How Public Is Private Philanthropy, 2nd Edition Debunking the public money myth
The Philanthropy Roundtabe has released a second edition of its 2009 legal analysis that examined the claim that charitable funds are “public money” because they are exempt from federal taxes, receive state charters, and are subject to oversight by state attorneys general. Increased calls for classifying private philanthropy as public money and important court cases, including a Supreme Court case, have since bolstered the authors’ original conclusions, necessitating a 2nd edition.
Event: May 10, 2012 at The Aspen Institute (Video available)
PHILANTHROPIC TRANSPARENCY
HOW PUBLIC SHOULD PRIVATE PHILANTHROPY BE?
Thursday, May 10, 2012 • 12:00 – 1:30 pm
A roundtable discussion featuring:
RICK COHEN
National Correspondent Nonprofit Quarterly
JACK HORAK
Founder
Nonprofit Organizations Practice Area
Reid & Riege, P.C.
CINDY LOTT
Senior Counsel
National State Attorneys General Program
Columbia Law School
JOHN TYLER
General Counsel
Ewing Marion Kauffman Foundation
Moderated by
SUZANNE GARMENT
Visiting Scholar, Center on Philanthropy
Indiana University
Are philanthropic dollars public money? Is philanthropic transparency a value worth pursuing for its own sake? And what should be the role of state and federal regulations? Please join our panel of experts as they explore these and related questions increasingly being asked of and within the philanthropic community.
Hosted by
THE PHILANTHROPY ROUNDTABLE
THE ASPEN INSTITUTE PROGRAM ON PHILANTHROPY AND SOCIAL INNOVATION
THE ASPEN INSTITUTE JUSTICE AND SOCIETY PROGRAM
This roundtable is part of the Justice and Society Program’s series Intersections: Critical Conversations on Law, Justice, and Public Policy, which aims to enhance participatory democracy and to focus debate on issues intersecting law and social policy.
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What is Transparency and What Does it Mean for Philanthropic Organizations?
This was the topic of a lively roundtable event yesterday co-hosted by The Philanthropy Roundtable and the Aspen Institute. The panel featured experts from different areas of the nonprofit sector to bring a broad perspective to the discussion. Panelists included Rick Cohen, national correspondent for Nonprofit Quarterly, Jack Horak founder of the nonprofit organizations practice area at Reid and Riege Law Firm, Cindy Lott, senior counsel to the National State Attorneys General Program at Columbia Law School, and John Tyler, general counsel, secretary, and chief ethics officer at the Ewing Marion Kauffman Foundation. Suzanne Garment, visiting scholar at Indiana University’s Center on Philanthropy, moderated the discussion.
This discussion previews issues that will be covered in a new Roundtable publication (coming Summer 2012) authored by John Tyler on transparency in the nonprofit sector. This book will discuss some of the myths surrounding transparency, provide a practical guide to encourage thoughtful planning of transparent endeavors, and open thought on means of good voluntary transparency. There have also been movements to increase transparency by nonprofit organizations through both mandated and voluntary means. The Roundtable believes that transparency raises complex and important issues, and we are enthusiastic to host thought, discussion and debate on the topic.
Tyler opened the event and introduced some of his ideas that will appear in the new publication. Tyler challenges his audiences – at this panel and his future readers – to consider the basic question, “what is transparency,” suggests the need for clarity, and offers to dispel some common myths. This included the idea that just because an organization is being transparent doesn’t mean they are being effective. Tyler was followed by Rick Cohen who offered areas where he believes more transparency is needed (preview his latest column on transparency here). Tyler and Cohen did agree that there are no easy answers and organizations are diverse, requiring thoughtful deliberation. Jack Horak provided a “boots on the ground” perspective as a legal adviser, and offered that there are many issues nonprofit organizations do not consider that can cause trouble down the road. Horak’s comments re-emphasized the need for organizations to plan and anticipate. He offered that applying “the Goldilocks principle” – not too hot, not too cold, just right – was both helpful and complicated. And, Cindy Lott provided insight on the perspective of state regulators and how they are key players in transparency strategies. She also stressed the importance for nonprofits to be proactive and take charge of their own image, especially in the context of online and social media where, if you’re not careful, others will shape your image for better or worse. Simply put, if you aren’t telling your story somebody will do it for you.
This is a very brief overview of the incredible and rich content of this event. It’s definitely a panel worth watching because all of us in the nonprofit sector should be thinking about how we will approach transparency.
The ACR blog (http://www.acreform.com/blog) highlights our thoughts on news of the day. For regular updates from our blog, follow us @acrefom on Twitter.
Here is a roundup of the ACR blog since the last newsletter edition:
What does transparency mean to philanthropy and why should you care?
Sue Santa, Senior Vice President for Public Policy at The Philanthropy Roundtable, discusses some of the myths around transparency in philanthropy, , cautions about expansive calls for disclosures and suggests the values of careful, voluntary transparency planning.
