Large charitable gifts have little to do with calendar
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December is the season of charitable giving for Americans seeking an end-of-year income tax break. Given last week's events, it appears the same could be true at the institutional level.
On Dec. 4, the University of Pittsburgh Medical Center announced it would put as much as $100 million into the Pittsburgh Promise, a scholarship fund for the city's public school system. The next day, Pitt's engineering school was named after Dr. John A. Swanson to thank him for his unprecedented $41 million private gift. On Thursday, the Richard King Mellon Foundation donated $1.75 million to the Hill House Association, a community group in the Hill District. And on the same day, the Pittsburgh Symphony Orchestra received a $5.5 million pledge from the Henry L. Hillman Foundation to pay for international travel.
Is there a reason all of these major gifts came at the end of the year? There is, but it's not the income tax deduction that makes December charitable giving so popular for Joe Taxpayer.
In the case of non profit foundations -- such as Mellon and Hillman -- they must give away at least 5 percent of their assets annually, a requirement from the Internal Revenue Service, in exchange for tax exempt status, said Reed Smith partner Carolyn Duronio, who works with public charities and private foundations. If a foundation falls short of the 5 percent requirement, it has 12 months to make it up. Failure to do so results in an excise tax.
Historically, some foundations stack board meetings near the end of the year to ensure they meet the requirement. Others have quarterly meetings; either way, it's at the final meeting that a foundation will have a better grasp on its finances, and how its investments performed.
"In December, you have a better understanding of what your projected distribution requirements are going to be," said Hillman Foundation President Ron Wertz, speaking of the 5-percent requirement.
But just as often, the gift will be dictated by the recipient's schedule -- when they happen to be announcing a major fund-raising campaign.
The gift to the orchestra "has been in the making for some time, meaning months ... they came to us early on" in the capital campaign. The PSO is in the midst of an $80 million campaign, kicked off by a $29.5 million gift last year from orchestra Chairman Richard Simmons.
Richard King Mellon Foundation director Scott Izzo agreed that "there does tend to be a flurry of grant making at the end of the year" and that Mellon does hold an annual year-end meeting. But it also spreads out its grant making, with projects reviewed, discussed and approved four times each year.
The big grants it announced recently to Carnegie Mellon University and Children's Hospital had been under review for more than a year, for example.
"Generally," Mr. Wertz said "major contributions are the end result of maybe years of planning with the agency."
For Dr. Swanson, founder of Ansys, there was no benefit to giving in December, despite the timing of the announcement.
"Pure coincidence," he said. "Basically, I give a lot more than I make," he said of his charitable inclinations. "I saturate the tax benefit fairly quickly." Charitable giving can go toward a deduction on your income taxes, but if you no longer bring home an annual income -- and Dr. Swanson, a retiree, doesn't -- the tax benefits are limited. And even if he still brought home a CEO's salary, his income tax benefit would be capped at a percentage of his adjusted gross income.
He said the process of negotiating the multimillion-dollar gift took about half a year. "I asked them to submit a proposal, what were their needs, how would the gift be used," and so on. "There was no special event that prompted this," he said.
If there were any timing involved, it had nothing to do with the tax year, and much to do with when Dr. Swanson could fit a trip to Pittsburgh into his busy schedule of traveling, vacationing and golfing, he joked.
First Published December 13, 2007 12:00 am