Washington Snapshot - June 19, 2015
Leaders in the Field Speak Out
Philanthropic Sector Unites to Challenge Skeptic
The Council and other sector leaders have been responding to a New York Times opinion piece written by David Callahan, who offers some misguided views of the charitable sector. In a response published by the New York Times last week, the Council addressed the misperceptions and inaccuracies in Callahan’s argument, particularly around accountability and regulation.
This week, The Philanthropy Roundtable challenges Callahan’s “dangerous ideas” and dispels his claims one-by-one. In a letter, the Philanthropy Roundtable’s President Adam Meyerson calls our attention to Senior Vice President for Public Policy, Joanne Florino’s defense of endowed philanthropy: “Many family foundations are intentionally preparing the next generation to address as-yet-unknown challenges.”
Florino also echoes the Council’s response to Callahan, making the point that regulation of the charitable sector will only create a politicized hierarchy of charitable causes.
We Need to Act Now
This week, Steve Taylor, Senior Vice President and Counsel for Public Policy at United Way Worldwide, penned an important commentary in Roll Call. Taylor’s piece, “Charities Must Act Now to Mitigate Misguided Oversight,” accurately warns about the appeal of highlighting bad charitable actors and encourages charities and foundations to do a better job of showcasing the fact that the vast majority of organizations perform good work.
Taylor points out that the coverage around the Clinton Foundation, the scam charities focused on supposed cancer research, and the frequent confusion of 501(c)(3)s with political nonprofits is damaging for the sector and could lead to significant policy changes.
How do we counteract this portrayal? Taylor calls upon charitable organizations to give lawmakers a chance to see our work in action. He says: “Food pantries should invite their Members of Congress to meals served by volunteers. Museum directors should invite state legislators to attend after school arts programs for low-income children. Community foundations or local United Way CEOs should invite U.S. Senators to meet with their boards to see how committed these leaders are to their communities.”
News from the Hill
New Senate Bill Pushes for E-Filing for 990s
On Tuesday, Senators Charles Grassley (R-IA) and John Thune (R-SD) introduced The Taxpayer Bill of Rights Enhancement Act (S. 1578) that would require all exempt organizations to electronically file their annual Form 990 returns. Mandatory 990 e-filing has gained momentum, with proposals put forth by former House Ways and Means Chairman Dave Camp and the Obama Administration. Our colleagues with the Aspen Institute’s Program on Philanthropy and Social Innovation have been leaders on this issue through The Nonprofit Data Project.
Advisory Committee to IRS Makes Recommendations
Also this week, the Advisory Committee on Tax Exempt and Government Entities (ACT) released recommendations to the IRS on the revisions to the Form 990 , including:
- Encourage and support a Congressional mandate to require electronic filing of the Form 990.
- Convene a task force to determine which parts and schedules of the current Form and related instructions should be updated, enhanced, and/or deleted.
- Include additional requests for information on the Form 990-N filers to buttress the data received from 1023-EZ applicants.
The Chronicle of Philanthropy cited Commissioner John Koskinen’s response to the recommendations, noting he would consider the recommendations but that the IRS would “play the hand [they’d] been dealt” referencing their budget constraints.
Happening Around the Globe
Your Input Needed: Regulatory Challenges to Global Grantmaking
This Fall, the Financial Action Task Force (FATF), an international body that sets standards for anti-terrorist financing and anti-money laundering laws, will begin evaluating the U.S. government’s compliance with these standards, including those relevant to charitable organizations.
A group of U.S.-based charitable organizations are preparing information for FATF. We are addressing how organizations navigate U.S. counterterrorism laws that impact grantmaking and charitable operations, both domestically and abroad. This information will help FATF evaluators assess U.S. laws and regulations through the lens of charitable organizations. It will also increase FATF's awareness of the challenges our organizations face in working with these counterterrorism measures.
Please take a few minutes to help us collect data that is important to U.S. charitable organizations. Please complete this very brief survey by Wednesday, June 24.
Happening in the States
Forward and Backward Movement on Nonprofit Tax Provisions
Exclusive from our Colleagues at the National Council of Nonprofits
It has gone from trend to truism: when states have budget troubles or consider comprehensive tax reform, nonprofit tax exemptions and charitable giving incentives can get thrown on the bargaining table.
Previous editions of Snapshot have discussed Vermont’s numerous options to close a budget hole, including capping itemized deductions, converting giving incentives to a tax credit, and limiting deductions only for state-based nonprofits, but ultimately chose other revenue raisers.
Last week in Delaware, a group of legislators – working to close a projected revenue shortfall of $60 million – offered a tax package that, among other things, would phase out itemized deductions, including charitable donations, beginning at adjusted gross income of $160,000 and eliminating all itemized deductions above $250,000 in AGI. Fortunately, a new positive revenue estimate appears to have reduced both the projected deficit and the interest in that bill.
In Maine, legislators passed a budget plan that once again reinserts charitable deductions under an existing cap on itemized deductions that had been carved out last year.
