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The connection between charitable tax benefits and benefits to charities has been broken: A commentary by Thomas Vozzo

January 10, 2022

Money_hundred_dollar_bills_GettyImagesStalling charitable dollars hurts marginalized Angelenos

...As a former corporate executive and current CEO of Homeboy Industries, I have witnessed the impact of investing in the most marginalized members of our communities and helping them reenter society with the wraparound support they need. Unlocking charitable dollars means more comprehensive mental health services, workforce development programs, housing initiatives, and access to education, among other services critical to meeting those needs and truly making a difference in the lives of thousands of Angelenos. For nonprofits likes ours and many others, it is critical to ensure that charitable funds actually reach nonprofits in a timely manner.

The fact is, however, that tax rules once designed to get resources to charities now facilitate warehousing resources in charitable intermediaries instead. What used to be a simple connection between charitable tax benefits and benefits to charities has been broken.

Through donor-advised funds (DAFs), donors are now afforded upfront charitable tax benefits — with no assurances that the donation will ever reach working charities. Private foundations, which are required to pay out 5 percent of their assets annually for “charitable” expenditures, can now circumvent the intent of this rule by paying the salaries of family members or putting their funds in a DAF. Rather than distributing these resources to charities, private foundations hold $1.1 trillion while $160 billion sit in DAFs, a report from the National Philanthropic Trust finds. According to the California Association of Nonprofits, the state loses more than $340 million each year as a result of deductions related to DAF donations alone. This matters because warehousing these donations means less money and fewer resources for charities on the front lines of tackling society’s compounding issues such as homelessness, climate change, and massive inequality....

Read the full commentary by Thomas Vozzo, CEO of Homeboy Industries.

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