House Committee Holds Hearing on Tax Issues Important to Philanthropy
The House Ways and Means Subcommittee on Select Revenues recently held a hearing on extending certain tax provisions. Of particular interest was discussion on extending the IRA charitable rollover. Read here to get the scoop on what the members of Congress had to say about this provision.
Online Training Resource on Lobbying and Advocacy Worth Your Time
If you have ever had questions about what the lines are in your advocacy efforts, a new online training course, sponsored by the Packard, Gates, Hewlett and Moore foundations is worth your time. Read on to learn more.
On Monday, May 7th, both the House and Senate return from district work periods. The Senate will be in session until May 25th and the House will be in May 7-10th and 15-18th.
On April 26th, the House Ways and Means Committee held a hearing on tax provisions that have expired, including the IRA charitable rollover. This hearing was unusual as Members of Congress were the only witnesses asked to testify on behalf of their favored tax provisions. As we also noted in our blog, Members voiced their support for numerous individual and corporate tax provisions, such as the deduction for state and local sales taxes and the Research and Development Tax Credit. Of interest to us, extension of the IRA Charitable Rollover (which expired at the end of 2011) received strong support.
Representative Wally Herger (R-CA) said “One tax extender I strongly support is the charitable IRA rollover provision. First enacted in 2006, this policy allows IRA owners to make tax-free charitable contributions from their savings. Our country has a long and proud tradition of charitable giving and meeting human needs through voluntary private generosity, rather than relying solely on taxpayer-funded programs. The tax deduction for charitable contributions recognizes the importance of this tradition, and the charitable IRA rollover extends this favorable tax treatment to retirement savings.”
Additionally, Rep. Diane Black (R-TN) said the IRA Charitable Rollover “is one of those cherished traditions we don’t see anywhere else in the world and I would think that [Congress] would want to continue this.”
Steady outreach by representatives in our sector to educate Members about the unique nature of private giving incentives is clearly resonating.
The House and Senate are on a break this week so we thought this might be a good time to take a breath and run through some of the buzzwords and catch phrases on tax reform that might affect the charitable sector. Only a few policy makers will say “we should limit charitable giving incentives. But that does not mean the outcome of what many policy makers are proposing will do just that.
General phrases like this that should catch your attention include:...(keep reading)
Relatedly, Diana Aviv, president of Independent Sector, discussed their principles to guide policymakers in developing spending and tax policies that “will not exacerbate income inequality or increase poverty” as they undertake deficit reduction.
State/Local
Massachusetts: Legislators have filed a budget amendment (407) limiting salaries for executive positions of nonprofits receiving government funds based on the organization’s annual budget size. The Boston Herald’s Editorial Board is critical of this measure for –among other things– not addressing the mismanagement issues among organizations that sparked the legislation.
Providence, RI: After months of negotiations Brown University has agreed to pay the city of Providence over $30 million in lieu of property taxes (on top of current voluntary remittances and taxes on some of its properties). Also see: Providence Debt Cut as Brown Agrees to Higher Payments, BloombergBusinessweek
Comings & Goings
Council on Foundations: Kevin K. Murphy, president of Berks County Community Foundation, was elected chairman of the Council on Foundations board of directors, at the organization’s annual conference in Los Angeles.
This Caught Our Eye…
Governance: According to the head of the IRS Exempt Organizations division, there is a direct relationship between organizations following good governance practices and their compliance with the tax code. This is confirmed by a recent IRS study analyzing governance data from Form 990s of more than 1,300 charities. Also see: Comments by Lois Lerner (Director of the IRS Exempt Organizations Division).
Annual Conference: The Council on Foundations convened over 1,300 foundations for its annual conference in Los Angeles. Speakers and attendees blogged about sessions including:
We Need New Theories About Philanthropy examines the philanthropic response to Los Angeles after the ’92 riots, New Orleans post Katrina, and Detroit to reveal what philanthropy does and does well in the absence or failure of other sectors.
For more perspectives from the conference visit: COF Interact (blog)
Silicon Valley Giving Pledge: Partners from the venture capital firm Andreessen Horowitz have pledged to donate half of their income to philanthropic causes in their lifetimes beginning with an immediate $1 million gift to six Silicon Valley nonprofits. Also see: Andreessen Horowitz Partners Pledge Income to Charity, Reuters
Donor Advised Funds: In an interview with heads of two of the nation’s largest donor advised funds (Schwab Charitable and the National Philanthropic Trust) Rick Cohen finds that DAFs can be tools for “democratizing philanthropy.”
L3C’s: The Charlotte Postexamines how low-profit limited liability corporations (L3C’s) work and can be used by foundations to advance their philanthropic goals.
Nonprofit Overhead: In an LA Timesop-ed, Jack Shakely, president emeritus of the California Community Foundation, is critical of using administrative costs to assess nonprofit performance, arguing that low admin costs “could indicate prudence and sound judgment at a charity, but they could just as easily indicate inadequate staffing, insufficient salaries or, shall we say, fudging.”
