|
|
 |
|
| Best Practices: Philanthropy |
Philanthropy’s Hybrid Creature
Dan Weil
08/01/06
|
Barbara and Al Siemer, of Columbus, Ohio, launched a family foundation two decades ago with only $170,000. Five years after forming the nonprofit, they converted their traditional Siemer Family Foundation into a supporting organization for a local community charity. Today, thanks to the benefits and incentives inherent in this type of nonprofit structure, their family foundation boasts a $10 million endowment.
 Barbara Siemer says the idea of setting up an organization to support the local Columbus Foundation appealed to her primarily because working with an established community charity gave the family access to the research, administrative assistance and publicity that are important components of a sophisticated giving plan. "It becomes more public doing it through the Columbus Foundation, and that can make it more of an inspiration for others to give," she explains. "Before, it was just me and my checkbook."
The tax advantages of a supporting organization also proved valuable. Most of the Siemers’ endowment was funded by two liquidity events: Al, who owns several manufacturing companies, donated one of his businesses to the Siemer Family Foundation, which then sold it for $4 million; the couple also donated property that the foundation sold for another $4 million. Tax incentives allow donors to deduct the market value of such assets, up to 30 percent of their adjusted gross income (AGI). Donors to a private or family foundation, on the other hand, are limited to deductions of only 20 percent of AGI, and the amount is determined by the cost of the asset rather than its market value.
TOP VIEW:
Families that turn their foundations into supporting organizations
that benefit a particular public charity enjoy significant advantages. Donations
yield larger tax deductions than do gifts made to traditional family
foundations. But these hybrid philanthropic vehicles are not without risk, as
the federal government moves to crack down on donors using supporting
organizations as tax shelters and de facto banks. |
In addition, donors can deduct cash gifts they make to supporting organizations at a value of up to 50 percent of their AGI. Cash contributions to private foundations, on the other hand, can only be deducted at a value up to 30 percent of AGI. Supporting organizations are also exempt from the 2 percent excise tax the government levies on private foundations’ investment income.
These benefits have prompted a growing number of philanthropists to consider this structure. They are willing to trade the comprehensive control over assets they enjoy with a private foundation for a supporting organization’s looser financial restrictions and greater tax incentives. The IRS now recognizes about 32,500 of these entities, up from about 30,500 in 2003, according to the National Center for Charitable Statistics. By comparison, there are approximately 78,000 private foundations in the United States.
But just as donor interest in supporting organizations is rising, so, apparently, are the suspicions of the federal government. Some funders are even beginning to wonder if these philanthropic vehicles are worth the potential risk.
|
|
|
|
|
|
|
