic return on assets earned by foundations.
Adequate Federal Funding for IRS and Other Federal Agencies
Background: A healthy and trusted charitable sector depends on appropriate oversight by the federal agencies. Unfortunately, administrative federal funding for the Internal Revenue Services (IRS), the Department of Treasury, and other agencies that interact with and oversee the charitable sector has been inadequate for a number of years. For example, the IRS budget has been reduced by more than 20 percent, adjusting for inflation, over the past decade according to the Tax Policy Center. The Council believes that adequate oversight is important to a thriving philanthropic and nonprofit sector and supports efforts to provide sufficient funding for the relevant federal agencies. In December 2019, Congress simplified the private foundation excise tax at a 1.39-percent rate. The tax was originally intended to help support appropriate oversight of the sector. The Council will oppose an increase in the future.
Encouraging Charitable Giving
The Council on Foundations supports policies that expand charitable giving, including enacting tax policies that incentivize giving. The Council will prioritize tax policies that are inclusive and recognize all individuals for their charitable contributions.
Universal Charitable Deduction Or Credit
Background: In 2017, the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) expanded the standard deduction (raising it from $6,500 to $12,000), reducing the number of taxpayers who itemize deductions, including their charitable contributions. For the 2019 tax year, the Tax Foundation estimates that just under 14 percent of taxpayers will itemize their taxes, which is more than 17 percentage points lower than expected in 2019 pre-TCJA law. In addition, the TCJA’s decrease in the marginal tax rate lowered the tax saving per dollar donated by charitable givers, further disincentivizing charitable giving. Enacting the universal charitable deduction would extend a tax deduction for charitable giving regardless of whether taxpayers claim the standard or itemized deductions. This would diversify the pool of charitable donors, given that higher-income taxpayers are much more likely to itemize their deductions than those with lower incomes.
In response to the considerable need of nonprofits due to COVID-19, the CARES Act (P.L.116-136) included a $300 above-the-line tax deduction for certain qualified charitable contributions. The Council on Foundations is working with the nonprofit community to expand this provision to approximately $4,000 for an individual and $8,000 for a couple filing jointly.
The Council on Foundations also supports enacting a charitable tax credit, which a few states have enacted for donations to specific types of charities. While both a charitable deduction and charitable credit are meant to stimulate charitable giving, the main difference is that the deduction will not benefit the bottom 44-percent because they do not pay federal income taxes. A tax credit reduces the amount of taxes an individual owes up to the limit of the tax credit. Our ultimate goal should be for a refundable credit since it is a more inclusive tax policy that benefits the largest number of givers.
Expanding the IRA Charitable Rollover
Background: The Individual Retirement Account (IRA) charitable rollover – referred to as the “qualified charitable distribution” in the law – permits individuals 70½ or older to directly transfer IRA assets of up to $100,000 to eligible charitable organizations. Individuals who do so can then exclude the amount distributed from their gross income. Before 2006, it was not possible to make direct transfers of IRA assets to charity without first taking the steps of: recognizing the distribution as income, making the transfer, and then claiming a charitable deduction for the gifted amount. It was often the case that this resulted in tax liability, even though donors ultimately transferred the entire IRA distribution to charity. In 2006, the Pension Protection Act (PPA) allowed taxpayers 70 ½ or older to transfer up to $100,000 in funds from their IRA accounts directly to charity without needing to first designate the distribution as income. This provision was extended multiple times, before being made permanent in 2015 in the Protecting Americans from Tax Hikes Act (PATH Act) (P.L. 113-243).
The charitable sector continues to work to expand this provision. One option is to lower the age threshold to be able to take advantage of such rollovers and to encourage the increased use of donor-advised funds (DAFs) by allowing IRA distributions to be transferred to DAFs. Another option is to allow individuals to make donations tax-free through IRA rollovers beginning at age 65 to split-interest trusts (e.g. charitable gift annuities or charitable remainder trusts).
The Council on Foundations supports efforts to strengthen foundations’ ability to administer post-graduation scholarship grant programs to stimulate regional economic growth and help address the growing student debt crisis.
Background: A post-graduation scholarship is a type of charitable grant. The post-graduation scholarship would be awarded to an individual who has already completed a degree or technical program in a career field that is needed in a particular region in order to pay off a portion of the individual’s student loans. As with traditional scholarships, these programs would establish eligibility requirements as well as a process to verify that those requirements continue to be met through the duration of the scholarship award agreement. Currently, post-graduation scholarship recipients must pay income taxes on their grant awards. The Council on Foundations supports efforts to ensure that post-graduation scholarships are treated the same as traditional scholarships through the tax code and are excluded from gross income calculations just as traditional scholarships.
Background: The Johnson amendment helps ensure that all 501(c)(3) non-profit organizations are protected from having to engage in political activity. Qualifying nonprofits cannot engage in political campaign activities, including endorsing or opposing political candidates or other actions that are viewed as intervening in elections to public office. Organizations that violate the Johnson Amendment risk losing their tax-exempt status. The Council supports the Johnson Amendment. The Council will also continue to support the charitable sector’s involvement in public policy in accordance with current rules and regulations.