Lobbying and Advocacy: The Chronicle of Philanthropyreports on the complicated rules for nonprofits engaged in lobbying and advocacy, using the American Legislative Exchange Council (ALEC) as a case study.
American Generosity: A Voice of America article highlights that the tradition of generosity has deep roots in U.S. culture. Salvation Army Major George Hood explains charities and community projects provide like-minded people with a chance to connect and build personal bonds.
Looking for ARCHIVES of this newsletter? Click here.
The House and Senate are on a break this week so we thought this might be a good time to take a breath and run through some of the buzzwords and catch phrases on tax reform that might affect the charitable sector. Only a few policy makers will say “we should limit charitable giving incentives.” But that does not mean the outcome of what many policy makers are proposing will do just that.
General phrases like this should catch your attention include:
“Limit tax breaks for upper income earners”:
These proposals limit the tax credits and deductions taken by those earning more than $250,000 a year (generally). One of the most common deductions for this group is the charitable deduction, so absent a clear carve-out, such a proposal would cut, cap or remove the charitable deduction.
“Eliminating tax expenditures”:
What some call spending through the tax code, others call incentives designed to promote a program or behavior. Technically, a tax expenditure is revenue lost due to a special exclusion, exemption, or deduction from gross income or provision of a special credit, preferential tax rate, or deferral of tax payment. Revenue counters say charitable giving incentives could fall into this category, although we believe charitable giving incentives are different.
“Pay a fair share”:
This term is best represented by the so-called “Buffett Rule,” which would create a minimum tax rate of thirty percent for those whose income exceeds $1 million a year. At present both the House and Senate Buffett Rule bills exempt charitable gifts but this could obviously change. Other measures that have been proposed that target upper income earners do curb charitable giving incentives.
These are just a few of the words and phrases to be looking out for as fundamental tax reform looms on the horizon. While we are unlikely to hear very many policymakers go after charitable giving incentives directly, those incentives could be lumped into broader measures like those above if we aren’t vigilant.
Last month, as part of the Summit for Leaders we organized a stellar team of more than 40 foundation and nonprofit leaders for our ACR Fly in/Speak Out. They fanned out across Capitol Hill to meet with 40 Congressional offices that are deeply involved in tax and philanthropic issues.
Now for the good news/bad news. By our reckoning, a good time was had by all and our message about preserving the charitable deduction, both now and when we get to tax reform, was warmly received. The bad news is that for those most in the know on Capitol Hill there were no assurances that charitable giving will be protected in the context of tax reform. Indeed, we heard on multiple occasions that when it comes to tax reform, “everything is on the table.”
Should that give us pause? Certainly. But it should also serve as a loud wake up call. While we don’t expect the serious putting of pen to paper on tax reform until next year, we do know that there are beehives of activity in both the House and Senate on the issue. The foundation and nonprofit community should be educating and explaining to members of Congress the good philanthropic work happening in their communities. Going into tax reform, we want Congress to make preserving and even enhancing charitable giving a priority. Hearing your stories will help make that happen.
The ACR blog (http://www.acreform.com/blog) highlights our thoughts on news of the day. For regular updates from our blog, follow us @acrefom on Twitter.
Here is a roundup of the ACR blog since the last newsletter edition:
Outrage Continues in the U.K. on Proposal to Curb Giving Incentives
Extensive media coverage in the U.K. on a proposal to sharply reduce charitable giving incentives continues. From philanthropists being labeled “tax dodgers” to fear among arts organizations, get the latest in one bundle.
Tax Policy Experts Debate Tax Policy, Charitable Deduction
Economist Douglas Holtz-Eakin, Donald Marron and others gathered in Washington D.C. for an interesting panel on the challenges ahead with tax reform. Read what they had to say about the charitable deduction and incentives to give.
It has been a busy few weeks on the Hill. Here are some updates important to philanthropy.
Buffett Rule - On Monday night (April 16th), the Senate rejected S. 2230, aka the “Buffett Rule,” by a vote of 51-45 (60 votes were required). Senator Susan Collins (R-ME) was the only Republican to support the bill, and Senator Mark Pryor (D-AR) was the only Democrat to oppose it. The “Buffett Rule” would impose upon taxpayers with annual reported taxable incomes of more than $1 million an “effective tax rate” of at least 30%. Republicans seized the opportunity to speak out against the bill, and Senator Hatch (R-UT), a longtime champion of the nonprofit sector, issued a statement that denounced the Buffett Rule as a bill that would “undermine charitable giving” due to higher taxes on the largest subset of donors
The vote also kicked off a two-week discussion on taxes, specifically timed to coincide with Tax Day, April 17th. In the House, the Ways and Means Committee held a hearing on tax reform and retirement savings plans in which the panelists (consisting of tax practitioners and academics) agreed that any changes to the tax treatment of retirement plans would be ill-advised and could destabilize retirement savings across the board. A hearing on annually expiring tax provisions, known as “extenders,” has been scheduled for April 26th. The IRA Charitable Rollover is one of these “extenders” and it expired at the end of last year. Therefore, we see this as a good opportunity to talk about this provision, and charitable giving as a whole. This hearing will be different than others in the past, since oral testimony will be limited to Members of the House who, as of April 25, 2012, have either introduced or co-sponsored legislation related to tax extenders during the 112th Congress. H.R. 2502 is a bill that would extend the IRA Charitable Rollover and we have begun working with the bill’s co-sponsors on the possibility of testifying.
