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8/2/2019 Tax Exempt Foundations Their Impact on Our Economy-US Gov-1962-140pgs-GOV-POL-ECO
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9 2 0 2 0
[COMMITTEE PRINT]
TAX-EXEMPT FOUNDAfONS AND
CHARITABLE TRUSTS: THEIR IMPACT
ON OUR ECONOMY
CHAIRMAN'S REPORT TO THE SELECT COMMITTEE ON
SMALL BUSINESS
HOUSE OF REPRESENTATIVES
87TH CONGRESS
DECEMBER 31, 1962
P r i n t e d f o r t h e u s e o f t h e S e l e c t C o m m i t t e e o n S m a l l B u s i n e s s
o f t h e H o u s e o f R e p r e s e n t a t i v e s
U. S . GOVERNMENT PRINTING OFFICE
WASHINGTON : 1982
For sale by the Superintendent of Documents, U .S . Government Printing Office
W a s h i n g t o n 25, D . C . - P r i c e 6 5 c e n t s
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SELECT COMMITTEE ON SMALL BUSINESSWRIGHT PATMAN, Texas, Chairman
YOEL. EVINS, Tenn esse eABRAHAM J. MULTER, New YorkSIDNEY R. YATES . I l l i n o i sTOM STEED, OklahomaJAMES ROOSEVELT, CaliforniaDALE ALFORD, Arkansas
WILLIAM M. McCULLOCH, OhioARCH A. MOORE, JR . , W e s t V i r g i n i aWILLIAM H. AVERY, KansasH. ALLEN SMITH, CaliforniaHOWARD W. ROBISON, New YorkRALPH HARVEY, Indiana
BROOKS ROBERTSON, Staff DirectorHARRISON F. HOUGHTON, Chief Economist
MARIE M. S TEWART, ClerkJEAN W. F ENDER, A d m i n i s t r a t i v e A s s i s t a n t
CHARLES S. I3ELLER, COUn . S e lJUSTINUS GOULD, Counsel
GREGG R . P OTVIN, Co'unSelJOSEPH A. SEELEY, CounselBARON I. S HACELETTE, Chief InveetigatorKATHERINE C. BLACKBURN . R e s e a r c h A n a l y s t
H . A . OLSHzR, D i r e c t o r , F o u n d a t i o n S t u d p
I
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P a g e
L e t t e r o f t r a n s m i t t a lChapterI . A n i m m e d i a t e m o r a t o r i u m o n f o u n d a t i o n t a x e x e m p t i o nw o u l d s e r v e t h e b e s t i n t e r e s t s o f t h e N a t i o nI I . 534 foundations paid out only 60 percent of theira g g r e g at e r e c e i p t s1
I I I . A s s e t s o f f o u n d a t i o n s h a v e r e a c h e d m a s s i v e p r o p o r t i o n s _ 7 1
IV . U n f i n i s h e d b u s i n e s s2 9V. Recommendations3 3CONTENTSTABLES
Schedule
1 . G r o s s r e c e i p t s : 5 3 4 f o u n d a t i o n s12 . D a t a r e g a r d i n g c o r p o r a t i o n s i n w h i c h c e r t a i n f o u n d a t i o n sf a i l e d t o r e p o r t t h e i r o w n e r s h i p o f 1 0 p e r c e n t o r m o r e o fe a c h c l a s s o f t h e c o r p o r a t i o n ' s s t o c k8( I I I ) S c h e d u l e P a g e3 . D a t a r e g a r d i n g f o u n da t i o n s ' o w n e r s h i p o f 1 0 p e r c e n t o rmore of any class of stock of any corporation, asreported on the Internal Revenue Service Form 990- A( p e r I n s t r u c t i o n 7 , p . 4 , F o r m 9 9 0 - A )73A. E x p e n s e s a n d d i s b u r s e m e n t s : 5 3 4 f o u n d a t i o n s34 . The Ford Foundation-List of notes receivable as ofF e b r u a r y 1 , 1 9 6 2 , r e p r e s e n t i n g p a r t i c i p a t i o n s i n p r i v a t ep l a c e m e n t s35 . A s s e t s : 5 3 4 f o u n d a t i o n s66 . L i a b i l i t i e s , n e t w o r t h , a n d a c c u m u l a t i o n o f i n c o m e : 5 3 4f o u n d a t i o n s1 47 . S t a t e - b y - St a t e b r e a k d o w n : 534 foundations-number offoundations under study ; t o t a l r e c e i p t s ; e x p e n s e s p l u sc o n t r i b u t i o n s , g i f t s , g r a n t s , s c h o l a r s h i p s , e t c . , t o t a la s s e t s , t o t a l n e t w o r t h35
8/2/2019 Tax Exempt Foundations Their Impact on Our Economy-US Gov-1962-140pgs-GOV-POL-ECO
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E a c h d a y o w n e r s h i p o f a n i n c r e a s i n g n u m b e r o f c o r p o r a -
t i o n s i s f i n d i n g i t s w a y i n t o t a x - e x e m p t f o u n d a t i o n s . One
f a i r l y r e c e n t c a s e i n v o l v e s t h e G u l f O i l C o r p . According
t o o u r r e c o r d s , t h e G u l f O i l F o u n da t i o n o f H o u s t o n - a
c o m p a n y f o u n d a t i o n c r e a t e d b y t h e G u l f O i l C o r p . - s u b -
m i t t e d a n a p p l i c a t i o n f o r t a x e x e m p t i o n t o t h e I R S o n M a y
2 1 , 1 9 6 1 . T w o m o n t h s l a t e r , o n J u l y 2 8 , 1 9 6 1 , t h e I
g r a n t e d i t t a x e x e m p t i o n .
