Research Papers

The six-volume publication of the research papers is a collaborative effort by the Commission and the US. This is followed by a report from the Donee Group which criticizes some of the Commission's recommendations and offers alternatives.

SUMMARY DESCRIPTION OF RESEARCH PAPERS

Boskin (1975), who describes the efficiency of deducting charitable bequests by applying formulas to the top 7 percent of estates. An Analysis of the Federal Tax Distinctions Between Public and Private Charities, Laurens Williams and Donald V.

That corporations set as a minimum goal, to be reached no later than 1980, the giving to charitable purposes of 2
That all larger tax-exempt charitable organizations except churches and church affiliates be required to prepare and
That larger grant-making organizations be required to hold annual public meetings to discuss their programs,

Commission Recommendation 17

That the present 4 percent "audit" tax on private foundations be repealed and replaced by a fee on all
That the Internal Revenue Service continue to be the principal agency responsible for the oversight of

Commission Recommendation . ; 20

That the duplication of legal responsibility for proper expenditure of foundation grants, now imposed on both

Commission Recommendation 22

That tax-exempt organizations, particularly funding organizations, recognize an obligation to be responsive to

Time and Money 209 Relationship Between Time and Money Giving 210 Summary of Relationship Between Time and Money Giving 215. 357 Footnotes 358 Bibliography 360 A Study of Religious Income and Expenditure in the United States Interfaith Research Committee of the Commission on Privat.

VOLUME H

407 National Church-Related Institutions 410 III Report on Catholic Agencies and Parishes 411 Catholic Agencies 411 Catholic Parish Records 421 Income 422 Non-Sacramental Expenditure. 424 Contributed Services 425 International Activities 426 IV Report on Jewish Agencies and Synagogues 426 Summary of Findings 426 Activities of Affiliated Federations and Agencies 426 Synagogue Activities 430 Summary of Findings 431 Survey3 Methodology of the Day synagogues and day schools 434 Contributed Services 436 .

PHILANTHROPIC FIELDS OF INTEREST Parti

III (1975) 453

Program Grant Recipients 896 Granting Practices of Corporations 897 Philanthropic Profile of the Cleveland Metropolitan Area, Human. Public Needs 957 Role of Private Sector Agency 958 III Fiscal Review of Private Funding Organizations.

Corporations

II Arguments for and against corporate contributions 1797 arguments against — or/for narrow and limited — corporate giving 1797. 1859 Use of company foundations 1859 Effect of recent legislation 1859 IV Other corporate support 1864 Gifts in kind 18865 V Corporate services 18865 V Corporate services of Corporate Social Responsibility.

TAXES

Education 2047 Federal Policy Against Conservation of Natural Resources 2047 Traditional Private Philanthropy 2048 III Activities of Recent Concern or Controversial Nature. Public Interest Litigation 2089 Three Basic Criteria 2089 Applicable Rules 2089 Application of the Criteria 2089 Organizational Rules 2090 Operational Rules 2090 Attorney's Fees 2091 Footnotes 2093 An Analysis of the Federal Tax Distinctions, Public and Private Corporations, Donald Williams and Williams.

1975) 2099 Introduction 2099

Amendments 2260 In general 2260 Possible areas of amendment 2261 Return to fair market value standard 2261 Limitation of the deduction to costs in the. 2264 Alternatives for the donor 2265 gift of cash 2265 gift of net proceeds after a sale 2265 retention of property or proceeds of sale 2265 Other free transfers 2266 Summary 2266 Views of some tax professors 2266 The effect of the deduction 226 not a deduction 226 Pro-charity substitute for current law Tax treatment of appreciated property contributed to charity Gerard M.

Estate and Gift Taxes

The direct matching grant system would provide a more equitable system of spending federal funds for. Grant System 2453 Progressive Matching Grant Schedule 2454 Flat Matching Grant Schedule 2458 Comparison of Progressive Matching Grant and.

Property Tax

REGULATION

2978 Taxation of charitable organizations 2978 Administrative and governmental control 2978 Special rules applicable to religious groups 2979 II Canada. 2983 IV France 2984 Scope of activities of private philanthropic organizations 2984 Tax incentives 2984 Matching donation programs 2984 Funding of charities 2984 Taxation of charities 2984 Administrative and governmental control 2985 Special rules applicable to religious groups.