Also this week, the Senate Budget Committee held a markup on a FY2013 budget resolution, although no votes were taken. The markup was called by Committee Chairman Kent Conrad (D-ND) as a way to discuss the merits of the Simpson-Bowles plan which the House voted on before Easter recess (it failed 382-38). As you may recall, that plan called for a 12% non-refundable tax credit for the charitable deduction while removing most other tax expenditures. Senators on both sides of the aisle focused less on the tax issues at stake, and chose to voice their frustration over the lack of Senate action on a budget for two years primarily due to political wrangling. Majority Leader Harry Reid (D-NV) maintains that a budget is not needed given the Budget Control Act that was passed when the Super Committee failed to produce a deficit reduction deal last November. Senator Conrad lamented that it was “just reality that any real deficit work by his committee will likely be put off until after November,” alluding to a likely and very busy lame-duck session of Congress.
Toomey Tax Plan -
On Wednesday afternoon, Senator Pat Toomey (R-PA) unveiled his FY2013 budget proposal that, like the other proposals we’ve seen this year, lacks specifics. However he does offer a roadmap on several issues including a call for eliminating or reducing the value of various tax provisions, especially for those benefitting high income earners which could include the charitable deduction. He offers examples of reforms including the approach advocated by Martin Feldstein, former chairman of the Council of Economic Advisers from 1982 to 1984 under President Ronald Reagan. Feldstein suggested capping the value of itemized deductions at 2% of adjusted gross income (AGI), while leaving open the possibility of keeping some of these deductions, whole, specifically the charitable deduction.
This plan is not expected to pass but it remains a significant indicator of what tax reform proposals may look like.
Sharing Your Message on the Hill Last month, as part of the Summit for Leaders we organized a stellar team of more than 40 foundation and nonprofit leaders for our ACR Fly in/Speak Out. They fanned out across Capitol Hill to meet with 40 Congressional offices that are deeply involved in tax and philanthropic issues.
Now for the good news/bad news. By our reckoning, a good time was had by all and our message about preserving the charitable deduction, both now and when we get to tax reform, was warmly received. The bad news is that for those most in the know on Capitol Hill there were no assurances that charitable giving will be protected in the context of tax reform. Indeed, we heard on multiple occasions that when it comes to tax reform, “everything is on the table.”...(keep reading)
Here are recent headlines you may find interesting:
Federal
Program-Related Investments: BNA reports that a proposed rule (REG-144267-11) would broaden the range of investments that would qualify as “program-related investments” and not trigger excise tax. Comments and requests for public hearing are due by July 18.
State/Local
Illinois: Continuing on the trend of increased scrutiny on nonprofit organizations that receive public funding, state Senator Martin Sandoval (D-Cicero) has proposed that such nonprofits be subject to Illinois’s Freedom of Information Act (FOIA). The bill (S.B. 3773) is currently under revision.
Michigan: Tax Day has sparked political sparring over the state’s tax overhaul from last year, and some Democratic lawmakers are advocating for the restoration of dozens of credits and deductions eliminated as part of the overhaul, including some that benefitted charities.
Emerging Trends
This new section will feature trends we are seeing across the charitable sector that we find interesting. Grassroots: Groupon has launched Grassroots, a fully-integrated fundraising and volunteering service which features nonprofit causes and the impact of their campaigns, as a new service on its website.
This Caught Our Eye…
Taxmageddon: Tax Day may look very different next year. As we’ve reported, a number of tax provisions are set to expire at the end of 2012 and dramatic federal spending cuts will kick in on January 1, 2013 leading to what the is being called Taxmageddon. Also see: More Uncertainty for 2013, Wall Street Journal and America Still Has Time to Fix ‘Taxmageddon’ Before It Hits, Desert News
Philanthropy and Democracy: Gara LaMarche, senior fellow at New York University and former president of Atlantic Philanthropies, passionately argues for the role foundations and nonprofits should play in restoring American democracy.
Outcome-Oriented Philanthropy: In the Spring edition of Stanford Social Innovation Review, Paul Brest, president of the William and Flora Hewlett Foundation, assesses the performance of “outcome-oriented” or “strategic” philanthropy. He argues that despite innovations, new ideas, and improved practices in grantmaking, philanthropy is still underperforming in achieving social outcomes.
