December 20, 2018.
In the light of the recent news about the Trump Foundation I have found myself thinking about the governance of private foundations and the responsibility and accountability of their boards. My past thinking has been to place as little burden as possible on prospective donors whether they be individuals, foundations, corporations, or other grant-making organizations. Don’t get in the way of a gift has been my attitude. That’s the old fundraiser in me.
But the 73-year-old man who has committed a large portion of his life to the nonprofit sector fears the damage that can be done to philanthropy when a private foundation is used in an unscrupulous manner, is poorly governed, or its board is not accountable for the actions of the foundation.
It is a privilege for an organization to be granted 501(c)(3) status—to be legally identified as a charity. That status comes with two major economic benefits:
- Exemption from paying federal, state, and local taxes.
- The ability of donors to receive a tax deduction for their gifts.
All private foundations, unless they fall into an explicitly excluded category, are what we commonly call 501(c)(3) charitable organizations.
The board of trustees/directors of a 501(c)(3) charitable organization is charged with the governance of that organization. Part of that governance is the responsibility to assure that the organization remains in compliance with all requirements of section 501(c)(3) of the Internal Revenue Code.
There have been and continue to be private foundations that abuse the privileges granted to them under section 501(c)(3). Some skate too close to the edge of the IRS code. Others willfully ignore it. To operate as a 501(c)(3) charitable organization is to have accepted a public trust. Failure to adhere to 501(c)(3) requirements is a betrayal of that trust. Ultimately the responsibility for that betrayal lies with an organization’s board.
It is time to rigorously enforce existing law and to examine whether additional statutory requirements are needed to assure proper governance of private foundations. When a private foundation acts in ways that betray the trust placed in it by the public, it damages the underlying mechanisms of philanthropy and the ability of legitimate charitable organizations to accomplish their mission.