W h e n G u l f O i l o r g a n i z e d t h i s f o u n d a t i o n , i t t u r n e d o v e r
t o t h e f o u n d a t i o n 1 0 0 p e r c e n t o f t h e v o t i n g c o m m o n s t o c k
o f P o n t i a c R e f i n i n g C o r p . o f C o r pu s Ch r i s t i , Te x . , v a l u e d
a t $ 3 2 m i l l i o n .
D u r i n g 1 9 6 0 , i t s f i r s t y e a r o f o p e r a t i o n , t h e G u l f O i l
F o u n da t i o n h a d i n c o m e o f $ 7 5 0 , 0 0 0 a n d o n l y d i s b u r s e d
$ 3 8 0 , 0 0 0 f o r t h e p u r p o s e f o r w h i c h i t w a s g r a n t e d t a x
e x e m pt i o n .
T h i s m e a n s t h a t t h e d i v i d e n d s p a i d o u t b y P o n t i a c R e -
f i n i n Corp . - w h i c h w e r e o n c e t a x a b l e t o i t s t a x p a y i n g
s t o c k h o l d e r s - a r e n o w b e i n g r e c e i v e d b y a t a x - e x e m pt
f o u n d a t i o n a n d a r e h e n c e o u t o f r e a c h o f t h e F e d e r a l a n d
S t a t e t a x c o l l e c t o r s .
T h i s h a s i m p o r t a n t i m p l i c a t i o n s f o r o u r e c o n o m y . I t
i s m y h o p e t h a t o u r s t u d i e s w i l l e n c o u r a g e t h e A m e r i c a n
p eo p l e to t a k e a c lo s e l o ok a t t h is t r e m e n d o u s c o n c e n t r a -
t i o n o f e c o n o m i c p o w e r . T h e W h i t e H o u s e h a s t a k e n a n
i m p o r t a n t s t e p b y p u t t i n g t o e t h e r a n i n t r a g o v e r n m e n t a l
g r o u p t o s t u d y t h e p r o b l e m . - T h e g r o u p i s c o m p o s e d o f
o f f i c i a l s f r o m t h e W h i t e H o u s e, C o u n c i l o f E c o n o m i c A d -
v i s e r s , T r e a s u r y , J u s t i c e , a n d t h e B u d g e t B u r e a u .
O u r f i n d i n g s s h o w , a m o n g o t h e r t h i n g s , t h a t a d o n o r
c a n , b y a l o a n o r e x c h a n g e , s e c u r e a r e t u r n o f a s s e t s t h a t
AUSTIN, T Ex . - At t o r n e y G e n e r a l W i l l W i l s o n , e n d i n gs i x y e a r s a s a t t o r n e y g e n e r a l J a n . 1 , F r i d a y r e c o m m e n d e d
s t r o n g n e w l a w s t o r e g u l a t e c h a r i t a b l e t r u s t s .
" T h i s i s a n u n b r i d l e d f i e l d f o r t a x e v a s i o n a n d p u b l i c
t r u s t v i o l a t i o n , " W i l s o n s a i d i n h i s f i n a l r e p o r t t o G o v .
P r i c e D a n i e l .
W i l s o n w i l l c l o s e o u t h i s a c t i v e d i r e c t i o n o f t h e a t t o r n e y
g e n e r a l ' s o f f i c e S a t u r d a y a n d l e a v e S u n d ay f o r a m o n t h ' s
v a c a t i o n i n E u r o p e .
