WASHINGTON – Sen. Chuck Grassley of Iowa today urged the Administration and congressional colleagues to take action to limit or close a charitable loophole that taxpayers heavily subsidize yet results in financial gains for a few principals and very little money for charities. At a Finance Committee hearing today, Grassley gave the example of the George Kaiser Family Foundation, which is in the news as a key investor in the now-bankrupt Solyndra solar energy company.
Grassley said the George Kaiser Family Foundation converted from a private foundation to a supporting organization about ten years ago, as reported by The New York Times in 2005. He said if the organization had remained a private foundation, it likely would not have been able to invest as much as it did in Solyndra or the other private equity or hedge funds in which it invested. It also would have been subject to strong restrictions on self-dealing and excise taxes on its investment income. The donors who contributed $1 billion in cash and securities, including non-publicly traded securities, over the past three years would have been subject to lower limits for deductibility if it had remained a private foundation.
“So, with Solyndra, the government didn’t just lose out on its investment through the $535 million loan guarantee,” Grassley told the Finance Committee. “It also lost out on the tremendous subsidy it provided the George Kaiser Family Foundation through the charitable contribution deduction.”
Grassley urged the Finance Committee leaders, as they schedule tax reform hearings, to schedule a hearing “to examine the standards for tax exemption and the increasingly blurred line between public charities and private foundations.” Grassley also wrote to the Treasury secretary and the IRS commissioner, citing the George Kaiser Family Foundation example and urging them to finish a long-overdue study on appropriate pay-out rates for supporting organizations.
Grassley wrote in his letter, “The study was intended to inform the Treasury as to what was an appropriate pay-out level. The idea was that the pay-out requirement should be no less than what is required of private foundations since these supporting organizations were clearly formed to skirt the private foundation rules. If the Administration is serious about closing loopholes, it should prioritize the completion of the study and the finalization of the pay-out rules for those supporting organizations Congress deemed to be exploiting the tax code. Both of these will be helpful as Congress continues to consider tax reform.”
Grassley is a senior member and former chairman and ranking member of the Finance Committee, with exclusive Senate jurisdiction over tax policy.
Grassley’s statement at the Finance Committee today is available
here.
Grassley’s new letter to the Treasury and IRS is available
here.
Grassley’s staff analysis of the George Kaiser Family Foundation is available
here.
Grassley’s Aug. 11, 2011, letter to President Obama on the definition of tax loopholes is available
here.
Treasury’s Oct. 3, 2011, response is available
here.
The Grassley-Baucus 2005 letter to Treasury regarding supporting organizations and a related press release are available
here.
