by James J. Devine
A donor-advised fund is a method of disguising money as charitable gifts in order to let wealthy people gain secret advantages, such as maximum tax deductions, while controlling expenditures made for the benefit of a corporation, family, or individual.
Usually administered by a charity created for the purpose of managing tax deductible donations, foundations extend the donor ‘advisory’ status but make grants upon the contributor’s recommendation.
Since private non-profit organizations are not obligated to make their operations, activities or decision-making processes public, these transactions are often conducted with very limited scrutiny.
Donor-advised funds are the fastest growing charitable giving vehicle in the United States of America, with more than 175,000 donor-advised accounts established, holding over $37 billion in assets.
While private foundations in the United States are heavily regulated by the Internal Revenue Service, including rules on oversight and minimum annual payouts, donor advised funds housed in public charities are not subject to the same tax restrictions.
Current U.S. law allows the donor of certain securities or other assets to get a tax deduction for the market value of the donation and avoid capital gains taxes.
This double tax dodge can make donating appreciated assets to a charitable organization more attractive than selling the assets and donating cash.
The kind of tax free corporation behind the sinister ‘Citizen’s United’ ruling is not as bad as a phony charity, but non-profit does not mean somebody is is not making money off it. Either way, tax exempt or tax deductible, someone needs to begin taking a closer look at what non-profits do.
More and more, charitable organizations are used as a front groups to perform functions that serve an individual’s personal interest, from ego gratification to surreptitious political actions.
Donor-advised funds help conceal evidence that tax free spending inures to the benefit of private individuals or businesses contrary to §501(c)(3) of the Internal Revenue Code of 1954 (26 U.S.C. §501(c)(3)).
The Pension Protection Act of 2006 (Pub. L. 109–280), 120 Stat. 780, signed into law by President George W. Bush Jr. on August 17, 2006, removed a conflict of interest liability from a fiduciary giving self-interested investment advice for retirement accounts and changed several types of tax-exempt charitable organizations including donor-advised funds.
An organization organized exclusively for charitable, religious, educational, literary, and scientific purposes is allowed to operate free from taxation, as long as no part of its net earnings shall inure or be distributed to its members, officers, or other private persons, except to pay for services rendered and to distribute funds for exempt purposes.
Various exceptions allow the super rich to do whatever they want, from publishing overtly partisan propaganda to making political payoffs through ‘honorariums’ and speaking fees.
Essentially, donor-advised funds are another way the rich escape liability for taxes while using their money to distort the democratic process at the same time.
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