The following charitable incentives would further these goals and principles:
1. Reduce and simplify the net investment income tax on foundations from 2 percent to 1 percent.
Currently, private foundations are subject to a two-tiered excise tax structure and pay as much as a 2% excise tax on their net investment income each year. Under this structure, foundations are likely to be penalized with the highest 2% rate over a five year period if they substantially increase their giving in one year to meet pressing community needs potentially brought on by the current economic crisis, or natural disasters like Hurricane Katrina. This system essentially amounts to a disincentive for foundations to give extra in times of great need.
President Obama proposed decreasing the rate to a flat 1.35% in his FY2012 budget. We see this as a step in the right direction and appreciate that the Administration recognizes the need to decrease and streamline this excise tax. If, however, the tax rate were reduced to 1% for all foundations in every year, millions more dollars would be available for grant-making purposes. ACR supports legislation to roll back the tax so that foundations can use the additional funds for grant-making.
2. Extend and expand the current law IRA Charitable Rollover.
In 2006, Congress enacted a one-year IRA Charitable Rollover provision allowing Americans 70 ½ and older, to give tax-free donations to qualified charitable organizations from their Individual Retirement Accounts (IRA). This provision has been extended through the end of 2011 as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, passed during the December 2010 lame-duck session of Congress. ACR fully supports extending and expanding this provision to encourage additional philanthropic giving that will strengthen the charitable sector and our local communities.
3. Exclusively dedicate proceeds from excise taxes paid by private foundations and fees and taxes collected from public charities to fund IRS enforcement of exempt organizations.
When Congress first enacted these excise taxes in 1969, the intent was for the proceeds to be used to fund IRS oversight of the charitable sector. These taxes generate approximately $400-500 million annually – several times the annual budget of the IRS Exempt Organizations Division – but they have never been appropriated for the purpose of which these taxes have been levied.
The best way to cure deficiencies is not to write more laws, but to vigorously enforce existing laws and regulations. Vigorous IRS oversight is the best deterrent to future wrongdoers. ACR believes an essential part of any meaningful reform effort must be to ensure that adequate funding exists for oversight and enforcement purposes.
A fully functioning oversight department will ensure a robust and vital sector, and will reduce the small number of bad-apples abusing the tax laws.
4. Update and Simplify the Form 990-PF to improve financial reporting.
ACR encourages updating the Form 990-PF to reflect a more accurate picture of the current foundation landscape. ACR also cautions against adding further complexity to the form and imposing new burdens on foundations which may outweigh the broader goal of improving financial reporting.
To achieve this, we offer the following recommendations:
a) Reporting of expenditures should provide a more relevant picture of foundation activities. The revised form should provide enough flexibility for private foundations to properly characterize income, expenses and activities.
b) The definitions and terms throughout the form should be revised and updated to ensure accuracy, consistency, and relevance.
c) Incentives to ensure accurate and complete filing should be strengthened in conjunction with improvement of the instructions.
d) Forms should restrict themselves to seeking information that is required by law and that can be objectively provided.
5. Encourage, Not Limit, Increased Philanthropic Giving
ACR believes Congress and the Administration should do their best to encourage increased giving by Americans, thereby enhancing the charitable sector. Philanthropy serves as an indispensable laboratory of innovation in addressing many of society’s greatest challenges. The independence of thought and diversity of interests and perspective produced by having so many committed private actors is the wellspring of this sector’s vitality, and must therefore be protected and encouraged.
Diversity of mission and programs ensures that a variety of community needs are being fulfilled. Attempts by the federal government to channel or direct grant-making towards certain areas could limit the ability of the sector to respond quickly to newly emerging or suddenly critical social challenges, thereby threatening the diversity of the sector that makes it so effective in the first place.
Philanthropic organizations offer solutions for many of America’s greatest challenges. They are a vital part of our society.