Giving Pledge Update: An additional twelve billionaires have signed onto the Giving Pledge, bringing the total number of signatories to 81. Pledge signers vow to give at least half of their fortune away during their lifetime or at death.
Journalism: Kevin Murphy, President of Berks County Community Foundation and Vice Board Chair at the Council on Foundations, cites the demise of local news outlets in favor of on-demand, nationally-focused sources. He suggests, “as foundations realize the profound impact of losing the communications vehicles that tie our society together, they’re going to recognize the imperative of supporting journalism in their field or community.”
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‘IRS Rules Would Allow Private Foundations To Make Range of Charitable Investments’
BNA, April 19, 2012
Exempt Organizations
IRS Rules Would Allow Private Foundations To Make Range of Charitable Investments
BNA Snapshot
Reproduced with permission from Daily Tax Report,
75 DTR G-4 (Apr. 19, 2012). Copyright 2012 by
The Bureau of National Affairs, Inc.
(800-372-1033)
Key Development: Proposed rules (REG-144267-11) would allow private foundations to participate in more types of program-related investments without triggering excise tax. Potential Impact: Rules offer series of new examples that would allow investments to qualify as PRIs for wide variety of charitable purposes. Next Steps: Comments, requests for public hearing due by July 18.
Private foundations will be able to participate in a broader range of investments that qualify as program-related investments without triggering an excise tax under rules (REG-144267-11) proposed by the Internal Revenue Service April 18.
The rules provide a series of examples illustrating that a program-related investment can accomplish a variety of charitable purposes, such as advancing science, combating environmental deterioration, and promoting the arts, IRS said.
Under tax code Section 4944, investments may trigger an excise tax if they jeopardize the private foundation’s ability to carry out its exempt purposes. The proposed rules provide that a variety of investments would not be considered as creating such jeopardy.
For example, IRS said, the guidance demonstrates that an investment that funds activities in one or more foreign countries, including alleviating the impact of a natural disaster or funding educational programs for the poor, can further charitable purposes and qualify as a PRI, IRS said.
Example Addresses High Rate of Return
In the preamble to the rules, IRS said one example illustrates that even if an investment has a high potential rate of return, that would not by itself prevent the investment from qualifying as a PRI
Another example demonstrates that even if a private foundation accepts an equity position in conjunction with making a loan, this does not necessarily prevent the investment from qualifying as a PRI, the agency said.
Two examples illustrate that an investment can qualify as a PRI when a private foundation provides credit enhancement, according to IRS.
The agency said one example in the rules provides that a guarantee arrangement may qualify as a PRI. However, IRS said, the proposed rules only address the impact of Section 4944 on the facts described in the example.
Qualifying Distributions Discussed
The guidance does not address whether there is a qualifying distribution under Section 4942, the preamble said. However, based on the facts described in the example, the government said it believes there would be no such distribution at the time the foundation enters into the guarantee arrangement.
“Under certain circumstances, a private foundation may treat payments made under a guarantee arrangement as qualifying distributions,” the preamble said.
Finally, IRS said, the proposed rules contain examples showing that loans and capital may be provided to individuals or entities that are not within a charitable class themselves. This is the case if the recipients are the instruments through which the private foundation accomplishes its exempt activities.
In an expected move, the Senate voted down the Buffett Rule today by a vote of 51 to 45. 60 votes were needed. The Buffett Rule levy’s a minimum tax of 30% on higher-income earners and, for purposes of this tax, eliminates all credits and deductions except for the charitable deduction. By singling out the charitable deduction, supporters of the bill acknowledge that the charitable deduction is different from all other deductions and credits because it is the only incentive designed to encourage Americans to give away their money. However, ACR believes that entrepreneurship and wealth-creation is vital to sustaining charitable giving. A minimum tax levied on high-income earners ultimately leaves them with less to give and it is these Americans that, study after study has shown, give the most. ACR looks forward to many further conversations with decision makers in the coming months about how we can encourage private giving, not reverse it.
We’re delivering the ACR newsletter one day early before the holiday weekend.
New Feature - ACR Blog Roundup
ACR has launched a blog (http://www.acreform.com/blog) to highlight some of the interesting news and developments that come to our attention. Please visit the blog regularly for our thoughts on news of the day.
Here is a roundup of the ACR blog since the last newsletter edition:
Protecting Donor Intent—An Exchange with the Ford Foundation - The Philanthropy Roundtable’s president, Adam Meyerson, continues his discussion of the importance of donor intent, including s an exchange via the Wall Street Journal with Marta Tellado of the Ford Foundation.
Tax Reform Is Really Hard - In Slate Matthew Yglesias discusses the difficulty of tax reform in the current political climate. He highlights the charitable deduction as a perfect example. Our take on his article is here.