W a g g o n e r C a r r , a t t o r n e y g e n e r a l -e l e c t , w i l l t a k e o f f i c e
J a n u a r y 1 . W i l s o n r e v i e w e d t h a t h e c r e a t e d a n e w d i v i -
s i o n i n t h e s u m m e r o f 1 9 6 1 w i t h t w o g o a l s . One was to
s u r v e y a l l k n o w n c h a r i t a b l e t r u s t s i n T e x a s . T h e o t h e r
w a s t o u s e r e s u l t s o f t h e s u r v e y a s a b a s i s f o r r e c o m m e n d -
i n g l e g i s l a t i o n t o a s s i s t t h e a t t o r n e y g e n e r a l i n s u p e r v i s i n g
t h e t r u s t s .
W i l s o n ' s s t a f f l o c a t e d n a m e s o f 1 , 6 2 9 k n o w n f o u n d at i o n s
a n d s e n t q u e s t i o n n a i r e s , r e s u l t i n g i n 2 3 3 g r o u ps f a i l i n g t o
r e s p o n d , f i n d i n g 6 5 g r o u p s e i t h e r w e r e e x t i n c t o r h a d n o
k n o w n m a i l i n g a d d r e s s a n d 4 2 7 w e r e d e t e r m i n e d t o b e n o n -
p r o f i t , a n d t h e r e f o r e n o t i n t h e s c o p e o f t h e s u r v e y .
H e s a i d a b o u t 8 5 0 c o m p l e t e r e p o r t s h a v e b e e n a s s e m b l e d
a n d f o r 6 7 5 o f t h e m t h e r e h a d b e e n t a b u l a t e d $ 4 0 3 , 3 7 0 , 0 0 0
i n a s s e t s i n 1 9 6 0 , $ 7 3 , 3 5 7 , 0 0 0 i n c o m e f o r t h e y e a r a n d
$ 5 5 , 3 4 4 , 0 0 0 c h a r i t a b l e di s t r i b u t i o n s m a d e .
VI
(The Dallas Morning News, Dec . 1 5 , 1 9 6 2 )
WILSON URGES REIN ON CHARITY TRUSTSBy Dawson Duncan, Au stin Bureau of The News
h a v e b e e n d o n a t e d s h o u l d t h e o c c a s i o n a r i s e ; t h a t h e c a n
s e c u r e a d d i t i o n a l c a p i t a l w h e n n e e d e d , a t " r e a s o n a b l e "
r a t e s ; t h a t f o u n d a t i o n f u n d s h a v e b e e n u s e d t o h e l p a
d o n o r w h e n h e f o u n d h i m s e l f i n a p r o x y f i g h t ; a n d t h a t
f o u n d a t i o n f u n d s h a v e b e e n u s e d t o c o n f e r b e n e f i t s o n
e m p l o y e e s of companies, a s ub st an t i al c o m p e t i t i v e
a d v a n t a g e .
N e v e r b e f o r e h a v e t h e e c o n o m i c f a c t o r s o f t h e c o m p l e x
a n d r a p i d l y e x p a n d i n g f o u n d a t i o n b u s i n e s s b e e n p u t u n -
d e r t h e m i c r o s c o p e o f p u b l i c s c r u t i n y . We have already
l a i d t h e g r o u n d w o r k f o r o t h e r p h a s e s o f o u r s t u d y . ( S e e
p . 16 and ch . I V . )
O n a S t a t e l e v e l , o f f i c i a l s a r e b e c o m i n g i n c r e a s i n g l y
a w a r e o f t h e p r o b l e m s c r e a t e d b y t a x - e x e m p t f o u n d a t i o n s
a n d c h a r i t a b l e t r u s t s . Mr. W . A . J o h n s o n , c o m m i s s i o n e r ,
N o r t h C a r o l i n a D e p a r t m e n t o f R e v e n u e , h a s w r i t t e n m e
a s f o l l o w s
" T h e i n c r e a s i n g t e n d e n c y t o a t t e m p t t o u s e t a x -
e x e m p t f o u n d at i o n s a n d c h a r i t a b l e t r u s t s t o c a r r y o n
m a n y b u s i n e s s a c t i v i t i e s h e r e t o f o r e c o n d u c t e d b y p r i -
v a t e , t a x p a y i n g i n d i v i d u a l s a n d o r g a n i z a t i o n s i s a
m a t t e r o f c o n s i d e r a b l e c o n c e r n t o u s . T h i s t r e n d
n a r r o w s o u r o v e r a l l t a x b a s e a n d , t o t h e e x t e n t t h a t
t h e c o m p e t i t i o n h a s a n a d v e r s e e f f e c t o n p r i v a t e , t a x -
p a y i n g b u s i n e s s e s , r e d u c e s o u r r e v e n u e f r o m s u c h t a x -
p a y e r s . I v e r y d e f i n i t e l y f e e l t h a t t h i s a r e a n e e d s
c a r e f u l s t u d y a n d I a m d e l i g h t e d t h a t y o u r c o m m i t t e e
i s g i v i n g i t s e r i o u s c o n s i d e r a t i o n . "
The following new s story from the Dallas News of
D e c e m b e r 1 5 , 1 9 6 2 , i l l u s t r a t es t h e p r o b l e m s i n t h i s a r e a i n
t h e S t a t e o f T e x a s .
