Charitable Gift Act Passes House
On September 17, 2003, the House of Representatives passed the Charitable Giving Act (HR 7) by a vote of 407 - 13. The bill will now be reviewed by a House/Senate Conference Committee where differences between this bill and SB 476, The CARE Act, will be ironed out. If there are no delays or circumstances that can not be agreed on, there is a possibility that the resulting final legislation could go to the President for his signature in October. Whatever the timing, the effective date for provisions such as the charitable contributions from IRA accounts without withdrawal penalties is not yet known but will probably be the first of next year.

Hutchinson Bill Would Reform Foundation Abuses

Well-publicized incidents of abuse by a few foundations have raised legitimate concerns about whether these entities are properly focusing resources on their philanthropic missions. In come cases, excessive amounts have gone toward administrative costs, high executive salaries and expensive travel.

The Hutchison Bill will help to ensure that more money is spent on charitable activities and that those who abuse the system are properly punished.

However, we must ensure this money actually goes toward the charitable activities for which it is intended. A current House bill tries to do this by preventing any administrative costs from being counted as part of the five percent annual distribution requirement foundations must meet. While the legislation moves in the right direction, the language is too broad and may inadvertently punish some foundations that are acting responsibly.

Many foundations will find it difficult to earn the returns necessary to maintain their underlying endowments and cover the five percent requirement in addition to all administrative costs. This could lead to a diminished ability to fulfill their missions over time, as underlying endowments are eroded as an unintended consequence. Some foundations may try to meet this challenge by reducing important, legitimate spending such as on legal compliance.

The Hutchison Bill will better address these issues. It will reduce the excise tax on foundations from two percent to one percent and it will limit which administrative expenses are counted as distributions, but in a more defined manner.

The Hutchison Bill would exclude general overhead expenses, management salaries and excessive travel expenses from being counted as distributions. It will allow expenses directly attributable to administering grants and direct charitable giving, as well as expenses related to maintaining legal compliance, to continue to be included.

By focusing these restrictions on the expenses which tend to be the source of abuse, The Hutchison Bill deals with the root issues while minimizing unintended consequences. The Hutchison Bill also goes further than other proposals in penalizing wrongdoers. It will raise the penalty for those who abuse the system by "self-dealing" from a five percent to a 25 percent excise tax on the amounts involved.

The Hutchison Bill will lower the net investment tax, tighten the regulations allowing administrative expenses to be counted as distributions, and increase penalties for those abusing the system. It does so with drastic measures that could lead to a decline in foundations in the long-term. Together these measures will instill more discipline on the foundation community and result in more money going to worthy causes.
From GiftPlan.org

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