Treasury, Congress Review Donor Funds

Foundation leaders met last week with government officials to talk about reining in tax-exempt funds set up by for-profit companies.

The foundation officials — led by John A. Edie, senior vice-president of the Council on Foundations in Washington — want Treasury officials and lawmakers to consider whether banks and investment companies should be allowed to operate charitable gift funds and under what circumstances. The foundation officials say the so-called commercially related donor-advised funds are operating without proper oversight and perhaps illegally.

The funds have been a subject of fierce debate within philanthropy since 1992, when Fidelity Investments, one of the nation’s largest mutual-fund companies, started a new service intended to make it easier for donors to give money to charity.

Fidelity and other businesses have set up gift funds much like the donor-advised funds that are offered by community foundations. The funds allow donors to put their money in special charitable accounts, take a tax deduction for their gifts, and then advise the company about which charities they would like to support. Fidelity officials have said such funds are a legitimate way to broaden the services that investment companies offer. Fidelity’s gift fund has $1.2-billion in assets.

Critics of the commercial funds charge that profit, not philanthropy, is the driving force behind the funds; that they give too much control to the donor; and that they are open to abuses, including situations in which donors could illegally profit from their own gifts.

The council’s Mr. Edie said that last week’s meetings — first with a Treasury official and then with an aide to a Congressional tax committee — were intended to explore regulatory and legislative ways to clamp down on commercial entities that set up donor funds.

Among other things, the foundation leaders offered draft legislation that would clarify when a commercially related fund should be considered a private foundation, not a charity. Foundations are subject to stricter grant-making rules and offer less-generous tax exemptions to donors than charities.

Mr. Edie called the meetings — the third such meeting with the Treasury Department since 1992 — “exploratory” and said that no further action was planned.

Treasury and Congressional officials declined to comment.