Billions Transferred to 501(c)(4)s Triggers Criticism of Philanthropy Funding Politics

Two recent stories involving billionaires, 501(c)(4)s, and politics appear to have triggered criticism of philanthropy funding politics from across the political spectrum. The first story involved a $1.6 billion donation (in the form of stock in the Tripp Lite company that was then sold for cash) to a section 501(c)(4) nonprofit (Marble Freedom Trust) controlled by Leonard A. Leo, probably best known for his leadership role with the Federalist Society. The second story involved the transfer of almost all of the stock of billion-dollar company Patagonia to a different section 501(c)(4) nonprofit (Holdfast Collective) while the remaining stock (the only voting stock) went to a trust (Patagonia Purpose Trust) controlled by the founding family. In both situations experts agreed that the donations were almost certainly completely legal, and in both situations the donors benefitted from avoiding income tax on the gains built up in the donated stock and from avoiding gift tax, which does not apply to gifts to 501(c)(4)s.

In the wake of these gifts, several commentators penned columns critical of philanthropy funding politics, especially given these tax benefits, including:

• David Kennedy (Philanthropy Daily's The Giving Review), Reforming §501(c)(4) organizations (most recent of four articles discussing the gifts)

• Charles Lane (Washington Post), Politics ain’t beanbag. It isn’t philanthropy, either.

• Steven Rosenthal (Tax Policy Center), Congress Could End Tax Breaks for Gifts to Non-Profits with Political Agendas

Lloyd Mayer