Results tagged “foundations” from Uncivil Society

Now here's why we have universities and charitable foundations: for research into aesthetics and cognition. Good stuff.

Quoth Gifthub:

Unless Community Foundations add more more value, and emphasize relationships, local presence, and ideals, they will find Fidelity and other financial intermediaries tough competition.

Bingo. The philanthropic landscape has evolved in ways that many community foundations--indeed, many charities--have yet to grasp. While charities are redefining themselves in commercial terms, the most successful businesses are highlighting their noncommercial values. The result is a market environment in which charity all too often appears ill-adapted on both fronts, with business-speak unmatched by business savvy and a nonprofit identity that seems compromised.

If a charity is to compete, its value-added lies in being both more effective and transcendent. A difficult and delicate task, to be sure, but one we ignore to our peril.

Speaking of embedded giving, what better way to describe the intersection between Bill Clinton's charitable endeavors and Hillary's campaign for president? 

The Times today traces a bit of the network overlap, but the real story lies in the reputation effect of Bill Clinton's conveniently timed mass media push for social entrepreneurship.  

C'mon, we're all adults here. Just as a commercial business strategically builds builds trust by leveraging the goodwill of the charities it supports, Bill Clinton is just the latest in a long tradition of politicians seeking to win over voters by aligning themselves with good works. 

Nonsense like this . . .

As the presidential campaign got under way, foundation officials began working to ensure that none of their enterprises would have political repercussions for Mrs. Clinton.

is just another example of why it's important to distinguish between law and the rhetoric of design.  Done well--and Bill Clinton is a master of PR--charity can be used for political ends with nary a complaint, but the key phrase here is "done well."  It's going to work only if you know what you are doing and how it will look. 

However, tell yourself that you're safe because you're within the current limits of the law and you're begging for corrective discipline.  For example, in 1969 Congress imposed stringent limits on private foundations because of their perceived entanglement with political activity.  What they had been doing had been legal, but it provoked a negative response and so as of 1970 it was not. 

The same fate may yet lie in store for public charities if their political entanglement seems too overt.  After all, you know what they say:

Politics makes strange embed-fellows.      

This question flows from one of the tax code's more insidious and retrograde provisions with regard to tax exemption. 

First, some background.

In a nutshell, the Internal Revenue Code divides 501(c)(3) organizations into two major categories: public charities and private foundations.  Both are 501(c)(3)s, but private foundations are subject to a few more restrictions.  (Folks who want a short-and-sweet summary should really click that last link.  Really.)  In order to avoid these restrictions most 501(c)(3)s prefer to be treated as public charities. 

But how do you get recognized as a public charity?  The right side of the chart below sums it up:  you want to meet the standards set out in one of the sections in Code Section 509(a).  For most organizations the path lies in sections 509(a)(1)-(3), although 509(a)(4) also provides a way out for organizations testing for public safety. 

The groups listed above "Section 509(a)(1)" take us to our main question.  Publicly supported public charities have to meet complicated mathematical tests, as do 509(a)(2) public charities.  509(a)(3)s have to meet complex tests relating to organizational structure, and they're also subject to some additional rules.  However, churches, schools and hospitals have it easier--if they fit the relevant definition, they don't have to bother with the mathematical or structural tests.

What are the relevant definitions? They can be a bit hard to remember, but fortunately the main details are spelled out for you in the application for recognition as a 501(c)(3) organization, IRS Form 1023--and I've clipped the pertinent parts here.

Read the standards carefully and you'll get a sense as to why this subset of 509(a)(1) organizations is sometimes referred to "traditional public charities."  The standard explanation for the grouping is that churches, schools and hospitals have traditionally been associated with serving the interests of the general public, but the definitions follow tradition in deeper sense:    

To qualify as a church, school or hospital, your organization has to look like something out of 1954. 

A church has such things as a hierarchy, a place of worship, a code of doctrine and Sunday school.

A school has a faculty, curriculum, buildings (or other physical "facilities") and enrolled students. 

A hospital is, well, a hospital, a real-world facility providing discrete medical services to patients.