A s s e t s w e r e l i s t e d a t a c q u i s i t i o n v a l u e a n d t h u s w e r e
g r o s s l y u n d e r v a l u e d , h e n o t e d .
W i l s o n s a i d t h e s u r v e y , w h i l e i n c o m p l e t e , p o i n t e d o u t
t h e n e e d f o r l e g i s l a t i o n r e q u i r i n g r e g i s t r a t i o n b y a l l
c h a r i t a b l e t r u s t s w i t h s o m e s t a t e a g e n c y , p r o b a b l y t h e
s e c r e t a r y o f s t a t e .
" T h e f l i g h t o f c a p i t a l i n t o c h a r i t a b l e t r u s t s a n d f o u n d a -
t i o n s i s r a p i d l y i n c r e a s i n g , " w r o t e W i l s o n i n h i s r e p o r t .
" A s o f t h e p r e s e n t t i m e , t h e r e i s n o r e g i s t r a t i o n o f a s s e t s
o r l i a b i l i t i e s a n d n o a c c o u n t i n g f o r t h e a d m i n i s t r a t i o n
o f t r u s t s .
" T h i s i s a p r o l i f i c f i e l d f o r c o n f l i c t - o f - i n t e r e s t s i t u a t i o n s
a n d m i s c o n d u c t , a n d I f e e l t h a t a g r e a t d e a l m o r e b a s i c
s u p e r vi s i o n o f a c t i o n s o f t r u s t e e s i s i n t h e p u b l i c i n t e r e s t .
" I w o u l d s u g g e s t t h a t s o m e t h i n g r e s e m b l i n g t h e s u p e r -
v i s i o n o f i n s u r a n c e c o m p a n i es a n d b a n k s b e e s t a b l i s h e d o n
c h a r i t a b l e t r u s t s a n d f o u n d a t i o n s i n o r d e r t o s e r v e a s a
c h e c k o n t h e t r u s t e e s a n d t o m a k e i t m o r e l i k e l y t h a t t r u s t s
w i l l b e a d m i n i s t e r e d i n t h e p u b l i c i n t e r e s t . "
W i l s o n c i t e d s e v e r a l t r u s t s w h i c h h i s s t a f f h a d i n v e s t i -
g a t e d a n d i n w h i c h h e h a d i n t e r v e n e d t o h a l t w h a t h e
t e r m e d m i s c o n d u ct a n d c o n f l i c t o f i n t e r e s t . He did not
i d e n t i f y t h e t r u s t s , i n o r d e r n o t t o i m p a i r p e n d i n g b u s i -
n e s s t r a n s a c t i o n s b y t h e f o u n d a t i o n s .
O n e e x a m p l e h e c i t e d w a s a t r u s t f i r s t i n v e s t i g a t e d i n
1 9 6 1 f o r a l l e g e d m i s c o n d u c t a n d c o n f l i c t o f i n t e r e s t .
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I t i n v o l v e d a d r i l l i n g c o m p a n y , l i f e i n s u r a n c e c o m -
p a n i e s , a l a r g e c o m p a n y n o t o t h e r w i s e i d e n t i f i e d , a s h o p -
p i n g c e n t e r , a b u i l d i n g a n d r a n c h e s , a n d t h e f o u n d a t i o n
b o a r d c h a i r m a n .
A t o n e t i m e t w o l i f e i n s u r a n c e c o m p a n i e s w e r e i n v o l v e d
i n l o a n s a m o u n t i n g t o 9 0 p e r c e n t o f t h e i r a s s e t s .
F i l i n g o f a s u i t w a s c o n s i d e r e d b u t a b a n d o n e d b e c a u s e
i t m i g h t h a v e c a u s e d t h e i r c o l l a p s e , s a i d W i l s o n , w h i c h
w o u l d h a v e h a d a d i s a s t r o u s e f f e c t o n t h e T e x a s l i f e i n -
s u r a n c e i n d u s t r y .
