A top Republican senator stepped up pressure on the Treasury Department to complete a study of “supporting organizations,” a type of group that finances the activities of specific nonprofits. (Learn more about Supporting Organizations here)
Sen. Charles E. Grassley of Iowa, a prominent member of the Senate Finance Committee, outlined his concerns about the activities of the George Kaiser Family Foundation, in Tulsa, in a letter to Treasury Secretary Timothy Geithner and IRS Commissioner Douglas H. Shulman.
Mr. Grassley said his investigators had found “very troublesome” numbers when they examined Kaiser’s most recent tax forms—numbers that he says suggest that supporting organizations are being used as tax shelters.
Senator Grassley said Kaiser had started as a private foundation but later converted to a supporting organization, naming the Tulsa Community Foundation as the group it was supporting.
As a supporting organization, it could avoid rules that require private foundations to distribute certain amounts of money to charity and pay excise taxes on investment income.
He said Kaiser’s assets had grown to more than $4-billion since 2005, but it had spent only about $215.4-million in grants over the most recent three-year period—an average of less than 2 percent of its assets. Private foundations are required to spend at least 5 percent of their net investment assets a year for charitable purposes.
What’s more, Mr. Grassley said George Kaiser, a financier who is described on the tax form as a “substantial contributor” to the organization, is able to write off more of his contributions on his income taxes than he can for donations to a private foundation.
Ken Levit, Kaiser’s executive director, said in a statement that his group is “taking on some of the most difficult and expensive problems in American society,” including poverty, early-childhood education, public health, and criminal justice. “The optimal solutions are often unclear,” he said. “We don’t want to throw money at ineffective ideas.”
In 2005, Senator Grassley, then chairman of the Senate Finance Committee, and Sen. Max Baucus, the Montana Democrat who was then the committee’s senior Democrat, asked the Treasury Department to conduct a study into regulations governing supporting organizations and donor-advised funds.
The study, which was supposed to be completed in 2007, was also meant to guide the Treasury in determining how much supporting organizations should be required to spend on charity.
“If the Administration is serious about closing loopholes, it should prioritize the completion of the study and the finalization of the payout rules for those supporting organizations that Congress deemed to be exploiting the tax code,” Mr. Grassley’s letter said.
Chronicle of Philanthropy: Senator Steps Up Pressure on Nonprofit “Supporting Organizations” by Suzanne Perry
Nonprofit Law Basics: What is a Supporting Organization? by Mollie Cullinane, Cullinane Law Group