May 22, 2007 | Read Time: 1 minute
Should the Internal Revenue Service further tax foundation endowments?
On her blog Philanthropy 2173, nonprofit consultant Lucy Bernholz says it should.
While the IRS applies a 1 or 2 percent tax on net investment income of philanthropies, Ms. Bernholz writes that the revenue agency should tax any money a foundation doesn’t spend on charitable activities in a given year.
“For example, the full corpus of an endowment is exempt from taxes, even though most foundations only spend a small percentage (around 5 percent) of their endowment earnings on charitable purposes,” she writes. “So the actual tax benefit ought to align with the charitable dollars – the 5 percent given in grants, not the 100 percent of the endowment which is in market-rate investment vehicles.”
Ms. Bernholz adds that if a grant maker invests in “companies that serve a public-benefit purpose,” then those investments should also be tax-exempt.
“After all, why are taxpayers subsidizing market-rate investment capital? Shouldn’t public-benefit tax exemptions be granted for public-benefit activities?” she asks.
What do you think? What would happen to foundations if their assets were subject to additional taxes? Would there be more or less money for charities? Click on the comments link just below this posting to share your thoughts.