R e f o r m s i n o p e r a t i o n s w e r e a c c o m p l i s h e d t h r o u g h a g r e e -
m e n t s , h e r e p o r t e d, p r e v e n t i n g t h e c o l l a p s e o f i n s u r a n c e
c o m p a n i e s l i c e n s e d t o d o b u s i n e s s i n m a n y s t a t e s .
*
I b e l i e v e o u r s t u d y w i l l p r o v i d e a b a s e o f i n f o r m a t i o n
o n f o u n d a t i o n s w h i c h c a n b e u s e d t o f o r m u l a t e p o s i t i v e
c o n g r e s s i o n a l a c t i o n .
S i n c e r e l y y o u r s , WRIGHT PATMAN,Chairman, Select Committee on Small Business .
8/2/2019 Tax Exempt Foundations Their Impact on Our Economy-US Gov-1962-140pgs-GOV-POL-ECO
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8/2/2019 Tax Exempt Foundations Their Impact on Our Economy-US Gov-1962-140pgs-GOV-POL-ECO
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d e d b y t h e p e o p l e o r t h e C o n g r e s s -
PURPOSE OF THE STUDY AND PERIOD COVEREDT h e p u r p o s e o f o u r s t u d y i s t o d e t e r m i n e w h a t t h e f a c t s
r c e m e n t , a r e n e e d e d t o p r o t e c t s m a l l
.
T h e p e r i o d c o v e r e d b e g i n s w i t h t a x a b l e y e a r 1 9 5 1 a n d
. However, all the
c a s e
. S o m e f o u n d a t i o n s ,
t h e f u l l p e r i o d .
W e h a v e a t t e m p t e d t o a c c u r a t e l y r e c o r d a l l d a t a f o r t h e
.
o r g a n i z a t i o n s .
T h e r e i s n o t h o u g h t o f p a r t i s a n s h i p .
PROCEDURESWe have secured information from 534 tax-exempt
. O u r i n q u i r i e s w e r e s e n t t o a c r o s s s e c t i o n o f
. T h e y a r e n o t t h e 5 3 4 l a r g e s t f o u n d a -
. A n u m b e r o f s m a l l e r o n e s w e r e s e l e c t e d f o r s a m -
. I n d e e d , t h e r e i s n o w a y o f t e l l i n g w h i c h
u t
h e m .
W e w e n t d i r e c t l y t o t h e f o u n d a t i o n s b e c a u s e t h a t w a s
t o s e c u r e i n f o r m a t i o n a d e q ua t e f o r o u r p u r -
. T h e i n f o r m a t i o n a v a i l a b l e i n t h e f i l e s o f t h e I n -
i n a d e q u a t e .
S o w e d i r e c t e d o u r i n q u i r i e s t o t h e r e c i p i e n t s o f t h i s
. W e a s k e d t h e f o u n d a t i o n s f o r
n t e r n a l R e v e n u e S e r v -
g e x e m p t i o n , t a x r e t u r n s ( F o r m 9 9 0 - A
1 0 4 1 - A, i f a p p l i c a b l e ) , a c c o u n t a n t ' s f i n a n c i a l
a t i o n o n d i -
f i n a n c i a l a n d
i o n f o r t h e y e a r s 1 9 5 1 t h r o u g h 1 9 6 0 . After
f t h e m a t e r i a l o n 5 3 4
n w a s c r e a t e d a f t e r 1 9 5 1 .
T h e i n c o m e r e p o r t , w h i c h I a m s u b m i t t i n g a s S c h e d u l e
g o f t h e 5 3 4 f o u n d a t i o n s u n d e r s t u dy
.
All reports were compiled from documents gathered
. T h e m a t e r i a l w a s g a t h e r e d, r e -
. H . A .
f o u n d at i o n s t u d y . The data was re-
O f f i c e .
A d di t i o n a l l y , I w i s h t o e x p r e s s m y t h a n k s t o M r . J .
. Seidman, of New York C i t y . A t m y i n v i t a t i o n , M r .
e c e r t i f i e d p u b l i c a c c o u n t -
e d u s t o c o n s u l t
t e c h n i c a l t a x m a t t e r s , a n d g a v e f r e e l y a n d
m e a n d a dv i c e . Mr . S e i d m a n i s p a s t
n t s a n d f o r m e r c h a i r m a n o f t h a t o r g a n i z a t i o n ' s
.
RELUCTANT FOUNDATIONSO b t a i n i n g t h e i n f o r m a t i o n f r o m t h e f o u n d a t i o n s h a s
. I n m a n y c a s e s , i t h a s t a k e n f o u r o r
p o w e r t o o b t a i n t h e i n f o r m a t i o n n e e d e d f o r t h i s s t u d y .
