Strategic Source Online

May 2005

Legislative Update: Estate Tax Repeal for Real?

It will take 60 votes in the Senate to approve permanent repeal of the estate tax. The budget deficit and raw statistics seem to rule against it, but public clamor and political posturing make the chances more likely than not. Some statistics to remember…

The Congressional Budget Office estimates a five-year budget deficit of $1.18 trillion and a ten year deficit of $980 billion. This is before any changes in Social Security or other tax cuts.

The Joint Committee on Taxation estimates the cost of permanent repeal through 2015 is approximately $289 billion. According to the Urban Institute, under the current exemption of $1.5 million, 83% of tax is paid by the top 11% of households and the number of small businesses and farms subject to the tax is down to approximately 300. In a tax policy release by the Institute, raising the exemption to $3.5 million would cut the number of farms and businesses liable to the tax by 75% to just over 100. The Institute further reports that the static cost of repeal would cost about $50 billion a year by 2015. For further information, see the Tax Policy Center Issue Brief, Options to Reform the Estate Tax.

More Recent Efforts

Sen. Jon Kyl, a member of the Senate Finance Committee, introduced

S. 420, which would permanently repeal the estate tax. A similar bill was introduced into the House by Rep. Kenny Hulshof ( H.R. 8).

Other Bills Include…

Moore Bill Would Restore Estate Tax, Repeal Carryover Basis
Rep. Dennis Moore, D-Kan., introduced H.R. 1574, which would increase the unified credit amount against the estate tax to $3,500,000 and would repeal the amendments made by the Economic Growth and Tax Relief Reconciliation Act of 2001 concerning the estate tax and carryover basis.

Lowey Bill Would Reduce Estate Tax, Increase Unified Credit
Rep. Nita M. Lowey, D-N.Y., introduced H.R. 1614, which would reduce the estate tax rates by 20 percent, increase the unified credit against estate and gift taxes to the equivalent exclusion of $3,000,000, and adjust the credit for inflation.

Leach Bill Would Amend Estate, Gift Tax Rates, Increase Unified Credit Exclusion
Rep. James A. Leach, R-Iowa, introduced H.R. 1568, which would reduce the estate and gift tax rates to 30 percent, increase the unified credit exclusion equivalent to $10,000,000 and adjust it for inflation, and increase the annual gift tax exclusion to $50,000.

Thompson Bill Would Repeal Estate Tax on Family-Owned Businesses, Farms
Rep. Mike Thompson, D-Calif., introduced H.R. 1624, which would repeal the estate tax on family-owned farms and businesses and would provide an exclusion for qualified family-owned business interests.

Senate Finance Plans June Hearing on Charitable Land Donations
The Senate Finance Committee will hold a hearing in June on charitable donations of land, a committee staff member said April 28.

Lincoln Introduces Estate Tax Repeal Acceleration for Family-Owned Businesses and Farms Act
Senate Finance Committee member Blanche L. Lincoln, R-Ark., has summarized the Estate Tax Repeal Acceleration for Family-Owned Businesses and Farms Act she introduced on April 27; the bill includes general rules, a carryover business interest definition, working capital rules, and participation requirements.

Litigation Front :  Senate Finance Committee Continues to Call for Charity and Giving Reform

Be careful what you promise. Residents of a county in eastern Washington State sued the Northwest Area Foundation, which is a public charity with assets of about $438 million, alleging that the Foundation reneged on a promise to pay them for incidental costs (e.g. travel, child care, and compensation for time spent away from work) to help implement a plan to reduce poverty in the area. A U.S. Appeals Court held that the residents had enough evidence to show that the Foundation did promise them money, even though there was no formal contract between the farm workers and the Foundation. The court did not decide the merits of the case, just the right of the residents to bring it. The Foundation had considered funding a program in the area but decided against doing so. Novel case of an action against a grant maker. Romero v. Northwest Area Foundation. Feb 18, 2005. Reported in the The Chronicle of Philanthropy 3/17/05, pg 20.

Charity Governance Blog:   Ninth Circuit Reinstatement Opinion

The Chronicle of Philanthropy: [SUBSCRIBERS ONLY]  A FEDERAL JUDGE has dismissed a $1.25-million lawsuit that accused the Northwest Area Foundation of reneging on a poverty-reduction grant program in Eastern Washington State

Executive Compensation: The Focus on Compensation Continues

The focus on compensation continues, with more information released on the compensation paid to several public foundations and charities. The IRS announced plans to “crack down” on some 2,000 nonprofit organizations for paying excessive salaries or benefits to executives.

The administrators of the Marin Community Foundation received salaries between $103,940 and $364,734, not including benefits. The salaries are overseen by the local superior court and were seen as reasonable by a foundation watchdog group. The Foundation has more than $1 billion in assets and is the fourth-largest community foundation in the U.S. and 42nd largest foundation based on asset size.

The Council on Foundation’s most recent salary survey indicates that the median salary for a foundation CEO was $110,000 in 2004. But these surveys should be viewed cautiously, since the appropriate compensation is based not just on asset size, but on the experience and expertise of the executive, the amount of time devoted to foundation matters, the nature of the services performed by the executive, and the range of salaries provided to other similar organizations in the area. The COF survey is national and has relatively few foundations of each size and composition in any specific region or community.

Council on Foundations:   2004 Grantmakers Salary and Benefits Report Executive Summary

Important New Studies on Donors and Advisors

Understanding what drives donors and the role that their professional advisors play is important to anyone concerned with the public policy, best practices and general advancement of philanthropy. With an eye towards these issues, two separate independent studies were conducted, one focusing on the perspective of California donors, and the other on the professionals who advise them. Although these studies were not paired, looking at them together reveals an uncomfortable truth: Advisors believe they are listening and responding to the needs of their clients. Donors don’t always agree. The studies were analyzed by Doug Freeman and Ken Neisser. You can read their analysis in the April issue of Trusts and Estates.

IFF Advisors:   The Disconnect

Register Today!  2nd Module of the Foundation Management Certificate Program at Fielding Graduate University to Begin June 11

If you are a founder, director, or trustee, foundation manager, or an advisor who regularly consults with foundations, then you should attend the Foundation Management Certificate Program, offered by IFF Advisors, Inc., and the Fielding Graduate University. This program provides the most comprehensive, hands-on and practical training available in the country.

Upon completion of the program, students will receive a Certificate from the Fielding Graduate University. The 2nd Module of the Certificate Program begins on June 11 (Module 1 is not a prerequisite).

Fielding Graduate University: Register Today!

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