Press Releases

WASHINGTON, D.C.—The National Committee for Responsive Philanthropy (NCRP) issued today its comments to the Department of the Treasury and the IRS for a study on donor-advised funds and supporting organizations which was ordered under the Pension Protection Act of 2006. In its comments, the watchdog group listed disclosure, payout requirements and blatant opportunities for abuse and misuse as immediate issues that the government needs to address.

Donor-advised funds and supporting organizations have been gaining popularity among individuals interested in getting involved in philanthropy. Unfortunately, the current tax code is filled with loopholes that allow for mismanagement, illegal activities, and abuse of the system.

“It’s no wonder that donor-advised funds and supporting organizations constantly make it to the IRS’ ‘dirty dozen’ list of tax scams,” said Aaron Dorfman, NCRP’s executive director. “Right now, the regulations that govern these two tools of giving look like Swiss cheese.”

Donor-Advised Funds

Previously, there has been no specific definition of donor-advised funds prior to the Pension Protection Act and public charities are not required to report on the assets and distributions of these funds.

“We really have no idea exactly how many donor- advised funds are out there, whether the donor’s recommendations are truly non-binding, and if fund managers are exercising due diligence,” Dorfman said. “That’s why NCRP is recommending the funds be required to provide full and timely disclosure of their grants and investments.”

Supporting Organizations

In July 2006, NCRP helped break the news by the Washington Post about questionable practices by Health and Human Services Secretary Michael Leavitt’s family foundation, the Dixie and Anne Leavitt Foundation.

In 2002, 2003 and 2004, the Leavitt Foundation—a Type III supporting organization—donated less than 1 percent of its $9 million assets while family members claimed millions of dollars in tax deductions for their contributions to the foundation. The Post reported how most of the foundation money had been invested in or lent to family interests and holdings. As a Type III supporting organization, the Foundation is not subject to the 5 percent payout requirement of private foundations.

Supporting organizations qualify as a public charity because of their close relationship with other publicly supported 501(c)(3) organizations. A supporting organization must provide financial or programmatic support to a beneficiary organization. The beneficiary organization also exercises a certain level of operational control over the supporting organization. In the case of the Leavitt Foundation, the bulk of their donations went to the Southern Utah Foundation, as a donor-advised fund, while thousands of more dollars went to the Southern Utah University and the Western Association of Leavitt Families.

There are currently three types of supporting organizations, which are based on the level of control the beneficiary exercises over the donor organization. In its comments, NCRP recommends the elimination of Type III supporting organizations because the “likelihood for abuse is the greatest” in these types of organizations.

Moreover, NCRP is urging the Treasury and the IRS to recommend that lawmakers subject donor- advised funds and supporting organizations to the same payout requirements