Celebrity Philanthropy Not as Easy These Days - Naomi Schaefer Riley writes in Philanthropy Daily about the issues involved with celebrities and the super wealthy in philanthropy. She highlights and we comment on some interesting points about major philanthropists being aggressive about results.
Congress is on a two-week recess for Easter and will not return until April 16th. Here is an update from Capitol Hill:
Before Leaving for Recess - Before leaving for the Easter recess last week, the House of Representatives passed a 90-day transportation funding extension, after failing to find consensus on a longer-term bill. The Senate, which passed a two-year transportation bill on March 14th by a vote of 74-22, passed the 90-day stopgap measure after Senators from both sides of the aisle chastised the House for not adopting their bill. Congress has 90 days to adopt a long term deal or agree to another stopgap, the latter of which seems more likely to many observers. In addition to heightened partisan differences, the House is in session for only 31 legislative days over the next 3 months; the Senate is in for 45.
Also before leaving town, the House held votes on six different budget proposals, ranging from those sponsored by the more liberal Congressional Black Caucus to the conservative Republican Study Committee. Of note was that the House passed the budget proposal spearheaded by Budget Committee Chairman Paul Ryan (R-WI) on party line, 228-191. The chamber also voted on a plan modeled on the Simpson-Bowles Commission, which failed 38-382, and Obama’s budget, which failed 0-414. The Senate is not expected to take up a budget this year, and Congress will likely continue to pass short-term continuing resolutions to keep the government up and running through the end of the year.
Tax Work - On Thursday, March 29th, Senate Majority Leader Harry Reid filed a motion to vote on opening debate for the Paying a Fair Share Act (S. 2230) for April 16th. This is essentially a vote on the so-called “Buffett Rule,” as contained in the bill sponsored by Sen. Sheldon Whitehouse (D-RI). As you may know, S. 2230 includes a modified charitable giving incentive, that is, it maintains some of the current deduction for charitable gifts. There is still a gray-area for how this “carve-out” would work with respect to the Pease limitations set to kick in at the end of this year. PEP, or the personal exemption phase-out, rescinds the benefit of the standard personal exemption from taxpayers who earn over a certain amount. Pease is a similar phase-out, but is instead for those who itemize their taxes and earn over a certain amount, and it applies to most of the deductions a taxpayer claims. We are continuing to get clarity around this specific issue. For this bill to move forward, sixty votes are required to start floor debate, and we do not expect the Senate to reach that threshold. However, this marks the first of what we anticipate will be many votes on the “Buffett Rule.”
The House Ways and Means Subcommittee on Select Revenue Measures, chaired by Rep. Patrick Tiberi (R-OH), will hold a hearing in late April to examine the litany of annually expiring tax extenders, including the IRA Charitable Rollover. This hearing continues the series on tax reform topics that have been discussed over the past year. Both Rep. Tiberi and Ways and Means Committee Chairman Dave Camp (R-MI) said in a joint-statement, “Far too many provisions in the tax code are temporary, making it hard for employers to plan, invest and create new jobs for American families. That is one reason why we are committed to comprehensive tax reform.” This hearing will focus on expiring provisions for individuals, and therefore we view this as an opportunity to remind lawmakers about the important role of private giving. We will keep you updated on the progress of this hearing as it takes shape.
Consider This…
Congressional Outlook Post Easter Recess Mercifully for those of us who live and work in Washington, D.C., both the House and Senate have decamped for a two-week break back in their home states.
So what do we expect when they return? Something on the order of “let the political games begin!” Absent a major ‘kumbaya’ moment –which gets further out of reach as each day passes and we get closer to election day on November 6th– Washington is going to resemble the “Hunger Games” without the bows and arrows....(keep reading)
Making Headlines
Here are recent headlines you may find interesting:
Charitable Deduction
News: Slate’s Moneybox blog provides an overview of the top ten tax expenditures in the federal tax code including the charitable deduction.
Opinion:
Joanne Florino, executive director of Triad Foundation, Inc., opines in the Ithaca Journal about the importance of preserving the charitable deduction at its current level in response to the President’s proposal.
The Senior Vice President of the AARP Foundation defends the charitable deduction arguing that there will be an impact on giving if the charitable deduction is capped or eliminated and notes the deduction rewards people for doing a good thing.
For full digest of articles and opinion on this incentive for giving visit Charitable Deduction Central on ACR website.
Federal
Tax Extenders: Diana Aviv, president of Independent Sector, discusses important charitable giving incentives included in the tax extenders debate and describes the challenges for passing these line-items in the near future.
Nonprofit Tax Exemptions: In the Des Moines Register the Editorial Board criticizes the nonprofit sector and argues that Congress should set clear community benefit standards for nonprofits as well as adequately fund and authorize the IRS to monitor the sector.
State/Local
Philadelphia: A Philadelphia Enquirerop-ed criticizes area nonprofits for consuming municipal services while paying little or nothing to the city in PILOTs.
