Ron Paul and Other Texas Legislators Oppose Certain Proposed Supporting Organization Rules

Ron Paul and Other Texas Legislators Oppose Certain Proposed Supporting Organization Rules

News story posted in Congressional Correspondence on 20 February 2008| comments
audience: National Publication | last updated: 18 May 2011


In a letter to Treasury Secretary Paulson, a bipartisan group of Texas legislators have expressed concern that Proposed Rulemaking regarding Type III Supporting Organizations will make it impossible for "historical" supporting organizations to meet the functional integration test. The group also opposes the proposed five percent mandatory distribution rule for non-functionally integrated organizations on the basis it would force untimely distributions thereby hurting long-term philanthropic support.

Full Text: 

The Honorable Henry M. Paulson, Jr.
Secretary of the Treasury
The Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Re: Proposed Rules for Type III Supporting Organizations

Dear Secretary Paulson:

As you are aware, the Pension Protection Act of 2006 brought significant changes to supporting organizations to halt donor abuse and to ensure that supporting organizations actually assist their supported charities. To facilitate these changes, Congress instructed the Treasury Department to draft new regulations to better define functionally integrated Type III supporting organizations and to establish a minimum payout for non-functionally integrated ones. We appreciate the speed and thoughtfulness with which the Treasury Department and Internal Revenue Service have responded to our request to promulgate new regulations for Type III supporting organizations. However, we are concerned that the rules contained in the Advance Notice of Proposed Rulemaking REG-155929-06 will have devastating effects on existing Type III supporting organizations that have not abused the law.

In particular, we are concerned that the proposed asset test for functionally integrated Type III supporting organizations will be impossible for historical supporting organizations to meet. Many supporting organizations within Texas have operated for decades and have amassed large endowments. These organizations have made significant contributions to educational, healthcare and other community charities. Historical supporting organizations will fail the proposed asset test because its technical definition does not allow these supporting organizations to treat their investments as assets that are used for the benefit of their supported charities. We recommend that Treasury consider adopting a special rule for historical supporting organizations, especially in those instances where the organization's donors are deceased and there is no threat of donor abuse. For example, historical supporting organizations could be excluded from the asset test altogether or could be allowed to include prior asset distributions.

Further, we believe that the proposed payout rule requiring non-functionally integrated Type III supporting organizations to distribute annually five percent of their non-charitable assets will force untimely liquidations of the supporting organizations' assets. We fear that this rule actually will result in fewer charitable dollars in the philanthropic community over time. Many supporting organizations were created to support a charity (or charities) in perpetuity and/or to support a beneficiary that is meant to exist in perpetuity, such as a university. A five percent payout rule risks these organizations' ability to fund their charities in the future. We recommend that any payout requirement be based on the existing percentage of income rule. Also, we suggest that any payout requirement be averaged over a five year period.

Texas-based supporting organizations have channeled billions to libraries, universities, hospitals, museums, zoos, and numerous other charities. These organizations play a vital role in our communities and have had a positive impact for our constituents. While we remain committed to preventing abuse of the supporting organization structure, we request that you cooperate with law-abiding Type III supporting organizations to halt abuses while allowing these organizations to continue to serve Texas citizens. Thank your for your attention.

                Very truly yours,

                Ron Paul

                Gene Green

                Nick Lampson
cc: Linda Stiff, Acting Internal Revenue Service Commissioner

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