M a n y f o u n d a t i o n s h a v e t a k e n f r o m 3 0 t o 6 0 d a y s t o r e -
p l y t o a l e t t e r . W e h a v e b e e n c o m p e l l e d t o i s s u e s u b -
p e n a s t o 1 7 o f t h e m w h o f a i l e d t o f u r n i s h i n f o r m a t i o n
r e q u e s t e d . ( A l i s t o f t h e 1 7 a p p e a r s o n p p . 18-19 . ) T h e s e
1 7 f o u n d a t i o n s h a d b e e n g i v e n a m p l e o p p o r t u n i t y t o f u r -
n i s h t h e i n f o r m a t i o n v o l u n t a r i l y - i n m a n y i n s t a n c e s , s e v -
e r a l m o n t h s . I n t h e c a s e o f t h e f i v e m e m b e r s o f t h e
Ford family o f Detroit, the Pew Memorial Trust of
P h i l a d e l p h i a , a n d t h e A l l e n - B r a d l e y F o u n d a t i o n o f M i l -
w a u k e e , t h e c o m m i t t e e f i r s t a s k e d f o r t h e i n f o r m a t i o n i n
O c t o b e r 1 9 6 1 . When followup letters did not produce
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a n d M a r c h o f 1 9 6 2 .
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d e r s t u d y s u g g e s t a n u n m a t c h e d a r r o g a n c e a n d c o n t e m p t
for the Congress and the people whom we represent .
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t i o n i s t h e i r b i r t h r i g h t - r a t h e r t h a n a p r i v i l e g e g r a n t e d
t o t h e m b y t h e p e o p l e , t h r o u g h t h e C o n g r e s s , f o r a p u b -
l i c p u r p o s e .
T h e r e l u c t a n c e t o c o o p e r a t e t a k e s m a n y f o r m s . S o m e
o n l y f u r n i s h e d i n f o r m a t i o n u n d e r s u b p e n a , d e m o n s t r a t -
i n g s o m e t h i n g l e s s t h a n a c h a r i t a b l e a t t i t u d e t o w a r d p u b
l i e k n o w l e d g e a n d d e m o c r a t i c p r o c e s s e s . Others have
s e n t u s i n c o m p l e t e , o r p a r t i a l l y o r w h o l l y i l l e g i b l e , d o c u -
ments . F r e q u e n t l y , p r i n c i p a l o f f i c e r s s e e m e d t o b e i n
E u r o p e w h e n o u r l e t t e r s a r r i v e d , l e a v i n g n o o n e i n t h e
o f f i c e w i t h a c c e s s t o t h e r e c o r d s .
A MORATORIUM IS NEEDEDO u r c o m m i t t e e h a s p r o d u c e d t h e f i r s t p e n e t r a t i n g , m e a n -
i n g f u l i n s i g h t i n t o t h e i n c o m e o f a s u b s t a n t i a l n u m b e r o f
t a x - e x e m p t f o u n d a t i o n s - 5 3 4 o u t o f a n e s t i m a t e d 4 5 , 1 2 4 .
Many of you w r e c a l l t h a t t h Q R e e o m i i t t e e f o u n d i tm p o s s i b l e t o a r r i ve a 'anp-a e c ur a t e e s t i m a t e of t i e n u r r i -
g r f f o e i r i n c o m e e g e I i u r e s , a n 1 i a s s e l i
F o u n a t i o n s g i v e w i d e p u b l i c i t y t o t h i r - d i i i i i e m e n t s -
c o n t r i b u t i o n s , g i f t s , g r a n t s , e t c . - b u t t h e y s e e m r e l u c t a n t
t o a d v e r t i s e t h e i r i n c o m e .
O n t h e b a s i s o f o u r d i s c o v e r i e s t h u s f a r , a n d i n v i e w o f
t h e r a p i d l y i n c r e a s i n g n u m b e r o f t a x - e x e m p t f o u n d a t i o n s ,
I s t r o n g l y u r g e t h e S e c r e t ar y o f t h e T r e a s ur y t o d e c l a r e
a n i m m e d i a t e m o r a t o r i u m o n g r a n t i n g e x e m p t i o n s t o f o u n -
d a t i o n s a n d c h a r i t a b l e t r u s t s u n t i l s u c h t i m e a s t h e C o n -
g r e s s h a s a n o p p o r t u n i t y t o c o n s i d e r a n d d e v e l o p n e w l a w
a n d p r o c e d u r e s t o f i t p r e s e n t d a y e c o n o m i c c i r c u m s t a n c e s
a n d n e e d s .
