Utah Business Lawyer: Paul Newman's Foundation Fights Looming 200 Percent Tax

By
Colleen Murphy

Aug. 17 — When Robert Forrester involves Washington for a number of days in September, he could have
a well-known, however urgent, activity on his agenda: assembly with lawmakers and staffers
on Capitol Hill to make what is perhaps the most important pitch of his many years-lengthy profession
in philanthropy.

Forrester, the president and chief government officer of Newman’s Own Foundation, has
spent the final 5 years constructing help for laws to save lots of the inspiration
and open the door to extra innovation throughout the nonprofit world. If Congress does not
act quickly, the inspiration might face a whopping 200 % tax on the finish of 2018—a
drawback Forrester informed Bloomberg BNA is an “existential” problem.

The answer now sits in payments launched within the House and Senate that may amend
tax code Section 4943 to exempt personal foundations from a tax on extra enterprise
holdings. Private foundations that personal 100 % of a enterprise—like Newman’s Own
Foundation—should divest 80 % of possession within the enterprise inside 5 years of
acquisition or face the tax penalty, a punishment imposed by the 1969 Tax Reform Act.

By the numbers

“Without this laws, there isn’t a method the mannequin, the legacy of Newman’s Own,
that has existed will have the ability to proceed—there isn’t any various,” Forrester stated
in an Aug. 10 interview.

The Foundation

When actor Paul Newman created meals merchandise firm Newman’s Own Inc. in 1982, he
had a singular plan:
All the income from its salad dressing, and later pasta sauces, salsas and cookies,
can be given away. The firm donates all after-tax income to the inspiration for
distribution to organizations targeted primarily on vitamin, youngsters’s well being and veterans
points. One recipient, SeriousFun Children’s Network, began in 1988 because the Hole
within the Wall Gang Camp, which Newman opened in Connecticut to supply an escape for critically
unwell youngsters. The unique camp, named for a hideout in Newman’s hit movie “Butch Cassidy
and the Sundance Kid,”
has now expanded to dozens of camps and packages.

Newman died in 2008, and firm possession was transferred to the inspiration—triggering
the surplus enterprise holdings tax. The Internal Revenue Service granted the inspiration
a 5-yr extension—till 2018—giving it extra time to push for congressional motion.

Timeline

The basis—ruled by an unbiased board of administrators—could have given away
$500 million by the center of subsequent yr, in accordance with its personal projections. But the
organizations it helps might be harm if the inspiration cannot proceed offering
help.

The Politics

The matter has come up in a number of bipartisan payments in each chambers.

In April, Rep. Dave Reichert (R-Wash.) launched H.R. 5007 and Sen. John Thune (R-S.D.) launched S. 2750 to exempt personal foundations that personal enterprise enterprises, donate all income to
charity and are independently operated. The payments have been referred to the House
Ways and Means Committee and the Senate Finance Committee, respectively, however the timeline
for additional motion is unsure.

Reichert “is of course advocating for it, but a path forward hasn’t been decided,”
a spokesman in his workplace stated.

If they succeed, it is going to be the top of an extended street for Forrester, who has held extra
than 325 conferences with lawmakers and staffers on the subject during the last a number of years.

“I’ve been engaged on it for therefore lengthy I feel they assume I’m a part of their workplace or
one thing—I’m the man that hangs out on the coffeepot with them,” he stated.

Sen. Orrin Hatch (R-Utah), chairman of the Finance Committee, first launched a
invoice on the subject (S. 909) in April 2015. Reichert additionally launched a companion invoice
(H.R. 3732) within the House that yr.

In a report accompanying Hatch’s invoice, the committee stated it “is acceptable to encourage
this type of philanthropy by eliminating sure legal impediments to its use, whereas
additionally making certain that non-public people can’t improperly profit from charitable dollars.”
The invoice would have “a negligible effect” on price range receipts, the report stated.

Not Backing Down

Moving laws via Congress is a sluggish course of in regular circumstances—let
alone in an election yr. And with many lawmakers pushing for broader tax modifications,
some say piecemeal laws on tax points has lengthy odds until it’s a part of a
broader package deal.

But if that worries Forrester, he does not let it present. No lawmaker he has met with
has rejected the thought, power surrounding the laws has peaked within the final yr
and a few have referred to as Newman’s Own “the poster child for the right way to do things,”
he stated.

