3 ms·

You can donate to a "charity" that employs your friends and family, not society at large. I can create a Betterness Foundation, and donate all my income to it,

by gohrt 11y ago

You can donate to a "charity" that employs your friends and family, not society at large. I can create a Betterness Foundation, and donate all my income to it, and you can do, and the Foundation can spend its resources bettering the neighborhood where you and I happen to live, but no one else lives there. This is a scam loophole to avoid Federal taxes that are intended to benefit society at large.

rlucas 11y ago
It's not quite that simple. The IRS didn't just fall off the turnip truck. Yes, there's a large chance that if Mr. X sets up a DAF, you might see people with the last name X doing various work for the DAF etc. Same if Mr. X ran a for-profit business. But there are rules and regs and you can't just blatantly self-deal and loot your foundation; see https://www.irs.gov/irm/part7/irm_07-027-020.html https://www.irs.gov/irm/part7/irm_07-027-020.html The truly naive shenanigans don't work and there actually is scrutiny of foundations. Plus, foundations have to distribute 5% of their assets annually, which has actually been sort of a problem lately with low fixed-income returns. If you want to know the "scam," others above have described quite adequately the two main lines: the tax write-off and the ability to influence what charities benefit. The scam is not that you can set up a "Mr. X's landscaping and Champagne pouring foundation" to privatize all the benefits. (I mention this not to chastise parent, but because left without any additional color, parent comment could make a reader not versed in how nonprofit stuff works overly cynical.)
- thrownaway2424 11y ago
  I think you understate the extent to which one can use a tax-deductible non-profit organization to benefit oneself. For example selective private schools are all (at least in my area) not-for-profit organizations to which contributions are tax-deductible. So you "give" to these organizations and essentially pay for private school from pre-tax income. There are even country clubs that are non-profits. I think the only thing that really prevents these organizations from being formed are if they have documented written policies of racial discrimination, in which case the IRS will go after them eventually.

by gohrt 11y ago

rlucas 11y ago

It's not quite that simple. The IRS didn't just fall off the turnip truck. Yes, there's a large chance that if Mr. X sets up a DAF, you might see people with the last name X doing various work for the DAF etc. Same if Mr. X ran a for-profit business. But there are rules and regs and you can't just blatantly self-deal and loot your foundation; see https://www.irs.gov/irm/part7/irm_07-027-020.html https://www.irs.gov/irm/part7/irm_07-027-020.html The truly naive shenanigans don't work and there actually is scrutiny of foundations. Plus, foundations have to distribute 5% of their assets annually, which has actually been sort of a problem lately with low fixed-income returns. If you want to know the "scam," others above have described quite adequately the two main lines: the tax write-off and the ability to influence what charities benefit. The scam is not that you can set up a "Mr. X's landscaping and Champagne pouring foundation" to privatize all the benefits. (I mention this not to chastise parent, but because left without any additional color, parent comment could make a reader not versed in how nonprofit stuff works overly cynical.)

thrownaway2424 11y ago
I think you understate the extent to which one can use a tax-deductible non-profit organization to benefit oneself. For example selective private schools are all (at least in my area) not-for-profit organizations to which contributions are tax-deductible. So you "give" to these organizations and essentially pay for private school from pre-tax income. There are even country clubs that are non-profits. I think the only thing that really prevents these organizations from being formed are if they have documented written policies of racial discrimination, in which case the IRS will go after them eventually.