COMMISSION ON PRIVATE PHILANTHROPY AND PUBLIC NEEDS

COMMENTARY

ON COMMISSION RECOMMENDATIONS

BROADENING THE BASE OF PHILANTHROPY

Commission Recommendations

That to increase inducements 2 for charitable giving, 3 all taxpayers who take the standard deduction should also be permitted to deduct

Commentary

For single taxpayers, heads of households and married couples filing separately, the gross income levels will be $7,500 and $15,000, respectively. For example, if applied literally, a household with gross income of $15,000 would receive a charitable contribution deduction of 200 percent, while a household with gross income of $15,001 would receive a charitable contribution deduction of 150 percent will receive

Commission Recommendation

That income deducted for charitable giving should be excluded from any minimum tax provision
That the appreciated property allowance within the charitable deduction be basically retained 20 but amended to eliminate any
That the charitable bequest deduction be retained in its present form. 21
That corporations set as a minimum goal, to be reached no later than 1980, the giving to charitable purposes of 2 percent of pretax net

For example, the provisions of the Tax Reform Act of 197616, which include within the minimum tax base all personal itemized deductions above a certain percentage of adjusted gross income, are contrary to the Commission's recommendation as contributions to charities are treated like any other itemized deductions. It would not be contrary to the Commission's recommendation to allow the use of the surplus in subsequent fiscal years.2 6.

IMPROVING THE PHILANTHROPIC PROCESS

That all larger tax-exempt charitable organizations except churches and church affiliates be required to prepare and make readily available

Companies wishing to respond affirmatively to the Commission's recommendations could do so in an orderly manner by increasing the amount between the existing levy and 2 percent of pre-tax income in 25 percent increments annually. The Commission was alerted to the value of the inventory contribution of certain categories of companies to the non-profit sector.

Organizations Affected

In determining whether a charity's budget requires it to file a detailed annual report and make it available to the public for any tax year, the principles now used in calculating "gross receipts" in the regulations under section 603336 could be adapted by the new rule. An organization whose gross receipts do not exceed $100,000 (as determined in accordance with these principles) in the preceding year and whose average gross receipts over the last five years do not exceed $100,000 would not be required to make available its annual report.

Content of Reports

In the case of a corporation, the information required would be limited to relevant aspects of the corporation's contribution program. No provision in the Commission's recommendation requires public disclosure of the reporting organization's internal decision-making processes.

Availability of Reports

Sanctions

That larger grant-making organizations be required to hold annual, public meetings to discuss their programs, priorities, and contributions

Notice of the meeting could also be given in newspapers or other publications with a readership whose interests could be expected to place them in the organization's constituency. On the other hand, the leaders of the organization and the organization itself would be subject to penalty taxes for willful failure to hold such meetings.

That the present 4 percent "audit" tax on private foundations be repealed and replaced by a fee on all private foundations based on the

Such a fee would be applied annually, based on the Service's published determination of the actual costs of auditing private foundations for the three years preceding the year in question. Audit costs of exempt organizations other than private foundations would be borne by the government.

That the Internal Revenue Service continue to be the principal agency responsible for the oversight of tax-exempt organizations

Differences between charges levied and actual audit costs for private foundations will be corrected by adjustments in charges levied in future years. That the Internal Revenue Service is still the lead agency responsible for overseeing tax-exempt organizations.

19 (1) Statistics respecting the number of organizations for which

That the duplication of legal responsibility for proper expenditure of foundation grants, now imposed on both foundations and recipients,

Requirements for reporting the use of grant funds to donors will be retained to encourage donors to protect themselves against expenditures for purposes that, although charitable, are outside the scope of the grant. However, it does not seem appropriate to involve the Service in determining whether an admittedly charitable expenditure is consistent with a private foundation's program or purpose, particularly in light of the policy of promoting independent charitable activity by donors and donees.

That tax-exempt organizations, particularly funding organizations, recognize an obligation to be responsive to changing viewpoints and

For example, if a private foundation operates essentially in a larger metropolitan area and commits funds to various public charities in the area, its governing body should ask whether the foundation has responded (or more importantly, can be expected to respond) answers in the future). in the full range and diversity of its funding requirements. However, each potential grantee must be given reasonable assurance that the request, if submitted responsibly within the field or fields of. the foundation's concerns were actually considered carefully and seriously.

25 function with respect to grants and transactions as if it were a public

That all tax-exempt organizations be required by law to maintain

In these cases, confirmation would be required showing that the transaction in question benefits the foundation. Such rules would be accompanied by a requirement that the charity disclose the full details of the transaction to the Service in advance.