As reported previously, the North Carolina Senate budget and tax reform plan would add charitable donations to an existing cap on itemized deductions and limit how much the state reimburses nonprofits for the sales taxes they pay. In an extremely unusual move, but one that indicates the quality of nonprofit advocacy in the state, North Carolina House Republicans participated in a news conference hosted by the North Carolina Center for Nonprofits this week in order to criticize these Senate Republican proposals. The chairman of the House Rules Committee said, “When you tax charitable nonprofits, you are increasing their burden by causing them to raise more money to offset the cost of providing programs … that they often do more efficiently than government.” Another legislator agreed, stating, “Higher taxes on nonprofits take us in the wrong direction by raising costs for consumers and discouraging new investment in our state.” He concluded, “our state’s charities deserve better than a new double-tax.”
Executive & Regulatory News
Treasury Announces New Rules for Impact Investing
The Treasury Department this week committed to take two actions this summer to help foundations navigate impact investing.
The first action relates to mission-related investments (MRIs), investments made from a foundation’s endowment with a goal of earning a financial return while still supporting the organization’s mission. According to a White House statement, “Treasury plans to publish new guidance to clarify that foundations are permitted to make certain ‘mission-related’ investments… consistent with both the foundation’s charitable purpose and fiduciary duties.”
The Council on Foundations has raised this issue with Treasury in the past, both in written comments and discussions. The new guidance will hopefully address concerns raised by foundations looking to make investments in mission-aligned for-profit companies that may be riskier than typical market-rate investments.
The second announced action relates to program-related investments (PRIs), which are made primarily to advance a foundation’s charitable purpose. Though these types of investments can and do see financial returns, the primary motivation of a PRI is charitable. Treasury announced that it “plans to finalize rules establishing new examples of permissible PRIs, including examples demonstrating various types of investments in for-profit companies to combat environmental deterioration.”
Trending in Legal Affairs
Deduction Junction, What's Your Function
In 1917, the first charitable income tax deduction was enacted as part of a bill that raised federal tax rates to help finance WWI. The legislative history of the bill reveals Congress’s belief that increasing tax rates would chill charitable giving, thus the need for the charitable deduction.
Section 170 of the Internal Revenue Code allows an income tax deduction for contributions to corporations or associations “organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes . . . .” Simply put, this means organizations recognized by the IRS as § 501(c)(3) public charities.
Recently, the IRS sought to clarify the deductibility of charitable contributions to fundraisers on Kickstarter-like websites, because these methods of fundraising are widely used today by organizations and individuals alike.
The IRS clarified that a tax deduction may be available for certain contributions to personal fundraising websites like Gofundme.com. On June 16, an IRS official announced that donors to charities that fundraise through these websites could claim a deduction on their contribution, provided the donation is to a § 501(c)(3) organization that has discretion as to how to use the donation, and it is not earmarked toward a particular individual or family.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.
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.
Philanthropy News and Op-Eds
White Paper Highlights Further Policy Opportunities on Impact Investing
The Accelerating Impact Investing Initiative (AI3) released a new report, -“Financing Social Innovation: Analyzing Domestic Impact Investing Policy in the United States.” It summarizes previous findings of the group and highlights the potential impact of two key policies: Employee Retirement Income Security Act of 1974 (ERISA) reform and support for Social Impact Bonds (SIBs).
ERISA governs how private, employer-sponsored pension plans may invest their funds. New ERISA guidance from the Department of Labor could permit these funds to make investments based on criteria such as social impact, which could lead to a significant expansion of the impact investing marketplace. On Social Impact Bonds, the report calls for a federal fund and oversight committee, similar to that proposed by members of Congress in both the House and Senate in the past. An oversight committee would help to facilitate collaboration between federal, state, and local agencies to make new SIBs more feasible.
AI3 is a partnership between Enterprise Community Partners, the Initiative for Responsible Investment, and InSight at Pacific Community Ventures. AI3 is supported by the Ford Foundation and the Surdna Foundation.
Urban Institute Donor Advised Funds Event
On June 16th, the Council on Foundations participated in the Urban Institute’s Tax Policy and Charities Initiative conference, “Donor Advised Funds: How Have They Changed Philanthropy?” The discussion centered on understanding DAFs in practice, both the existing and proposed policies affecting them, and the research needed to better understand their impact on charitable giving.
Sue Santa, the Council’s Senior Vice President for Public Policy and Legal Affairs, spoke about the need to provide lawmakers with quality data that demonstrates the value of philanthropy in communities. “Members of Congress need to appreciate philanthropy in community and how it advances them in their mission to protect and support their community.” You can read more about the event in a write up from The Chronicle of Philanthropy.
Giving USA 2015 Report Released
According to the 2015 Giving USA Report charitable giving rose 5.4 percent last year, reaching a total of $358.4 billion. Foundation giving represented 15% of total giving, with estimates putting it at $53.97 billion. This represents an 8.2% increase in foundation giving from 2013 to 2014.
The report found that not only has the sector quickly overcome the recession, but it has also bounced back to represent 2.1% of GDP. The estimated total giving amount surpasses the previous record from 2007, making this is a milestone year for philanthropy.
Giving USA is an annual report from the Indiana University Lilly Family School of Philanthropy.