T h i s r e c o m m e n d a t i o n i s n o t m a d e l i g h t l y . I t i s n o t
m a d e c a s u a l l y . I t i s m a d e i n t h e i n t e r e s t o f t h e t a x p a y i n g
p u b l i c a n d i n t h e i n t e r e s t o f g o o d a d m i n i s t r a t i o n a n d o r -
d e r l y p r o c e d u r e s . I t i s a l s o m a d e i n t h e i n t e r e s t s o f e q u a l
j u s t i c e .
H o w c a n t h e T r e a s u r y D e p a r t m e n t p o s s i b l y j u s t i f y c o n -
t i n u i n g t o w r i n g h e a v y t a x e s o u t o f t h e f a r m e r , t h e w o r k e r ,
a n d t h e s m a l l b u s i n e s s m a n , k n o w i n g t h a t p e o p l e o f l a r g e
m e a n s a r e b u i l d i n g o n e f o u n d a t i o n a f t e r a n o t h e r , a n d -
f o r a l l t h e T r e a s u r y k n o w s - f o r t h e p u r p o s e o f d e c r e a s i n g
t h e i r t a x e s , e l i m i n a t i n g c o m p e t i t i o n a n d s m a l l b u s i n e s s ,
s u b s i d i z i n g a n t i d e m o c r a t i c p r o p a g a n da , a n d o t h e r w i s e
w o r k i n g a h a r d s h i p o n t h e N a t i o n . This "mess"-and it
i s a m e s s c a n n o t b e c l e a n e d u p o v e r n i g h t , a n d m a n y o f
t h e p e o p l e w h o a r e n o w f a c e d w i t h t h e c l e a n i n g j o b a r e b y
n o m e a n s r e s p o n s i b l e f o r t h i s s o r r y s t a t e o f a f f a i r s b u t , i n
t h e i n t e r i m , g o o d f a i t h r e q u i r e s t h a t w e p u t a n e n d t o t h e
s p i r a l i n g n u m b e r o f t h e s e t a x - f r e e e n t i t i e s u n t i l w e c a n
b r i n g s o m e d e g r e e o f o r d e r i n t o t h e s e m a t t e r s a n d a s s u r e
t h e p e o p l e t h a t t h e i r t a x e s a r e n o t h i g h e r b e c a u s e o f s p e c i a l
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p r i v i l e g e s f l o w i n g f r o m i n a d e q u a t e l a w s , i n a d e q u a t e r e g u -
l a t i o n s , a n d l a x a d m i n i s t r a t i o n .
REASONS FOR THE RECOMMENDED MORATORIUML e t m e o u t l i n e f i v e o f t h e m a n y j u s t i f i c a t i o n s f o r a n
i m m e d i a t e m o r a t o r i u m o n t h e g r a n t i n g o f e x e m p t i o n s
F i r s t , t h e r e i s e v e r y i n d i c a t i o n t h a t t h e r e h a v e b e e n
l a x n e s s a n d i r r e s p o n s i b i l i t y i n t h e s u p e r v i s i o n o f f o u n d a -
t i o n s b y t h e I n t e r n a l R e v e n u e S e r v i c e . T h e r e i s l i t t l e
d o u b t t h a t t h e t r e m e n d o u s i n c r e a s e i n t h e n u m b e r a n d s i z e
o f f o u n d a t i o n s h a s o u t r u n t h e m a c h i n e r y f o r c o n t r o l .
M o r e o v e r , a m o r a t o r i u m w o u l d g i v e t h e T r e a s u r y D e p a r t -
m e n t a n o p p o r t u n i t y t o t i g h t e n i t s e x e m p t i o n r e q u i r e -
m e n t s , i t s s u p e r v i s o r y p r o c e d u r e a n d c o n t r o l , a n d s t e p u p
i t s d i s c i p l i n a r y a c t i o n s f o r v i o l a t i o n s o f i t s r e g u l at i o n s.