Providence: In a follow-up to previous reporting on legislative efforts to impose fees on tax-exempt institutions, Providence Mayor Angel Taveras recently indicated that tax-exempt hospitals may avoid paying such fees if they step in to provide some services to residents that the city currently offers.
Comings and Goings (Nonprofit Leadership)
Council on Foundations: Vikki Spruill has been named the new president and CEO of the Council on Foundations. Spruill, who is currently the president and CEO of Ocean Conservancy, will start July 1, 2012. Also See: Council on Foundations Names Ocean-Conservancy Head as New Leader, Chronicle of Philanthropy
William and Flora Hewlett Foundation: The Hewlett Foundation announced that Larry Kramer, dean of Stanford Law School, will succeed Paul Brest as president beginning in September. Also see: Hewlett Picks Another Stanford Law Dean as New President, Chronicle of Philanthropy
Corporation for National Service: Wendy Spencer, the President’s nominee to head the national service agency, was approved by the Senate. Spencer, a longtime advocate of volunteerism, replaces Patrick Corvington who stepped down from the post nearly one year ago.
This Caught Our Eye…
Philanthropic Approaches: Rebecca Rimel, President of the Pew Charitable Trusts, discusses that “philanthropy is not an either or proposition;” it can both address the root causes of societal problems while at the same time address the symptoms. She posits that both approaches “have merit and more often than not reflect donor intent.”
Celebrity & Strategic Philanthropy: Naomi Schaeffer Riley opines on two recent articles targeting the philanthropic efforts of donors who have public prominence.
Nonprofit Organizations: The Internal Revenue Service reports the continuation of a small but steady decline in the number of new applications for 501(c)(3) classification.
UK Charitable Giving Incentives: Although tax law in the United Kingdom is not the same as tax law in the United States, there is an interesting debate occurring in the UK about charitable giving incentives. Read the latest and our thoughts on this issue here.
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Mercifully for those of us who live and work in Washington, D.C., both the House and Senate have decamped for a two-week break back in their home states.
So what do we expect when they return? Something on the order of “let the political games begin!” Absent a major ‘kumbaya’ moment –which gets further out of reach as each day passes and we get closer to election day on November 6th– Washington is going to resemble the “Hunger Games” without the bows and arrows.
When the Senate returns there will be a vote on the “Buffett Rule,” legislation designed to ensure that millionaires pay higher taxes. The good news is that as we have previously reported, the Buffett Rule maintains a charitable giving incentive (but even this seems to have limitations). The bad news is that with the possible exception of passing a highway bill and a few other items, we expect the next seven months in Washington to be all political gamesmanship, all the time.
We will keep you posted on developments and what they might mean for the lame duck session in the fall and beyond.
We will return to a fully-detailed legislative update in our next newsletter, but here is a quick recap of the last two weeks:
After returning from a one-week recess, news from the House of Representatives was dominated by the release of the Republican’s FY2013 budget on Tuesday, March 20th by Budget Committee Chairman Paul Ryan (R-WI). Chairman Ryan proposes two individual rates, 10% and 25%, and called for the elimination of many “loopholes and deductions” as a way to pay for lowering rates so dramatically, but did not provide any specifics including what may happen to the charitable deduction. Interestingly, we understand that Ways and Means Committee Chairman Dave Camp (R-MI) and his staff contributed to the tax portion of the budget, so while Chairman Camp has not yet released his tax reform plan for individuals, this could be a hint of what’s to come. We are continuing to gather information about these proposals and will be sure to keep you up to date.
After its release, Democrats were critical of the budget for not levying tax increases on the wealthy, while conservative Republicans commented that it did not go far enough, fast enough. As a result, the budget was reported out of the Budget Committee by a closer than expected 19-18 vote, setting up contentious debate on the House floor next week. It is expected that this proposal will ultimately pass the House, narrowly, but is likely dead on arrival in the Democratically controlled Senate. What this means from a practical perspective is that ultimately Congress could have to consider an extension of the current year’s budget through the beginning of the next Congress.
Looking ahead to April, the House Ways and Means Committee is planning a hearing to examine the more than 60 tax extenders that expire annually, including the IRA Charitable Rollover provision. No details on the date yet, but we plan to use this as an opportunity to meet with Congressional offices to remind Members about the importance of private giving – through an IRA and otherwise.
Event Recap
ACR Summit for Leaders
ACR hosted its third annual ACR Summit for Leaders on Wednesday, March 21, in Washington DC, and it was a huge success. Over one hundred and seventy five foundation and nonprofit leaders attended and enjoyed presentations on a range of topics that included discussions on transparency, congressional staff perspectives on looming tax reform, issues to watch out for in states, and tips for building relationships with Congress and moving your issues.
