Enhanced Charitable Deductions for Businesses

Generally speaking, a charitable donation by a business enables it a deduction from taxable income equal to the fair value of the donated item less whatever ordinary income would have been gained on the item.  In other words, the general rule is that donations of inventory only permit a deduction equal to their cost.  However, some provisions have been enacted that provide “enhanced” deductions for certain donations.  Under IRC section 170(e)(3), a business that donates items that are put to use by a charity or operating foundation to help the needy (e.g., food, clothing, medicines) is eligible for deduction not equal to cost but instead the lesser of (i) twice cost or (ii) the midpoint between cost and market value.  Over the years, this provision has been expanded (and contracted) to include different types of business entities, different types of donations, and different types of donees.  These enhanced deduction provisions have some notable effects:

Class Action Settlements and Charities

One little known source of funds for a variety of charities is in the form of unclaimed class action settlement funds.  Such funds are awarded to charities under the "cy pres" doctrine.  The idea is that if a class of individuals is subject to receive funds as part of a class-action settlement, often many class members fail to claim their funds (due to relocation, inconvenience, etc.).  While the default outcome in such cases is that unclaimed funds revert to the defendant, there has been an increasing interest for unclaimed funds to go to a charity or charities related to the plaintiffs interests (or even just in the interests of society).  The thinking is that such outcomes are more in line with the intent of class participants than returning funds to the defendant would be.

Fundraising by the NRA

As debates over gun control heat up, one group facing substantial scrutiny is the National Rifle Association (NRA).  I know little about guns and even less about the efficacy of different programs aimed at reducing gun violence.  So, you will be happy to hear that this blog post has nothing to do with gun control or the 2nd amendment.  However, since the NRA is a nonprofit organization that is at the center of the debates, I figured I would look into their financial statements.  As regular readers of this blog know, I have been particularly interested in the use of third-party fundraisers (e.g., telemarketers) by nonprofits.  It is this aspect of the NRA I want to focus on here.

The Future of Livestrong

As we brace for what by all accounts will be an admission to doping allegations by Lance Armstrong, the inevitable aftershocks will entail many questions about the cancer charity he founded, the Lance Armstrong Foundation (recently renamed the Livestrong Foundation).  Many will ask what the future holds for the foundation and whether it can survive.  From my perspective, the more important question is not whether the Livestrong Foundation can survive but whether it should survive.

Picking Efficient Charities – Comedy Central Edition

Lest we take ourselves too seriously...

In this, the inaugural installment of picking efficient charities, we compare the two titans of Comedy Central, Jon Stewart and Stephen Colbert.  The goal is to examine the charities endorsed by each person and see who picks charities that are more efficient.  In terms of how to measure success, we will compare the most recent year’s program expense ratio (percentage of funds directly spent on the organization’s mission) for each of the five largest charities endorsed by each person.  The charity endorsements were obtained from Look to the Stars; the financial data comes from the respective charities’ annual Form 990 filings and/or from Charity Navigator.  This exercise comes with loads of caveats about interpreting efficiency measures, but we will save those for another day.  For now, let the comparison begin. 

Charity Telemarketing II: Remedies

As discussed in this post's predecessor, Charity Telemarketing I: The Problem, the use of telemarketers to raise funds for charities has become a problem due to the large scale of their campaigns, the minimal funds that reach charities, and the failure of accounting records to reflect this dichotomy.  Given the problem, I now offer up a few possible remedies for consideration.  They are surely not panaceas, but they may help...

Debunking the Myth that the Wealthy Gave Less to Charity in 2012

By now, you may have seen the seemingly ubiquitous headline that the wealthiest donors reduced their giving in 2012.  Starting with a piece in the Chronicle of Philanthropy, and since covered in the Huffington Post and Salon, among others, the takeaway seems to be that the wealthiest donors reduced giving by 30% in 2012.  The problem with this headline is that the claim is wrong.

Let's examine the numbers: According to the Chronicle of Philanthropy data, the twelve largest gifts to charity in 2011 amounted to $2.645 billion.  In 2012, the twelve largest gifts amounted to $4.870 billion.  This is an increase of 84%.  How did this get interpreted as a decrease of 30%?  Well, the three largest gifts in 2012, by Warren Buffett, each amounted to $1.03 billion.  For some reason, those interpreting the data have decided that the top three gifts in 2012 are too big to count (even though the entire exercise is counting the largest gifts).  So, the solution was to compare the top 12 gifts in 2011 (#s 1-12) with the 12 after the Buffett gifts in 2012 (#s 4-15).  This comparison yields a decrease in 2012 (not exactly 30%, but that's another story).  However, it hardly seems fair to compare the largest gifts in one year with those near the largest in the next -- of course you'll see a decrease when doing this.  Even if you think the top three gifts by Buffett skewed the data too much, we should at least be comparing apples to apples.  So, let's throw out the three Buffett gifts, and compare what's left of the top 12 in each year (i.e., use #s 4-12 for both 2011 and 2012).  In that event, the total in 2012 is $1.780 billion, as compared to $1.230 billion in 2011, an increase of 45% in 2012.

In other words, no matter how you slice it, the top donations in 2012 exceeded those in 2011.

Charity Telemarketing I: The Problem

The use of professional fundraisers, or "telemarketers", by charities has expanded notably in recent years.  This can be attributed to both supply and demand of such services.  On the supply side, the imposition of the national do-not-call registry has left many telemarketing organizations with limited clientele; charities, however, are exempt from the registry, so are a natural place for these organizations to work.  On the demand side, the telemarketers can offer a compelling case to resource-strapped charities.  They can offer to raise funds on behalf of the charity, without the charity having to do anything.  Basically, a sales pitch that states "I will send you money each month, is that ok?" is somewhat hard to resist.  These forces have led to telemarketing being an integral part of charity fundraising.  Below, I will summarize the problems with this development.  Next week, I will discuss a few possible solutions.