|
John Templeton
Foundation
West Conshohocken , Pa 19428
August 6, 2007
Congressman John Lewis,
Chairman
Subcommittee on Oversight,
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Dear Chairman Lewis:
On behalf of the John
Templeton Foundation, please accept my sincere appreciation for the opportunity
to offer written comments in regard to the provisions relating to tax-exempt
organizations found in the Pension Protection Act of 2006 ( P.L. 109-280).
I am the Chairman of the
Board of Trustees of the John Templeton Foundation; a private, family
foundation located outside Philadelphia, Pennsylvania. We have actively been following
the charitable reform dialogue of the Senate and House over the last few years
and embrace the spirit of accountability and transparency behind the overall
effort. However, we are concerned that many of the recently enacted provisions
may have the effect of treating a perceived symptom rather than a real part of
the problem, working to improve enforcement of the laws that are currently in
place.
Although we believe that
there are a number of areas in the Pension Protection Act of 2006 ( 2006 PPA )
that deserve additional consideration, we would respectfully offer comment in
three areas: Private Foundation Excise Taxes, Tax on Net Investment Income and
Grants from Private Foundations to Supporting Organizations.
Private Foundation
Excise Taxes
Currently, Code Sections 4941
to 4945 impose taxes on private foundations who engage in acts of self dealing
with “disqualified persons”, who fail to distribute a minimum amount of their
assets each year as Qualifying Distributions, who have “excess business
holdings”, who maintain investments that are considered to jeopardize the
foundation’s charitable purpose and who have expenses that are construed as
“taxable expenditures”. With these sections as a part of the existing Internal
Revenue Code, we are concerned that the new provisions serve a purely revenue
raising function rather than enhancing the enforcement of current policy.
In addition, the Internal
Revenue Service does not have the ability of abating the initial tax imposed on
disqualified persons as a part of a self-dealing transaction due to reasonable
cause. This is not consistent with the imposition of other excise taxes. We
believe that if additional excise taxes are imposed on disqualified persons
with respect to self-dealing transactions that the Internal Revenue Service
should have the discretion to waive these penalties for cause as with other
excise taxes. We feel that if a Foundation Manager has followed the rebuttable
presumption procedures found in Section 4958 of the Internal Revenue Code when
entering into a transaction that involves payment of compensation to a
disqualified person that the manager should not be subject to penalty.
Taxation of
Charitable Use Assets
Code Section 4940 imposes an
excise tax on the net investment income of a private foundation. At present,
this definition does not include capital gain or loss from the disposition of
property used to further an exempt purpose. The 2006 PPA would allow for the
inclusion of the gains and losses from charitable use property in the
calculation of excise tax with the only exception being the deferral of tax in
a like kind exchange. This appears to be inherently contrary to the intention
and purpose of charitable legislation dating back to the initial granting of
tax exempt status in the late 1800’s.
We have seen over the history
of the charitable community the way in which it has been able to respond to the
needs of the citizens of the United States in a timely and impactful manner.
We have certainly seen this in the wake of Hurricanes Katrina, Rita and Wilma.
The charitable community works hand in hand with the government in so many
areas to provide the resources, training and education needed to impact humanity.
Further taxation of charitable use assets only limits the ability of the
charitable community to focus on the work identified in its mission with no
corresponding result other than the generation of revenue.
We believe that the
charitable community has an important role in America and do not want to see a
trend like that of countries like France who do not encourage philanthropy or
work it into the fiber of their legislation. In addition, in an environment
where we work to reduce administrative expense and costs through cost effective
fiscal management tools and policies directed by governing by-laws and charter
as well as the Internal Revenue Code, it appears that many of these provisions
will only add to the operational burdens and non-charitable expenditures of
private foundations not make them more efficient.
The budget of the Internal
Revenue Service’s Exempt Organization division, which is responsible for the
oversight and enforcement of the charitable community, is approximately $ 50
million dollars annually. Initially, it was the intention of Congress that the
excise taxes on the books prior to the 2006 PPA fund this division of the IRS.
Prior to the modification of the excise taxes in the 2006 PPA, the excise tax
on private foundations brought in eight times the annual budget of the Exempt
Organization division. Therefore, we do not understand the revenue component
behind the taxation of charitable use assets as its funds will not be directed
to the charitable community. Although we recognize that the tax monies raised
are not specifically matched with those from whom they are collected, it does
appear contradictory to the intent and purpose of the Charitable sector.
Grants from Private
Foundations to Supporting Organizations
Both the Senate Bill, Section
345, and House Bill, Section 1244, attempt to narrow a private foundation’s
ability to make qualifying distributions in accordance with Section 4945 of the
Internal Revenue Code to supporting organizations. We recognize that the
House’s bill further defines the restriction to Type III supporting
organizations that are not functionally integrated and Type I, Type II and Type
III functionally integrated organizations where a disqualified person of the
private foundation directly or indirectly controls the supporting
organization.
We have searched our
resources and do not understand the motivation behind these changes and cannot identify
any specific abuses that support a legislative change of this magnitude. Over
the past two years, we have worked with a Type I supporting organization and
have found it to be administered with an extremely high level of responsibility
and fiscal management. It enables academics, scientists and researchers whose
work falls within the mission of the Foundation and whom we are interested in
supporting to conduct their studies and work as a collaborative network outside
the direct influence of the Foundation. As an organization, we are working to
bring together the scientific and religious communities to have measurable
impacts on Humanity in areas like Spirituality and Health, Cosmology, Character
Development, Enterprise Based Solutions to Poverty, Genius Research and Free
Enterprise. It is imperative that we have the ability to encourage and support
collaboration, which we believe is the backbone to modern philanthropy, by
allowing these scientists and religious leaders to come together in an
environment that is free from “perceived” bias. Provisions such as the
restriction of grants by private foundations to supporting organizations constrain
the ability of organizations to promote research that could bring about
positive change and new learning. We respectfully believe that this is not the
intention of Congress and strongly support reconsideration of these provisions.
Again, we thank you for the
opportunity to share our thoughts with the committee and for our voice to be
heard. We are proud to be members of the charitable community and believe that
it is a community whose members embody integrity and responsible stewardship as
each entity recognizes the duties and honor that come with the oversight and
use of charitable assets. We believe that the sensational accounts that are
represented in the media with regards to the charitable community represent a very
small minority of the sector and not the norm. If you require any additional
information with regard to our comments, we would be pleased to be responsive
and to work with you, your staff and committee.
Sincerely,
Dr. John M. Templeton, Jr.
Chairman, Board of Trustees
| 
