COF Proposes Legislative Agenda for Philanthropy for 112th Congress

March 16, 2011

Legislative Agenda for Philanthropy for 112th Congress

  • Simplify the private foundation excise tax on net investment income. The COF supports simplification of the private foundation excise tax to a single flat rate. This will encourage increased giving by private foundations and alleviate administrative burdens associated with complying with the two-tiered rate.
  • Encourage the Rural Philanthropy Growth Act’s investment initiatives. “The Rural Philanthropy Growth Act of 2009” seeks investment of existing federal resources through the creation of a program within the U.S. Department of Agriculture or other appropriate federal agencies. The program provides challenge grants and capacity-building grants to support endowments that would benefit economically distressed rural counties.
  • Support the PRI Promotion Act. Federal legislation that would create a timely and consistent process for foundations to request IRS approval prior to making program-related investments (PRIs) involving low profit limited liability companies (L3Cs) and other business entities.
  • Expand and extend the IRA charitable rollover. The expansion of the IRA charitable rollover to include gifts to donor-advised funds, supporting organizations, and private foundations; gifts above $100,000; and planned gifts. We also support the reinstatement and extension of the IRA charitable rollover so it applies to the 2012 tax year and beyond.
  • Support Pension Protection Act reforms.
    • Permit scholarship programs of civic organizations and similar groups to operate as they have in the past, without being subject to rules for donor-advised funds.
    • Amend the expenditure-responsibility rules for donor-advised funds so they apply only to grants to non-charities and not to distributions.
    • Exempt funds created by public charities and governmental entities from the definition of “donor-advised fund.”
    • Permit reasonable compensation to disqualified persons of supporting organizations.
    • Eliminate the excess-business-holding rules for donor-advised funds.
    • Permit payment of donor pledges from donor-advised funds, as long as the donor receives no benefit.
  • Exempt hedge fund investment income from UBIT. The COF supports changing the tax code to equalize the application of the exception to the debt-financed income rules that would allow all tax-exempt entities to invest in hedge funds and similar investment partnerships, without being subject to unrelated business income tax (UBIT). The exception is modeled on the exception to these rules that currently exempt pension funds and universities from UBIT when they invest in debt-financed real estate. However, this exception would be available to all tax-exempt entities, including foundations.
  • Retain 5% as the appropriate “payout rate” for private foundations. Section 4942 of the tax code establishes a mandatory payout for all private foundations to ensure they make annual distributions to advance their charitable purposes. So that foundations may retain enough of their investment income to offset the long-term erosive effects of inflation, the rate was established at 5% based on long-term (40-year) average investment returns (8%) and inflation (3%). The COF opposes any arbitrary adjustments to the qualifying distribution rate that are not supported by commonly accepted data.
  • Oppose arbitrary limits on administrative expenses and compensation. The COF opposes arbitrary limits on compensation and administrative expenses. It also opposes efforts to exclude such payments from counting toward the mandatory payout for private foundations, as long as abuses are absent.

Regulatory Activities

Monitor community foundation audits. The IRS is planning about 100 audits; 22 were underway or nearly complete as of November 2010.

Global Philanthropy

  1. Seek a resolution of the excess regulations known as Treasury Guidelines that prohibit funding of terrorism, but impede proper activities by most funders and charities.
  2. Revisions to Revenue Procedure 92-94 establishing standards under which the IRS may issue private-letter rulings allowing grant makers to rely on equivalence determinations made by staff of a centralized repository. This may require legislative action in 2011, as the agencies do not feel comfortable making these changes without such support.

McGuireWoods Nonprofit & Tax-Exempt Organizations Group

Our nonprofit and tax-exempt organizations services lawyers provide advice and guidance that enable charities and other nonprofits to operate efficiently and effectively in today’s increasingly complicated, regulated and competitive environment. Contact one of the authors for further information on charitable giving for disaster relief.

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