That to discourage unnecessary accumulation of income, a flat payout rate of 5 percent of principal be fixed by Congress for private

In addition, any improper benefits obtained from self-dealing transactions should be recoverable through lawsuits brought by state or federal authorities; such a rule, consistent with the policy of this section 4941 (which may impose a penalty tax on the disqualified persons and fund managers, but not on the fund itself), would be preferable to imposing a financial penalty on the organization, which would have the effect of that assets are transferred from the concerned organization to the government as the tax is paid. Finally, to assist in determining fair market values for purposes of the proposed arm's length standard, the Service may establish a program for appraiser registration or certification.65 By providing a means of establishing a value that parties can rely on with confidence, the Service would eliminate a major source of difficulty under both the proposed standard and current section 4941.

29 Although a payout rule was thought to be desirable for all charities

That a system of federal regulation be established for interstate charitable solicitations and that intrastate solicitations be more effective-

This recommendation will strengthen public confidence in the integrity of fundraising processes of nonprofit organizations and establish procedures to ensure that fundraising and administrative costs will not be excessive in amount. The recommendation calls for the federal government, the states and territories, as well as nonprofit organizations themselves, to take swift and concrete steps to assure the public that the recruiting practices of nonprofit organizations are rational and reasonable.

With Respect to Interstate Solicitation

The state attorney general could be made responsible for filing or making available copies of any Form 990 received to the local government, if required by the state. While such rules would be in line with the Commission's recommendation, there are overriding concerns independent of any specific legislative proposals.

With Respect to Intrastate Solicitation

Alternatively, unless federal preemptive laws are enacted, the responsibilities of charities seeking in multiple states should also be greatly simplified. If federal and state harmonization is achieved, uniform records (or a central location where these records can be made) would facilitate the variety and variety of records now required.

With Respect to Self-Regulation

That as a federal enforcement tool against abuses by tax-exempt organizations, and to protect these organizations themselves, sanctions

This recommendation would provide for a variety of flexible sanctions that could be imposed on non-profit organizations by administrative authorities and the courts in appropriate cases, allowing abuse without necessarily revoking the tax-exempt status of the organization. Likewise, denial of exempt status, when initially sought, results in onerous and.

35 often fatal delay to the organization seeking exemption. And the mere

That nonprofit organizations, other than foundations, be allowed the same freedoms to attempt to influence legislation as are business

Rather, legislative activities should relate to and be subordinate to the organization's exempt programs. It is recognized that real difficulties may arise in determining the circumstances in which legislative activities constitute the "main purpose" of an organization.

A PERMANENT COMMISSION

Footnotes

Fisher, "The Charitable Deduction Under Section 170 of the Internal Revenue Code which analyzes the operation of section 170 and describes its complexities. For discussions of the merits of the current charitable bequest deduction and of various alternatives to the current approach, see:

PRIVATE PHILANTHROPY: VITAL AND INNOVATIVE OR PASSIVE AND IRRELEVANT

To obtain the views, information and experience from a broad range of organizations within the donee community
To explore the public needs and organizational concerns that philanthropy is either neglecting or not meeting
To help review and critique the studies and papers already prepared for the Commisson, thereby identifying gaps in its
To commission additional studies that could fill the research gaps that had been identified or broaden the perspective of pertinent
To provide specific comments and concrete policy recommenda- tions on the major issues before the Commission from the
To help the Commission members, staff and consultants think through, redefine, and possibly, expand the policy issues, assump-
To study and recommend the ways in which the donee community can continue to make a contribution to any research and work on
The donor community must be redefined and broadened by giving all people (including non-itemizers and non-filers) the incentive to
The present system of government regulation and control of p h i l a n t h r o p i c o r g a n i z a t i o n s must be overhauled to eliminate

To provide specific comments and concrete policy recommendations on the main issues before the Commission, based on the points on the main issues before the Commission, from the perspective of the recipient community. Staff and members of the Donee Group consulted regularly with Commission members and staff.

53 reason that we have made many compromises and come to conclusions

Introduction

Important groups and issues have been given inadequate considera- tion in the Commission's report. These groups have been variously

These include public interest, consumer and environmental organizations, as well as institutions that provide technical services to otherwise powerless organizations. The report does not adequately address the need to improve the philanthropic process by ensuring greater access, accountability, and more.

The report does not deal adequately with the need for improving the philanthropic process by providing greater access, accountability and

Although the Commission recognizes the support of organizations such as these as one of "the enduring pragmatic functions seen for nonprofit organizations", it does not make recommendations to remedy the lack of support these issues and organizations have received from the nonprofit sector.

