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| Best Practices: Philanthropy |
Philanthropy’s Hybrid Creature
Dan Weil
08/01/06
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Flim Philanthropists
Iowa Senator Charles Grassley’s Finance Committee has been investigating alleged abuses involving supporting organizations, worrying their funders. Supporting organizations are not required to disburse at least 5 percent of their endowments each year, as private foundations are, nor are the funders of supporting organization prohibited from raising money for their foundations, as funders of traditional family foundations are. The Senate Finance Committee has been scrutinizing these provisions. Last year, IRS Commissioner Mark Everson cited some blatant abuses in a letter to Grassley. "A common theme," Everson wrote, "is a ‘charitable’ donation of an amount to the supporting organization, and a return of the donated amount to the donor, often in the form of a purported loan that may never be repaid." In February 2004, the Chronicle of Philanthropy reported that a study of tax returns discovered 18 supporting organizations had issued loans of $100,000 or more to their officers and directors between 1998 and 2001.
With Grassley leading the charge, the Senate approved a series of reforms for supporting organizations as part of the Tax Relief Act of 2005. The plan on Capitol Hill is to examine the reforms later this year as part of a charity reform package now attached to a more all-encompassing bill in the hands of the House Ways & Means Committee. The reforms apply mainly to Type III supporting organizations. (See "Supporting Cast") The bill would prohibit these nonprofits from making loans or grants to donors. The organizations would also have to notify, in writing, any charity they plan to support. This stipulation addresses a concern that some supporting organizations have almost no relationship with the charities they purport to back and are set up primarily as tax dodges.
Despite the increasing government scrutiny, many donors continue to reap the benefits of supporting organizations. The Siemers say any legal changes will not sway them from running their foundation as such; their motivation for doing so is predicated on the assistance they provide their charity of choice, as well as the higher profile they enjoy, rather than any spend-down advantages or tax inducements. Also, the Senate’s reform package will not affect the higher deductions for donations to a supporting organization that currently apply to the Siemers and other funders.
Iowa Senator Charles Grassley’s Finance Committee has been investigating alleged abuses
involving supporting organizations, worrying their funders. |
These incentives notwithstanding, a supporting organization is not appropriate for everyone. Philanthropic families that wish to run a foundation as a family-centered project that will rally future generations around a common mission may find a traditional private foundation more effective. Frank Gibney is the second-generation head of the Gibney Foundation in South Burlington, Vt., an entity launched by his father in 1991. He explains that he would never want his private foundation, which has assets of about $24 million and specializes in grants to help the blind, to take on any other structure.
"If it’s about getting the greatest tax break, and if a family is not sure it has the passion required to foster a private foundation for generations, then a supporting organization is probably a better way to go," he says. For his family, however, the private foundation creates bonds among the 18 relatives who are spread out across the country. All of them are active in the foundation. "The whole excitement is the family leadership that we bring to the charities we help," explains Gibney, adding that a supporting organization tied to an entity with a specific geographic location "would tear our family apart."
The Siemers, however, seem to have successfully struck the delicate balance between the specific requirements of a supporting organization and the desire to create a familial mission; their daughter is president of their foundation. "This kind of pushes our kids into a philanthropy mode," Barbara Siemer says.
Dan Weil is a freelance journalist based in Florida.
Illustration by Jim Frasier. Additional Information
 Biting the Hand
Supporting Cast
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