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FOUNDATION TAX ISSUES Report of Action by House Ways and Means Committee as of Wednesday, Au g ust 6, 1969 The House Ways and Means tax reform bill, which will be debated on the House floor this week, contains several important provisions relating to foundations and their grantees. At its last me eting , the Action Council went on record. in o pposition to many of -the Committee' s earlier proposals. This is a report on the final action of the Ways and Means CornmittP.e 1. Definition of Private Foundations. Priva te founda tion s have bee n newly defined to include groups such as the Urban Coalition and the Brookings Institution,- in addition to groups such as th8 Ford and Carnegie f oundations . . As such they are now subject to an income t ax and n ew limitati ons on t heir activitie s. 2. An annual tax of 7 1/2 per cent was imposed on net invest- ment income . Explanation: \ The origina l t e ntative proposals h ad recommended a tax of 5 per cent. It is estimated tha t revenue increases at 7 1/2 per cent will produce $6 5 million in the first year. This is, in fac t, a t ax on b e n ef iciaries of foundations r ather than on foundations. The Coalition may now have to pay a tax on its next investment income. �3. Restrictions on Activiti es. The newly def i ned foundations (incl uding the Coalition) would be prohibited from: a ) Carrying on propaganda or otherwise attempting to influence legislation. b) At tempt in g to influence le gislat ion through attempting to affect public opinion, and through private communication with a member or employee of a legisl at ive body , or with any o ther person who may participate in the formulation of le gislation (Except through ·making avai l ab l e the results of nonp ar ti san analysis or research). Explana tion: This is a modificat i on of the o rig in al t entative proposals which prohibited foundations from engaging in any activiti es intended to influence the decision of any governmental body. It is intended to tighten up the rules . against lobbying. Under present law~ a foundation ~ay influence legislation if this is not a substantial part of its activity. The new l egis lation would remove this test and allow no in fluen cing of l eg islation. The Cammi ttee Report e xplains ,·that these provisions are designed to prohibit grassroots camp aigns for the purpose of influencing i legislation . Further, foundations may discuss broad policy �I - ·- --_!' - · -- - .. .., q u estions with congressmen and government agenci~s; they are precluded from "direct attempts to persuade congr_essme n and g o vernment o fficials to take positions on specific legislative issues." 4. Voter Regis tra tion. Foundation s would be pr6hibited from engaging in voter re g i s t ra tio n drives unless gr a nts are made .to a 50l(c) (3 ) _ group th a t: . a) opera t e s in five or more states b} receives support from five or mo~e orgatii za tions, none . of whi ch provides mo r e than 25 per. cent of its suppor t. . ./ · Ex~lanation: ~he t entative propo sa l s would h ave prohibite d foundations from engaging in any voter registratiori activity or payi n g for any such activity. strict view. The bill moves away from th a t The League of Women Votei s Education Fund and the Southe rn Regional Council are specifically mentioned in the Committee Rep ort as e xamp les of organi zat ions which would be permitted to engage in voter registration. But other registration and education prog rams~-n ow conducted b y numerous smaller groups in l ess than five states --will be prohibited from receiving foundation supp ort.

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The House bill will, in all probability, be p~ssed by the full House this we ek unde~· a "c lo sed" rule. · Floor amendments to tax .-, �f' '• bills generally are not permitted, and passage of the tax reform bill seems assuredo The Action Council and many of its cooperating groups have worked t o modify the tentative proposals of the Ways and Means Committee so that the vital activity of found~tions and foundation - related organ izations can go forward o Our attention now turns to the Sen ate and the Fina nce Committee in particular which will begin consider i ng tax r efo rm proposals after the Augus t Congressional Recesso ( ) ('-.-~

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