Statement of Foundation For The Carolinas, Charlotte, North Carolina

Foundation For The Carolinas (“FFTC”) is a community foundation located in Charlotte, North Carolina.  It ranks in the top thirty of grants, gifts and assets for community foundations in the United States and has approximately 1,700 total funds, including hundreds of donor advised funds (“DAF’s”) and seven supporting organizations.  We are writing in response to your request for comments on the charitable provisions of the Pension Protection Act (“PPA”) as part of the hearings held on June 24, 2007.

1.Definition of Donor Advised Funds:  With regard to the new statutory definition of a DAF we suggest providing specific and detailed examples in regulations of when a particular fund is or is not a DAF. Because of the sheer number of DAF’s examples will help in the classification of a particular fund. For example, if a particular fund specifies four permissible donees (e.g. four universities) and the donor may specify the percentages allocated between the respective schools does this meet the donor advisory part of the test since the legislation identified a specific exclusion for one permissible donee?  We also urge Congress to make certain other changes applicable to DAF’s including clarifying the ability of sponsoring organizations to purchase goods and services on the open market using DAF assets and excluding funds created by public charities and governmental entities from the definition of DAF’s.

2.Excess Business Holdings and DAFs:  We urge Congress to repeal the application of the excess business holdings rules to DAF’s.  We believe that the other changes made by the PPA and applicable to DAF’s will prevent the abuses that have occurred in the past.  We do not believe that there is any reason to believe that business holdings that are given to a DAF are subject to any more abuses than if they were given to a public charity.  If repeal is not a viable alternative perhaps Congress could adopt provisions that allow for the sale or payout of illiquid assets over some reasonable period of time or a phase-in of the rules to allow for an orderly transition.

3.Payment of Grants from DAFs to Type III SOs:  With regard to the treatment of distributions from DAFs to Type III supporting organizations and certain supporting organizations as taxable distributions the new requirements put an unreasonable burden on DAF’s and supporting organizations.  We agree that the provision stating that a grantor, acting in good faith, may rely on a written representation signed by an officer, director or trustee of the grantee that the grantee is a Type I or Type II supporting organization provided that the representation describes how the grantee officers, directors, or trustees are selected and references any provisions and governing documents that establish a Type I or a Type II relationship between the grantee and its supporting organization.  However, the grantor should not have the burden of “collecting and reviewing copies of governing documents of the grantee (and, if relevant, of the supporting organization (s)).

4.Supporting Organizations.  Like many large community foundations FFTC currently has four Type III supporting organizations for which it is the supported organization. These Type III’s are typically broadly supported community based organizations which have been formed to benefit, for example, the arts or a particular faith-based community. If a Board member of the Type III wants to make a gift from a non-operating private foundation he controls to the Type III,  Section 4942 (g) would deny qualifying distribution treatment  to the private foundation. This is not the type of abuse the statute is designed to prevent and this type of distribution should not be denied treatment as a qualifying distribution. In FFTC’s situation, Board members are giving in response to a fundraising campaign for a particular focus area of the Type III supporting organization; they are not “controlling” members of the Board, families or sole donors.  How can nonprofits conduct normal fundraising strategies under these regulations?  For the same reasons if the gift was made from a DAF instead of a private foundation to the Type III the gift should not be treated as a “taxable distribution” under Section 4966.  Perhaps there should be some broad exception for Type III’s that support community foundations because of the lack of the potential for abuse; or an exception for Type IIIs that are created to support community based causes and not controlled by one or more specific donors or families.

5.Disaster Relief Funds.  IRS Notice 2006-109 dealt with, among other things, disaster relief funds established by employers at community foundations or other public charities to provide disaster relief grants to employees and their family members who are victims of a natural disaster (e.g., Katrina). We believe that similar regulations should be issued to apply to hardship funds established by employers for their employees. Such funds are designed to provide similar relief to employees suffering real hardship.  We believe all the regulations mentioned in the Notice are reasonable and are already being followed by FFTC.  However, hardship funds should be specifically mentioned as well to avoid any confusion about whether or not they meet the definition of a DAF.

6.IRA Charitable Rollover.  We strongly support H.R. 1419 and S.819 which would allow donors to qualify for the favorable IRA charitable rollover rules when making gifts to DAF’s, supporting organizations and private foundations.  We also support extending these provisions beyond 2007 and to gifts over $100,000.  

7.Other Concerns.  We also urge Congress to make certain adjustments to the PPA in order to address some situations in which the PPA is hampering community philanthropy.  These include:

·Clarifying that the designation in a gift instrument of scholarship committee members by title or position does not constitute an appointment by the donor of persons holding those positions.

·Providing for abatement of first-tier taxes for the new penalty provisions of PPA on the same basis as for existing penalty taxes.

·Temporarily suspending the penalties for making grants to certain supporting organizations until the IRS can reliably identify those organizations.

Thank you for your consideration of our comments.