“It’s not like I’m Sisyphus in the sense I’m trying to push support for it,” he stated.
“It’s simply making an attempt to get Congress to behave in another way than they’ve up to now 5
years.”

In reality, now might be the fitting time, one supporter stated. There is “actual momentum
and optimism” behind the payments, which might transfer within the submit-election session, stated
Maggie Gunther Osborn, chief technique officer on the Forum of Regional Associations
of Grantmakers. Osborn backed the Connecticut-based basis’s exemption efforts
when she was president of the state’s Council of Philanthropy.

“This is the moment we want to grow philanthropic opportunity,” Osborn stated. “Things
are shifting as a lot as they are going to transfer ahead proper now.”

Paul Godfrey, a enterprise professor within the Marriott School of Management at Brigham
Young University, who has suggested the Newman’s Own Foundation on the tax modifications,
stated Forrester has “absolute bulldog-like persistence” with regards to pushing for
the laws—a comparability with which Forrester laughingly agreed.

“Nobody goes to get the bone out of my mouth till it is clear it isn’t going to
work and if I hold chewing that bone I’ll choke on it,”
Forrester stated.

Open the Floodgates

The pending laws has the potential to spur extra creativity within the nonprofit
sector by altering a law that’s now outdated, Godfrey and others advised Bloomberg BNA.
Although no group is sort of on the size of the Newman basis, others have
sprouted up with comparable charitable plans in thoughts—and Godfrey stated a whole lot of different
philanthropic enterprises could possibly be created if the law modifications.

“I think there’s a huge potential upside,”
Godfrey stated.

Impact Makers, a Richmond, Va.-based info know-how consulting agency, will
give 100 % of its internet income to charities over its lifetime. When Michael Pirron
based the agency in 2006, he stated he was impressed by Newman’s imaginative and prescient—and is watching
intently to see how Congress will deal with the laws.

Pirron structured his firm to skirt the surplus enterprise holdings tax—it’s owned
by two public charities as an alternative of a personal basis. The setup wasn’t his first
selection, however happened as “an unfortunate consequence of the law,” he stated.

“Ultimately we lost control of how that public benefit is created in the long term,”
he stated. “We got here up with a artistic answer that is lower than good and fewer than
best than we might have favored.”

Allen Bromberger, a companion at Perlman & Perlman LLP, stated though half of his apply
includes conventional nonprofit organizations, the remaining consists of corporations “that
need to earn money and do good on the similar time.”

“Right now there’s a type of giant motion in the direction of the event of socially accountable
enterprise and entrepreneurs creating corporations and constructing into the DNA of these corporations
a social objective,” Bromberger stated. “What they’re saying is ‘The old rules shouldn’t
actually apply to us the identical means, as a result of underlying coverage considerations are totally different,’ ”
he stated.

Plan B

When requested what he’ll do if Congress does not act in time, Forrester was hesitant
to element the choices he has thought-about. Giving present staff a way of safety
and honoring Newman’s legacy are simply two of the issues weighing on his thoughts,
he stated. The monetary implications are additionally a priority.

“Whatever we do will be very costly to us,” he stated, including it might be unimaginable
to promote the corporate for any worth as a result of it provides its income away.

Forrester stated additionally it is essential to maximise the belongings’ charitable worth, and hold
the corporate’s mission intact as a lot as attainable, so “the general public would understand this
to be an excellent charitable exercise, whereas it isn’t going to be as inspiring as what
Newman’s Own has been.”

“While there isn’t any choice out there that retains it collectively as Newman’s Own has all the time
been, we’re taking a look at choices that may get as shut as attainable,”
Forrester stated.

Richard Schmalbeck, a law professor at Duke University who research nonprofit organizations
and wrote a paper on attainable modifications to the 1969 law, stated one risk would
be for the inspiration to be reorganized right into a “foundation substitute” reminiscent of a donor-suggested
fund. The basis might switch inventory to the donor-suggested fund, which might then
make the distributions, he stated.

Osborn stated whereas “the Plan B isn’t a good one,” the most important consequence cannot be
quantified.

“It really does change the absolute ability and nature of the foundation,” she stated.
“I think it risks going away, which would be horrible.”

To contact the reporter on this story: Colleen Murphy in Washington at
cmurphy@bna.com

To contact the editor answerable for this story: Cheryl Saenz at

csaenz@bna.com