Survey Says: Not-For-Profit Trends Are Continuing to Change
Kevin Omahen, CPA
Contributions to Donor Advised Funds
The National Philanthropic Trust (NPT), the largest U.S. donor-advised fund (DAF) sponsor, has some good news about grants to not-for-profits from Donor-Advised Funds (DAFs). It reports a 39% increase in the dollar amount of such grants made from its sponsored funds in fiscal year 2019, for a total of $1.39 billion. That represents a 28% increase in the number of grants made over the previous year. The jump aligns with reports from other DAF sponsors. Fidelity, for example, reported a 48% increase in grant making from DAFs in the first half of 2019. And Schwab said it experienced a 33% increase in the dollars granted from DAFs in fiscal 2018.
Various factors could contribute to this trend, but most notably the changes in the tax reform have contributed to the increase. The tax reform has created scenarios where donors have a tax advantage to make a one-time contribution to a DAF and in subsequent years determine exactly where those funds will go, while receiving the full deduction in the year the contribution is made to the DAF.
What does this mean going forward? It is difficult to say. If the main factor contributing to the increase is the tax reform, there would likely be an expectation to see contributions to DAFs in 2020 decrease from 2019. However, many donors may not have been aware of this strategy in 2019 and are now interested in making a DAF contribution in 2020 as they learn the advantages and disadvantages.
Where Is Your Fundraising Professional Going?
More than half of not-for-profit fundraisers plan to leave their current jobs in the next two years, according to a new survey commissioned by the Chronicle of Philanthropy and the Association of Fundraising Professionals. The survey questioned more than 1,000 fundraisers in the United States and Canada.
Reasons for the turnover include unrealistic expectations that are set by not-for-profits and lack of salary goals being met for the fundraising professional. From the survey, 30% indicate they have recently left or plan to leave the development field entirely in the next two years; 5% of the survey respondents had already left fundraising. Only 12% say they plan to retire or have other personal reasons for leaving.
With the new tax reform not-for-profits are still trying to determine how exactly they are being affected. This increases the importance of a development specialist to review the success of the not-for-profit and determine where the market really exists for donors. It is important to understand how the not-for-profit’s donors have changed their strategy and then ultimately how the organization can adjust its development strategy to achieve its ultimate fundraising goals.
Federal Appropriations Bill Provides Some Tax Changes for Exempt Organizations
Jeffrey Chiles, CPA, MST
On Thursday, December 19, Congress passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) (the Act) which was then signed into law by the President the next day. Included in this wide-ranging bill were a number of tax-related items, two of which directly affect exempt organizations.
The Act calls for the repeal of IRC Section 512(a)(7) Increase in unrelated business taxable income for certain fringe benefit expenses. This recent addition to the tax code has been controversial from the start as many exempt organizations who had never previously been subject to tax were suddenly subject to tax based on certain qualified transportation fringe benefits provided to employees such as parking and transit expenses. The Act is retroactively effective as of December 31, 2017, essentially treating the Code section as if it was never put in place. This seems to leave the door open to filing amended returns for periods where tax was paid on these expenses.
Additionally, the Act modifies the tax rate for the excise tax on net investment income of private foundations. In the past, private foundations have been subject to a standard 2% excise tax on net investment income generated for the year, with the opportunity to qualify for a reduced 1% rate dependent on certain distribution requirements being met. Beginning with tax years starting after December 31, 2019, a standard 1.39% tax rate on net investment income will be applied, with no reduced rate available.
Overall, these changes should reduce some tax complexities faced by many exempt organizations. If you have questions about these changes and how they may affect your organization please contact your ORBA advisor or call 312.670.7444.