And that's the real story.  These organizations were not given privileged treatment because they are most responsive to the public--if they were, the standards would be written so as to allow the categories to adapt as society itself evolves. Rather, this is yet another example--all too common in law--of the wealthiest, most powerful organizations using their influence to get out of burdensome rules that apply to less well connected groups. 

An established "church" doesn't have to meet either the mathematical or supporting organization tests; an upstart "religious organization" does, in part precisely because its approach to worship is non-traditional.  No accident, this--at the time the rules were written, mainstream Christian churches were a central component of America's civic identity.  Similarly, private schools and hospitals were seen as an extension of the governmental system of education and medical care, with entrenched bureaucracies, a fixed infrastructure and centralized control.

In sum, the grouping of these three institutions is designed to keep privileged social status as the status quo, all in the guise of protecting the organizations most responsive to ordinary people. 

Bah.

Two high-profile charity news stories from the past couple weeks:

• Bill Clinton's book, Giving, and
  
• The charity auction of the Senate letter condemning Rush Limbaugh

may benefit some good causes, but they also echo the kind of actions that, in the 1960s, gave rise to today's complex rules governing private foundations and public charities. 

Back then, a number of politicians were upset by how certain wealthy charities supported causes and politicians they (the politicians) didn't like.  It was a rather motley alliance of constituencies that saw themselves as disenfranchised:  white southerners opposed to the civil rights movement (which major foundations were funding), Western politicians who saw the major foundations giving grants to power brokers from the Northeast and industrial states; Christians upset that money was going to fund charities supported by candidates who were . . . can you believe it, I mean, here in All-American New York City? . . . Jewish!!! 

While the complaints and political alignments may seem odd today, the laws they produced live on, and there's a real possibility that high-profile politicized charity could prompt another round of so-called reforms.  Imagine--

Conservatives upset by Bill Clinton using charity to build support for his wife . . .

Liberals upset that a family charity could pay 2.1 million dollars in an eBay auction that also serves to promote the Rush Limbaugh show . . . 

Who knows what could happen if these wacky kids get together?  

Stranger things have happened in charity law--just another reason why it's said that politics makes strange bedfellows. 

In my nonprofit law class tonight we're going to talk about puppies, unicorns, flowers . . . and, oh yeah, the support tests for distinguishing public charities from private foundations.

Also known as the seventh circle of charity hell, the support tests are Congress's way of taking your idealistic enthusiasm for changing the world and bludgeoning it out of existence.  Ever want to know what it feels like to be a seal pup in hunting season?  Well, the support tests are your hakapik.

That said, here's a blog post that can help make this experience a bit less painful. 

A long time ago in a blog post far far away, a commenter inquired about the difference between a trust and private foundation.  In class I explained that a trust is property held for the benefit of a third party--in the case of a charitable trust, the "indefinite class" (as opposed to specific individuals) benefited by the trust's charitable purpose. 

The term private foundation, however, has a somewhat more slippery legal definition.  It arose as a way to describe--and condemn--charitable organizations funded by a small number of individuals, who presumably veered more toward their own interests as opposed those of the general public. 

Quick aside:  I'll be talking about that a bit more on this site, but suffice it to say that while the term "private foundation" still retains the connotation of private interests vs. public good, defining what constitutes a private foundation turned out to be a task too tough for the legislators determined to regulate 'em--which is why the tax code classifies all charities as private foundations unless they meet one of the rather complicated tests for public charity status.  But that is a tale for another day . . .

Occasionally a news story bubbles up to remind us why U.S. law came to distinguish between private foundations and public charities.  Here is one such story. 

In Tuscaloosa, Alabama, a college has come under fire for certain transactions in which state funds ended up going to a related private charity.  Frankly, the sort of things described in the article could--and probably do--occur in any number of charities without anyone being too upset, but here ya go--the state Department of Examiners of Public Accounts is laying the smacketh down on good ol' Shelton State Community College because "contractual agreements are being utilized to divert public funds to foundations."

Now you might be saying, hey, what's the big deal--aren't private foundations charities too?  

And you'd have a point.  But there's something else going on here that says a lot about the values embedded in law and how they shift and evolve.  Is this small Southern skirmish a sign of a swing back toward the government as the hub of social benefit?