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FUNDING SOURCES FOR EXEMPT ENTITIES
Cengage
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FUNDING SOURCES FOR EXEMPT ENTITIES

Contributing Author: William A. Raabe

Ask your students where they think that charities get their revenues, and the first answers likely will be “Corporations” and “Foundations” and “Rich People,” but there is little truth in those responses.  Data for 2017 contributions to charities continue to show that most gifts come from individuals, and that most are earmarked for religious and educational purposes.  That is not the picture that the media paints for common consumption, but those data do not change much from year to year.

The Giving USA foundation is the source of much data (available for purchase), derived over the years from the charities themselves and from public documents, as are the Forms 990 that many charities are required to file annually with the IRS, available from a third-party foundation (free).  Media sources also can be searched, as they often write stories about local charities and their supporters, giving information that ranges from the broadest to the most local focus.

One way to look at charitable giving is to see it as a form of voluntary taxation that the donors take upon themselves, augmenting the spending that governments make with additional gifts from interested parties.  For instance, in Trinity Lutheran, (582 U.S. ___), a church wanted to add some playground equipment to its premises, and it applied for and received a grant from the local government to cover some of the costs.  Had the government grant not come through, local donors would have needed to pay for the entire project.  As the case was decided, local taxes were used for the project.  With a different decision from the Supreme Court, donors would have replaced those funds, thereby “taxing themselves” and supplementing the taxes that they already had paid.

Of course, if the charitable gift is seen as a voluntary tax, it is clear that the donor is allowed to select the recipient and, in some cases, direct the gifted funds to a specific project or program.  Such earmarking is not allowed with most traditional taxes (i.e., a federal taxpayer cannot say “Don’t use any of my funds for defense spending,” or “Put all of my taxes to programs for medical support for veterans”).

We like to think that taxes influence all rational decision making, chiefly as a variable cost that is incurred or avoided.  Data as to charitable contributions sometimes speaks to the contrary.  Most gifts to religious organizations are made by non-itemizers, and thus they bring no tax benefit.  Even a large gift to support one’s alma mater probably is made for largely emotional reasons, with tax savings a welcome but secondary effect.  Or a gift to a medical center may be prompted by an actual experience of the donor, rather than just general interest in, say, curing arthritis.

Here are some 2017 data from the Giving USA group, which may be useful in starting your classroom conversations.  Unlike most tax provisions, charitable contributions are likely already to have been considered in some depth by your students, with the resulting information (of varying accuracy) and opinions (of various degrees of support-ability) leading to perhaps heated discussion.

 

  • Annual gifts to US charities total over $410 billion per year. Forms 1040 collect about $1.5 trillion per year.  Charitable deductions total about $250 billion per year.
  • Gifts to charities come from Individuals (70%) and their estates (9%), Foundations (16%), and Corporations (5%).
  • Charitable gifts are made in support of Religion (31%), Health and Human Services (21%), Education (14%), and other recipients, such as Environment/Animals (3%), and Arts, Culture, Humanities (5%).
  • Charitable giving as a percentage of GDP is a steady 2% annually, inflation adjusted, over four decades. Year to year variations appear to track stock valuations, recessions, and changes in personal consumption.

 

CLASS ASSIGNMENTS

 

Tax Policy

  1. Justify the use of a charitable contribution deduction as a tax expenditure.
  2. Justify the tax exempt status of a private university, like Harvard.
  3. Justify the tax exempt status of your university’s athletic program.
  4. Identify one charitable cause that you are willing to “tax yourself” with by making a charitable gift to it.   Assume that you itemize deductions and can claim a tax benefit from the gift.

 

Tax Research

  1. Use a graph to show how, in five-year increments, federal charitable contribution deductions have changed in the last fifteen years. Include non-cash gifts in your analysis.
  2. Identify a highly visible charity in your area, like the zoo or symphony orchestra. List the three highest paid employees or contractors for the charity, for any of the last three years.  Are they paid more or less than you had thought before doing the research?
  3. Use a graph to show an “income statement” for a highly visible charity in your area, like a museum or hospital, by comparing expenditures with total revenues. Include government grants, individual gifts, and taxable revenues in your analysis.

 

SWFT Chapters:                  

SWFT  Individuals:  Chapter 10

SWFT Corporations:  Chapter 15

SWFT Comprehensive:  Chapters 10, 23

SWFT Essentials:  Chapter 10