Nonprofits unsure of impact of tax changes

Aug. 05--TUPELO -- The CREATE Foundation has more than $100 million in assets, and the United Way of Northeast Mississippi raised more than $2 million last year.

And like many nonprofit agenices, they are hopeful that the Tax Cuts and Jobs Act passed in January won't negatively affect them.

According to Guidestar, an information service specializing in reporting on some 2.5 million nonprofit companies in the U.S., the new tax bill could reduce the number of Americans who itemize their taxes (currently about 30 million people) from 33 percent of taxpayers to just 5 percent. Because of this, the resulting reduction in annual giving has been estimated to be anywhere between $13 billion and $20 billion.

In addition, planned giving may also be impacted.

"Although no formal models have been produced to predict the actual impact of the new estate tax exemption on charitable giving, it is estimated that lowering the tax burden on heirs will reduce the incentive of wealthy Americans considering a gift to charity as part of their estate by up to $4 billion per year," Guidestar said.

United Way isn't too worried about cutbacks, however.

"Our giving is a little different because 75 percent of what we receive comes through payroll deduction, and I don't think the tax deduction is really that much of a consideration," said UW President Melinda Tidwell.

Both CREATE and United Way agree that individuals who donate to nonprofit organizations do not typically tend to be motivated by tax relief.

"It makes it maybe less advantageous for some people to itemize but I don't think for our donors, that has made a significant difference," Tidwell said.

But, she said, "We've seen decreases in giving when companies that have stopped allowing us to do payroll deduction or changed the way they have conducted their campaign."

At CREATE, which oversees donor-advised funds, "I think the verdict is still out on that," said President Mike Clayborne.

Although CREATE is halfway through the fiscal year, it may be too early to tell if the organization will be affected by the new tax law.

"At this point in the year, we would say that we cannot see a material change in our giving this year from last year, but we will find out more toward the end of the year because that is when the largest amount of funds are contributed," Clayborne said.

Joe Babb, a CPA with accounting firm Eaton, Smith & Babb in Tupelo, said many of their clients were advised to donate generously by the end of 2017 to take advantage of the tax benefits when they filed their taxes this year. Next April, when taxes are filed for this year, is when nonprofits should get a better idea if the tax law changed donation habits.

CREATE'S ENDOWMENT

Clayborne said CREATE is different from United Way in the way it receives money. The organization makes a profit on the fees off the value of its 207 endowment funds, but those funds go to its 212 special project funds that typically support community needs.

CREATE is an investment-based nonprofit organization that works primarily with estate planning or with individuals who can spare larger amounts of money toward special projects.

Clayborne said the investment return for CREATE donors is variable and some years the organization receives larger donations. The $50 million Toyota Wellspring Fund, which is being paid over 10 years, contributes significantly to CREATE's investment return pool, but ultimately the tax law may not necessarily affect the organization.

"This actually has very little to do with our unrestricted income because the largest part, two-thirds almost, of our budget of unrestricted income is really from fees on endowment funds," he said. "And so really, the stock market and investments probably have more effect than the giving climate."

Clayborne said if the market goes drastically up or down, the staff calculates the average balance over 12 quarters, or three years.

"So when it goes up or it goes down, it does have an impact but it's not going to have as much impact right then," Clayborne said.

"We think that charitable giving is an important way of meeting the needs of our society, particularly as the government tends to cut back on the amount of funds that are spent on various programs, and there is real pressure to do that," he said. "Charitable giving is going to have to step in to fill that gap where there are needs and most of that is done in local communities."

Clayborne said most givers donate funds because they believe in a project, or have benefited from prosperity such as an inheritance, so tax policy does not typically have an influence on charitable giving.

TRICKLE-DOWN EFFECT

United Way agencies may see a more direct impact, said Mary Ann Plasencia, director of community impact, as there could be a trickle-down effect to many of its nonprofit agencies.

"Anytime there's a tax cut or reform like that, there's probably less federal dollars that trickle-down into the states and those state dollars trickle down into many of our agencies," she said. "That's how they apply for funds through the Department of Human Services and other state agencies, so it's going to get passed down to the state in some fashion and we don't yet know what the implications are."

Health care, mental health and social service agencies may be hit the hardest.

"Folks that were insured through the Affordable Care Act might not get insured in the future, because the state rejected the Medicaid expansion (in Mississippi) and we're definitely concerned about that," Plasencia said.

Plasencia said this could result in changes to the demographics of some United Way agencies, as clients who access health and social services may increase.

"Some of the changes that are part of all of this tax reform could have an adverse effect on single mothers with children, who if they are single and they have a child and they make more than $370, they are no longer eligible for Medicaid benefits, so they are going to have to access services somewhere, and we are probably going to see it through our social services agencies," Plasencia said.

United Way manages 20 agencies pertaining to health care or social services.

"That percentage of working poor might be larger than it is right now, but we don't know that for a fact yet," Plasencia said.

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