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Philanthropic Groups Oppose Greater Payout Requirements

Posted on July 23, 2020

Groups representing the philanthropic sector are pushing back against recommended tax law changes that would require some types of nonprofits to give more money to charitable activities during the COVID-19 pandemic.

A July 21 blog post on the website of the Alliance for Charitable Reform takes aim at a possible legislative proposal to increase the mandatory private foundation payout rate from 5 percent to 10 percent and impose a minimum payout requirement on donor-advised funds. Both measures would be in effect for the next three years.

“Mandates like this are counterproductive and distracting from the natural innovation and creativity of philanthropy, and if enacted they could deplete philanthropic resources that could be needed in future crises,” the alliance argued. “We support the philanthropic freedom of every American to voluntarily decide to grant out more charitable dollars, especially in times of crises, but we’ll continue to push back on calls for mandates and encourage our colleague organizations to do the same.”

A similar message was conveyed in a July 1 letter from the Alliance for Charitable Reform, Independent Sector, the Council on Foundations, and the United Philanthropy Forum to the leadership of the House Ways and Means and Senate Finance committees as they discuss further pandemic relief legislation.

Doubling the private foundation payout requirement and establishing a mandate for donor-advised funds would “do more harm than good” by unnecessarily limiting philanthropy’s ability to respond to the pandemic and future crises, the organizations wrote.

“As philanthropy continues to give generously in responding to this health and economic crisis, we oppose a one-size-fits-all mandate, which does not account for the diversity in structure, governance, and mission among philanthropic organizations, and likewise ignores the on-the-ground expertise of philanthropic organizations in knowing how and when to utilize their finite resources,” the groups told the taxwriting committees.

Increased payout requirements are also unnecessary because philanthropy has already responded generously to the COVID-19 crisis, the Council on Foundations recently said on its website.

As of May, philanthropy organizations’ response totaled more than $6 billion, and as of June more than 500 community foundations received more than $880 million of newly mobilized COVID-19 response funds and made grants of nearly $460 million, according to the council.

The council also said that “if a 10 percent payout for private foundations were to become permanent, such a proposal would amount to a government mandate for countless foundations across the country to shut their doors and stop their charitable giving long before they ever intended.”

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