March 20, 2003 | Read Time: 2 minutes
Nearly a decade after its creation, a foundation that lets donors make gifts anonymously is finally poised to begin fulfilling that purpose.
As part of a mediated settlement that follows years of litigation, the Internal Revenue Service has agreed to classify the Fund for Anonymous Gifts as a charity rather than a private foundation. That ruling permits the fund to operate much like a community foundation, accepting donations from individuals and making grants to other charities as advised by the donors.
The fund, set up in 1994, was the brainchild of the late William J. Lehrfeld, a Washington-area lawyer who wanted to enable his clients to make gifts in strict secrecy, perhaps in support of unpopular or controversial causes, for example, or to insulate themselves from the unwanted attention of fund raisers.
Amber Wong Hsu, a Washington lawyer who serves as the fund’s trustee, hailed the IRS agreement, but expressed sadness that Mr. Lehrfeld, who died last September, could not savor his victory. “In the end, he was vindicated,” she noted.
The revenue service initially denied the foundation’s application for tax-exempt status in 1996, arguing that it lacked any intrinsic charitable purpose apart from merely serving the wishes of its donors. Mr. Lehrfeld appealed that decision, but a federal district judge ruled in 1997 that the fund was not entitled to tax-exempt status because its donors would retain control over how the fund invested their gifts.
Mr. Lehrfeld then removed from its governing documents the provisions that the judge had found objectionable, but was still unable to secure a tax exemption in subsequent negotiations with the revenue service.
In 1999, a federal appeals court ruled that the foundation was indeed entitled to tax-exempt status, but left it to the district court to determine whether it should be classified as a public charity or a private foundation, which is subject to more restrictions. A district judge held in 2001 that the Fund for Anonymous Gifts was a private foundation, because it failed to show the kind of broad public support required of charities. The judge dismissed Mr. Lehrfeld’s contention that the fund would easily have a mix of donors broad enough to meet the “public-support test” required of charities.
Mr. Lehrfeld filed yet another appeal, but the case was randomly selected for mandatory mediation, said Ms. Hsu, which triggered another round of negotiations with the revenue service. The resulting agreement is provisional; it gives the foundation until December 31, 2007, to show that it meets all criteria for charitable status. If it fails to do so, the service warns, it will be reclassified as a private foundation.
Ms. Hsu said she plans to expand the board and to start soliciting gifts. “I do have a couple of people who are interested,” she said, “and who have been asking me over the past year when it would be ready.”