The changing relationship between the public and private sectors has not been analyzed and no recommendations for the future have

THE BASIC POLICY ISSUES

The Perspectives of the Donee Group

Herman Gallegos in his study, Foundations' Responsiveness to Concerns of Minority Groups, finds that less than 1 percent of

Mary Jean Tully in her Donee Group paper, “Who's Funding the Women's Movement?” finds that projects designed to improve the women's movement?" finds that projects designed to improve the status of women accounted for less than 1/5 of 1 percent of foundation grants between 1972 and 1974. From the figures in Giving U.S.A., 1975 shows that 35.4 percent of all philanthropy goes to established institutions of higher education.

The figures in Giving U.S.A., 1975 show that 34 percent of all philanthropy goes to established institutions of higher education,

In her Commission paper Philanthropy and the Powerless, Sarah Carey says: "No matter how the pie is sliced, there are no powerless," she says: "No matter how the pie is sliced, there is no doubt that grants are directly for social change or helping the powerless are dwarfed by the huge philanthropic contributions that go out each year to support education, the arts, health services and the like."

59 institutions with large overhead expenses which perform functions

Many of these groups act as if preserving the organization is more important than meeting the needs of the public. Some corporations have responded to the corporate responsibility movement and the demands of the general public by disclosing more and more about their operations.

Commission Perspectives

It is equally important for nonprofits receiving philanthropy to remain open and responsive. Given the key role they have to play, it is particularly important for these groups to critically evaluate themselves in relation to the public they serve.

Preserving the Status Quo

There is also insufficient recognition of the many worthy causes that are underfunded or ignored. In addition, the report does not contain any analysis of the purposes for which philanthropic dollars are given, other than the calculation for "prosperity" or

Fear of Government

As indicated above, it was not necessary to evaluate relative public needs once the Commission determined a priori that established purposes of donation should continue to be supported. And, not surprisingly, the Commission made no attempt to discuss or catalog such needs or to decide which public needs should be supported publicly and which should be supported by private philanthropy.

63 the programs and operations of institutions receiving government

Excessive Confidence in Self-Regulation

During the course of this study, several individuals expressed the view that self-regulation by the private sector, including philanthropy, is a myth in the United States. Based on current knowledge and understanding of self-regulation in philanthropy, the cynical observations.

RECOMMENDATIONS

This report makes clear, too, that self-regulatory mechanisms have made no surprising progress among private foundations since 1969. Previous studies of philanthropy such as the Peterson and Treasury Reports have suggested reform through self-regulation.

65 Improving the Philanthropic Process

Limit Donor Control

We agree with the view expressed in the "1965 Treasury Department Report on Private Foundations" (the model on which our recommendation is based) that many charities "exist year after year without achieving any outward sign of unique philanthropic progress. agree with the report of the Ministry of Finance that by "broadening the basis of foundation management, the recommendation (to eliminate donor controls) would bring fresh perspectives to foundation boards, combat parochialism and increase the organization's flexibility in responding to social needs and changes.".

Broadening Membership of Governing Boards

They attract no public attention; their efforts receive no public support; they seem to open up no new territories, develop no new vistas, create no rearrangements or changes of focus among charitable enterprises generally."

67 Staffing is Essential

Expanded Public Information Requirements

69 list of staff, consultants and board members with their salaries and fees;

Annual Public Meetings

Eliminate Expenditure Responsibility

One type of organized philanthropy that presents particular access problems is the federated fundraising organization, such as the United Way. One of the major gaps in the Commission's work is the absence of any substantial comment or recommendation on joint fundraising campaigns.).

Redefining the Donor Community

Effective control of federated fundraising organizations is usually exercised by large corporate or government officials whose organizations have large payroll, fundraising, or other workplace-based campaigns. We therefore recommend that the boards of directors of all United Ways, United Funds, and similar purportedly representative federal fundraising organizations be discouraged from having more than minimal (preferably 1/4 or less) control by effective donors.

Charitable Deduction: Tax Credit Available to Everyone;

However, we do not believe that if tax reform takes place gradually and piecemeal, as is likely to be the case, tax incentives for charitable donations should be the first to disappear. We believe that there are far more unfair and expensive tax breaks than the charitable deduction.

Optional Tax Credit

In addition, a tax credit equal to 30 percent of the amount contributed should be available to both itemizers and non-itemizers as an option for the charitable deduction. The current caps on the percentage of income that can be donated should be maintained.

