The Honorable ____________
U. S. House of Representatives
Washington, DC

Dear Congressman ____________:
On May 7, Reps. Roy Blunt (R-MO) and Harold Ford, Jr. (D-TN), introduced H.R. 7. This bill includes a reduction in the excise tax on private foundation investment earnings, but also includes a provision that would eliminate administrative expenses from qualifying distributions for all private foundations.

We’re very glad to see the House again moving forward on the reduction of the excise tax on private foundation investment earnings. This measure will enable many foundations to increase distributions to charities without eroding the long-term value of their endowment.
However, H.R. 7 also includes a provision that would have the opposite effect—not allowing foundations to count anything but grants toward qualifying distributions. If Congress passes such a measure, this would send a strong message to the entire nonprofit community that the technical assistance, research, expertise and due diligence that they bring to the grantmaking process are not a valuable part of the grantmaking process. We don’t believe that’s the message Congress intends to send.

We know that Congress does not want to inadvertently diminish the effectiveness or the long-term viability of charitable endowments. Administrative expenses are an important part of the gramaking process. In the same way that Congress needs staff to carry out its work responsibly, so do foundations. Administrative expenses are research, technical assistance, due diligence and communication with the public and policymakers, all of which foster the innovation, evolution and expansion of many successful grant-funded projects.

Congress and the public count on grantmakers and foundations to provide long-term, well-informed, accountable and transparent support to the charitable sector, but this provision could have the opposite effect. It could require foundations to erode their endowments to continue serving those in need:
-Provide annual reports, websites and other communications with grantseekers, policymakers and the media
-Provide assistance and response to grantseeker and potential grantees
-Conduct and disseminate research, hold a conference or issue a report that would benefit other programs, including government programs
-Provide in-kind support such as computers, training and equipment to local nonprofits
-Operate a library, art gallery or museum for the public.

In a 1990 study on administrative expenses commissioned by Congress and in numerous other reports, the Internal Revenue Service has concluded that private foundations are responsible stewards of their endowments and that any abuses are isolated and punishable by sanctions that Congress has already written into the Tax Code. We urge Congress to take the same measured, deliberative and informed approach to any change in the calculation of qualifying distributions that they have exhibited in the past.
Sincerely,