The ACR Summit kicked off with a panel on transparency by Suzanne Garment, a scholar with the Center on Philanthropy at Indiana University, and Sue Santa, senior vice president for public policy at the Roundtable. Among the questions discussed: Should private charitable dollars be treated as public money, thus requiring more transparency? What kinds of information should be required by the government for disclosure and why? And what should foundations consider when engaging in voluntary transparency – the information foundations choose to share with the public? The panel featured audience polling on perceptions about transparency in the sector. Based on the results, these nonprofit sector leaders think transparency is an important topic and definitely worth further discussion. This will be a timely and interesting issue to watch. For the results of some of the poll questions, click here.
Pat Read, formerly of Independent Sector and now consultant, prepared a brief and lively discussion of the top issues that are being raised by state legislatures and administrations that impact charitable organizations including private foundations. She advised that organizations should seriously think through their position and strategic objectives. She cited several examples, such as state governments revoking property tax exemptions in places like Illinois, California, Montana and others as reasons nonprofit organizations should be vigilant and aware of policy changes that could impact them. Pat also flagged a host of other issues emerging at the state and local levels for philanthropic organizations. Read more on this session here.
Tax reform will happen. Maybe not this year, but it will happen. Our panel of senior Congressional staff gave great insight into how this year on the Hill will progress and things to look forward to as we approach likely tax reform in 2013. As one staffer said, because the conversation about tax reform is ramping up, it is incredibly important to be part of that conversation now and to continue the work that organizations like ACR - and all the Summit attendees - are doing. Based upon this conversation with the Congressional staffers, it seems that ACR’s message (and the message expressed by our colleagues who are championing the same cause) that the charitable deduction is different from other deductions because it encourages us to GIVE AWAY our money and not spend it on something for ourselves is beginning to resonate. But we understand that challenges to the deduction persist, so our collective work on this issue is not done yet.
The panel on ways in which nonprofit organizations can build relationships and move their issues was enlightening. Our experts included Evan Liddiard, former senior staffer for Senator Hatch; Cleta Mitchell, partner at Foley & Lardner and expert of lobbying law; Anna Palmer, reporter at Politico; Aaron Sherinian, VP of communications at the UN Foundation; and Sandra Swirski, executive director of ACR. Our objective was to focus on ways nonprofit organizations can move beyond the form letter when approaching their interaction with members of Congress and their staff, both in Washington, D.C., and in the home state or district. Each of these panelists brought unique perspectives from their areas of expertise. One message reinforced by all panelists was the need for the nonprofit sector to join together on certain issues as a way to amplify our voices in Washington. As readers of our newsletter know, ACR and our colleagues in the field, including both grantmaking organizations and charities, participate in a coalition to protect the charitable deduction. The coalition members have a wide variety of missions and interests but we’ve come together on this very important issue. Read what each panelist had to say here.
Following the Summit, attendees were treated to an interesting and timely lunch presentation on the 2012 election by Washington Political analyst, Stuart Rothenberg.
Thank you to all of those who participated in the ACR Summit for Leaders and Foundations on the Hill. Your presence Washington is a critical part of our collective effort as a sector to educate decision makers about the importance of philanthropic freedom, the value of private giving, and the significant role philanthropy plays in every district in this country. As Adam Meyerson, president of The Philanthropy Roundtable noted in his remarks during lunch “…philanthropy and charitable giving are central to American life, and public policy should encourage, not discourage, charitable giving. We agree that it is essential to protect the charitable deduction, which is so crucially important for the future of communities all across America. And we agree that it’s essential for philanthropists to tell our story to elected officials.”
The ACR Summit for Leaders was held in conjunction with Foundations on the Hill (FOTH), hosted by the Council on Foundations and the Forum of Regional Associations of Grantmakers. Visit www.foundationsonthehill.org for more information.
In the News: For an interesting perspective on why lobbying days such as the ACR Fly In/Speak Out and Foundations on the Hill are important, read yesterday’s Huffington Post op-ed by Kevin Murphy, President of Berks County Community Foundation and Council on Foundations Board Vice Chair.
ACR Fly In/Speak Out
Our Fly In/Speak Out event on Wednesday afternoon was a great success. More than 40 foundation and non-profit leaders met with 40 congressional offices, including Senate Finance, House Ways and Means and Philanthropy Caucus staff. And we did all this in three and a half hours. During our meetings we underscored the need to preserve charitable giving incentives both in the current tax code and as we consider options for future tax reform. The afternoon provided a great opportunity to strengthen our existing relationships with Hill staffers as well as identify potential new allies.
Our message about the charitable deduction was well-received and the feedback was generally consistent. We hope that our efforts and those of all of the individuals and organizations that have been contacting Members of Congress on this important issue will result in the outcome of prior years – that Congress rejects the Administration’s efforts to limit the itemized deduction. But this is just our short-term challenge. As Members of Congress and their staff confirmed during many of our meetings, when they take on tax reform everything will go on the table, including charitable giving incentives.