Minimum Tax Required

After five years, there should be an evaluation of the effects of this system (i.e. the two recommendations above) to determine how efficient, democratic and fair it is in practice. After this evaluation period, it can be decided whether the charitable deduction should be abolished and whether the credits recommended here as options should take its place.

Charitable Bequests: Minimum Estate Tax Required

Tax Gifts of Appreciated Property

A gift of property costs a taxpayer less than a gift of cash

Two taxpayers with the same income, giving gifts of equal value, receive different government subsidies because of the nature of the gift

It is possible for a taxpayer to realize a greater after-tax profit by making a gift of appreciated property than by selling the property,

These are tax preferences almost exclusively for the rich. (50 percent of appreciated property gifts come from those with annual

75 hospitals and others. Therefore we favor a transition period in which

Charitable Tax on Corporations

Allow Exemptions Only on Property Used for Charitable Purposes The growing hostility of citizens to the property tax is bringing

Other critics agree with the Filer Commission article, 'The Exemption of Religious, Educational and Charitable Institutions from Property Taxation', which states that 'the exemption by its very nature is contrary to the ideal taxation of a uniform rate and a broad coverage, and a fiscal competitive advantage if used by recipients to provide goods and services comparable to the private sector. However, because the exemption is of such importance to many nonprofit organizations that its elimination would impose an unbearable financial burden on them, we recommend a measure that would make the exemption more equitable without eliminating it.

Government Regulation of Philanthropy Remove Exempt Organizations Function from I.R.S

During the Kennedy and Johnson adminstrations an "ideological organization project" was established which disrupted the activities

In addition, we recommend that the agency be given the authority to engage in “overview, analysis and progress.” The new agency would be in a better position to collect and disseminate information than the Commission's quasi-public body.

79 have on private philanthropy either directly or indirectly. This situation

Limit Fund-Raising Cost

Current laws prevent judicial review of a denial of exemption, revocation of exemption, or failure of the I.R.S. to act on an application for exempt status. Therefore, we recommend that the law be amended to allow a nonprofit that has been denied exemption or is seeking a determination of exemption status from the I.R.S.

No Limits on Right to Receive Fees for Services

The Commission's recommendation is completely inadequate to protect the public or to free philanthropy from charlatans. We therefore recommend that uniform national legislation limit to 30 percent the amount that can be spent on collection costs by an exempt organization after the first two years of operation.

Abolish the 4 Percent Excise Tax on Foundations

Permanent Payout Rate of 6 Percent

Exempt Organizations and the Public Process Remove Limitations on Lobbying

There is no justification for this distinction, and the public interest is served by excluding tax-exempt groups from the legislative process. We therefore recommend that all restrictions on lobbying by tax-exempt organizations be removed, except that no person should be allowed to establish a private foundation for any purpose other than to influence legislation.

Donee Accountability Requirements

The important work of tax-exempt groups, such as public interest law firms, which are actively engaged in monitoring governance processes, has been significantly undermined by restrictions on lobbying. We believe that tax-exempt money has an important role to play in supporting civic action groups and innovative programs that give citizens the opportunity to participate fully in American political, economic and social life.

83 private foundations are available for public inspection in their entirety

Prevent Private Profit from Charitable Activity

Revenue Sharing

Many states have statutory provisions that directly prohibit or limit the award of federal revenue sharing, special revenue sharing, and group grants to nonprofit groups. We recommend immediate legislative changes to ensure the availability of revenue-sharing funds to private nonprofit groups.

Members of the Donee Group

Asher's article "Public Needs, Public Policy and Philanthropy", especially for further description of the types of organizations we are referring to. Moore's paper, "Foundation Grants to Corporate Activist Groups - the Donee Perspective." See also Waldemar Nielsen's description of Internal Revenue's Special Services Group and related examples of I.R.S.

PRIVATE PHILANTHROPY AND PUBLIC NEEDS

HISTORICAL PERSPECTIVE

THE ROOTS OF AMERICAN PHILANTHROPY

Penn, like Winthrop, viewed class differences as an essential part of the divine order. From personal experience he learned that the reward of the charitable organization was a multiplication of opportunities to serve.

PAUPERISM AND POVERTY

Finally, if they want to proclaim a truth or spread some sentiment with the encouragement of an excellent example, they form an association. In any case, at the head of any new enterprise, where in France you would find the government or in England some territorial magnate, in the United States of America you will certainly find an association. 6.

95 to rid themselves of the burden of poor relief. The theory was that transportation

It would be wrong to imply that she alone made a revolution in the care of the insane. One of the benevolent societies that Mather founded was the Society for the Suppression of Disorders (1702).