Foundation Takes Exception to Grassley's Characterization of Supporting Organizations

Foundation Takes Exception to Grassley's Characterization of Supporting Organizations

News story posted in Comments on 2 November 2011| comments
audience: National Publication | last updated: 2 November 2011


In a letter to Emily McMahon, Acting Assistant Secretary of Tax Policy, and writing on behalf of the Lettie Pate Whitehead Foundation, P. Russell Hardin has taken exception of Sen. Charles Grassley's recent characterization of supporting organizations as "charitable loopholes. . . [providing] very little money for charities" and "clearly formed to skirt private foundation rules."

Full Text:
October 28, 2011

Ms. Emily McMahon
Acting Assistant Secretary of Tax Policy
United States Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Ms. McMahon:

We read with great concern Senator Charles Grassley's October 17 letter to Secretary Geithner and Commissioner Shulman and the accompanying press release characterizing supporting organizations as "charitable loopholes . . . [providing] very little money for charities" and "clearly formed to skirt private foundation rules." We applaud Senator Grassley's efforts to eliminate taxpayer abuses. However, we write in behalf of two supporting organizations that have distributed more than $1 billion to charity in order to distinguish the Lettie Pate Evans Restricted Fund and the Lettie Pate Whitehead Foundation from the Senator's grossly inaccurate characterization of supporting organizations.

The Lettie Pate Evans Restricted Fund and Lettie Pate Whitehead Foundation were established pursuant to wills in 1954 and 1953, respectively -- well before the Tax Reform Act of 1969 created the private foundation rules. They have collectively distributed to charity more than $1 billion since inception, more than $615 million of which was distributed in the last ten years alone. The Whitehead Foundation provides need-based scholarship support for female students at over 200 schools and colleges in nine Southeastern states. The Evans Restricted Fund distributes its income annually -- more than $60 million in 2011 -- to 14 named beneficiaries, including Georgia Tech, Children's Healthcare of Atlanta, Emory University, Berry College, the College of William and Mary, Washington & Lee University, Episcopal High School, Bath County Community Hospital, the Virginia Museum and the Protestant Episcopal Theological Seminary.

No living donors to these organizations (or persons related to those donors) exist. Importantly, the wills establishing the Evans Restricted Fund and Whitehead Foundation specifically provide that grants are to be paid from income only. Distributions from the Evans Restricted Fund are made in accordance with a formula dictated by the donor more than fifty years ago. Trustees of the Evans Restricted Fund are understandably reluctant to spend precious charitable dollars on legal proceedings to reform the will and charter should the Treasury Department impose an asset-based payout requirement on type III supporting organizations.

Of equal importance, trustees are concerned that an asset-based payout requirement will expose distributions to market fluctuations. Adhering to the donors' directions to distribute income, trustees manage investments to produce reliable and consistent income growth while protecting the real value of the corpus. Over the past ten years, annual distributions from the Evans Restricted Fund have increased by 8% on average, and distributions from the Whitehead Foundation have increased by 6% annually.

The Great Recession provides a perfect case study demonstrating why an asset-based payout requirement would adversely impact the many public charities these organizations support. Despite a 39% decrease in the S&P 500 Index in 2008, distributions from the Evans Restricted Fund and Whitehead Foundation in 2008 increased by over 10% and 8%, respectively. Beneficiaries report that with significant losses in endowments and fund raising, distributions from these supporting organizations are the only revenue sources that increased in 2008. And despite continued volatility and erosion in the investment markets, distributions increased another 7% and 5%, respectively, in 2009.

Perhaps more concerning, our analysis shows that had the Evans Restricted Fund and Whitehead Foundation been forced to distribute 5% of their assets since inception, they would now be distributing less, not more, to their beneficiaries, and that disparity would only increase going forward. The donors intended to support their beneficiaries in perpetuity. There are ample opportunities in drafting new regulations to honor these donors' intent and to curb abuse by living taxpayers.

In comments submitted on October 30, 2007 in response to your Advance Notice of Proposed Rulemaking, we suggested a specific, narrowly tailored exception to any new payout regulations for organizations like the Lettie Pate Evans Restricted Fund and Lettie Pate Whitehead Foundation that have no living donors and that have distributed significant amounts to charity. If such an exception is unacceptably broad, we urge you to consider an exception for those organizations that were formed prior to the Tax Reform Act of 1969, that have distributed a significant amount to charity and that are governed by instruments requiring that grants be made from income only. Such an exception would ensure that new regulations accomplish their aim of eliminating abuse while not interfering with or limiting legitimate philanthropy.

Thank you for considering these comments. Please do not hesitate to call on us if we can provide further information.

              • Sincerely,

                P. Russell Hardin
                Lettie Pate Whitehead Foundation
                Atlanta, GA

Senator Saxby Chambliss
Senator Johnny Isakson
The Honorable John Lewis
Ms. Alexandra Minkovich, Attorney-Advisor, Office of Tax Policy

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