Exempt Organizations Advisory - House Ways and Means Oversight Subcommittee Addresses Ability of Charities to Serve Needs of Diverse Communities

By: Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

On September 25, the House Ways and Means Oversight Subcommittee held a hearing as to whether tax-exempt charitable organizations adequately serve the needs of diverse communities.  According to Subcommittee Chairman John Lewis, two necessary questions to address are “how well do we reach diverse populations?” and “how can we do it better?”

Witnesses spoke about the diversity of donors, as well as the diversity of clients.  According to Dr. Elizabeth Boris, director of the Center on Nonprofits and Philanthropy at the Urban Institute, “70 percent of nonprofits have clients that are half or more white; 15 percent of nonprofits do not have any black (non-Hispanic) clients, and 3 percent serve 75 percent or more black (non-Hispanic) clients; 35 percent do not serve any Asians, and 0.9 percent serve 75 percent or more Asians; 21 percent do not serve any Hispanic/Latino people and almost 2 percent serve 75 percent or more Hispanic/Latino people.”

The hearing also addressed the mismatch between philanthropy and need, especially in times of national catastrophes.  “The needs of diverse urban and rural, majority and minority communities are largely invisible to donors, unless highly publicized in the aftermath of major tragedies, like Katrina,” testified Dr. Julian Wolpert, Professor Emeritus at Princeton University.

Lawmakers heard testimony from the following witnesses: Julian Wolpert, Ph.D., Bryant Professor of Public Affairs, Emeritus, Woodrow School, Princeton University; Elizabeth T. Boris, Ph.D., Director, Center on Nonprofits and Philanthropy, The Urban Institute; Kevin M. Brown, Chief Operating Officer, American Red Cross; Susan V. Berresford, President and CEO, The Ford Foundation; Lesley Grady, Vice President of Community Partnerships, The Community Foundation for Greater Atlanta; and Byron Laher, Director, Government and Labor Relations and Community Affairs, Greater Twin Cities United Way, and accompanied by Marcia Fink, Director, Basic Needs, Greater Twin Cities United Way.  Full testimony of each witness can be found here.

Senate Finance Committee Hears Testimony on Offshore Tax Issues
On September 26, the Senate Finance Committee held a hearing on federal tax issues related to offshore reinsurance and the use of offshore entities as investment vehicles for tax-exempt investors and for deferral of some types of compensation.  

Steptoe & Johnson LLP tax partner Suzanne Ross McDowell provided testimony regarding the unrelated debt-financed income rules and investment by tax-exempt organizations in offshore or "blocker" entities.  McDowell provided similar testimony before the House Ways & Means Committee earlier this month.  McDowell said, “Rather than focusing on the use of blocker entities to avoid the unrelated debt-financed income rules, I urge Congress to evaluate the operation of the debt-financed income rules and to significantly restrict the application of these rules.  Under current law, there is an exception for real estate transactions of pension funds and universities if the transactions meet certain requirements.  This exception, and its requirements, should be used as the model for a broader exception applicable to all types of debt-financed property and available to all tax-exempt organizations."

McDowell added, “If Congress amends the unrelated debt-financed rules as suggested, tax-exempt investors will no longer be forced to invest offshore and use blocker entities to avoid the unrelated debt-financed income rules on legitimate investments.  Further, the current disparate treatment between direct borrowing and leverage, and between different types of tax-exempt investors, will be eliminated.”