T h e s c a r c i t y o f i n f o r m a t i o n o n f o u n d a t i o n s a n d t h e
l a c k o f s u p e r v i s i o n h a s m a d e i t i m p o s s i b l e f o r t h e T r e a s -
u r y t o d e t e r m i n e t h e e x t e n t o f l o s s t o t h e F e d e r a l T r e a s -
u r y o n f o u n d a t i o n o p e r a t i o n s . Commissioner MortimerM. C a p l i n h a s a d v i s e d m e t h a t h e r e c o g n i z e s t h a t h i s D e -p a r t m e n t ' s " a u d i t a c t i v i t y i n t h e a r e a o f e x e m p t o r g a n i z a -
t i o n s w a s i n a d e q u a t e i n t h e p a s t . "O u t o f a t o t a l o f 5 7 0 , -
0 0 0 e x e m p t o r g a n i z a t i o n t a x r e t u r n s o f a l l t y p e s f i l e d
d u r i n g t h e p e r i o d o f J a n u a r y 1 , 1 9 5 8 , t h r o u g h J u n e 3 0 ,
1 9 6 0 , 1 3 , 0 2 4 w e r e c l a s s i f i e d f o r a u d i t , o f w h i c h o n l y 5 , 3 0 0
w e r e a c t u a l l y a u d i t e d . T h o s e 5 , 3 0 0 a u d i t s r e s u l t e d " i n
r e c o m m e n d e d a d d i t i o n a l t a x e s a n d p e n a l t i e s o f $ 2 . 7 m i l -
l i o n a n d 2 0 3 i n s t a n c e s i n w h i c h t h e e x e m p t s t a t u s h a s b e e n
r e c o m m e n d e d f o r r e v o c a t i o n . "
T h e l a c k o f s t a t i s t i c s i s a p p a l l i n g : a p p r o x i m a t e l y 1 1 1 , -
0 0 0 o u t o f t h e t o t a l o f 5 7 0 , 0 0 0 r e t u r n s w e r e f i l e d o n F o r m
9 9 0 - A d u r i n g t h e 2 1 /2 - y e a r p e r i o d . T h e b a l a n c e w e r e f i l e d
o n o t h e r e x e m p t o r g a n i z a t i o n r e t u r n F o r m s 9 9 0 , 9 9 0 - C ,
9 9 0 - P , 9 9 0 - T , a n d 1 0 4 1 - A . T h e I n t e r n a l R e v e n u e S er v -
i c e h a s n o s e p a r a t e f i g u r e s s h o w i n g t h e n u m b e r o f F o r m
9 9 0 - A r e t u r n s w h i c h w e r e c l a s s i f i e d f o r a u d i t d u r i n g t h a t
p e r i o d ; n o r c a n i t s u p pl y f i g u r e s o n h o w m a n y o f t h i s
g r o u p w e r e a c t u a l l y a u d i t e d .
T h e d e a r t h o f d a t a w i t h o u t w h i c h n e i t h e r t h e p u b l i c ,
n o r t h e C o n g r e s s , n o r t h e e x e c u t i v e b r a n c h c a n p r o p e r l y
e v a l u a t e t h e i m p a c t o f t h e r a p i d l y g r o w i n g f o u n d a t i o n
i n d u s t r y i s d u e , i n p a r t , t o t h e d e f i c i e n c i e s i n a d m i n i s t r a -
t i v e f o r m s a n d p r o c e d u r e s .
T h e l a w r e q u i r e s t a x - e x e m p t f o u n d a t i o n s t o m a k e a r e -
p o r t o f t h e i r o p e r a t i o n s o n a t a x r e t u r n k n o w n a s F o r m
990-A . T h i s r e t u r n i s c o m p o s e d o f f o u r p a g e s . I t g i v e s
i n f o r m a t i o n c o n c e r n i n g r e c e i p t s , d i s b u r s e m e n t s , a n d b a l -
a n c e s h e e t s . But Form 990-A omits vitally important
f a c t s . N o r e p o r t i s r e q u i r e d a s t o t h e d a t e o f c o n t r i b u t i o n s
r e c e i v e d o r a s t o t h e t y p e o f c o n t r i b u t i o n s r e c e i v e d - t h a t
i s , w h e t h e r i t i s c a s h , s e c u r i t i e s , r e a l e s t a t e , e t c . N o i n -
f o r m a t i o n i s r e q u i r e d a s t o s e l l i n g d a t e s o f a s s e t s . N o t e s
r e c e i v a b l e a n d a c c o u n t s r e c e i v a b l e a r e n o t s e p a r a t e d .
Mortgage holdings-a big foundation business-are not
t r e a t e d s e p a r a t e l y . A l t h o u g h a f o u n d a t i o n i s r e q u i r e d
t o r e p o r t 1 0 p e r c e n t o r m o r e s t o c k o w n e r s h i p , i t i s n o t
r e q u i r e d t o r e p o r t t h e d a t e o r m a n n e r o f a c q u i s i t i o n o f t h e
s t o c k . N o d e t a i l i s r e q u i r e d a s t o a c c o u n t s p a y a b l e , s u c h
a s t h e n a t u r e o f t h e a c c o u n t s p a y a b l e , n a m e o f t h e c r e d i t o r ,
e t c . L i t t l e d e t a i l i s r e q u i r e d a s t o t h e c h a r a c t e r o f t h e
i t e m s m a k i n g u p m i s c e l l a n e o u s e x p e n s e s . N o d e s c r i p t i o n
o f t h e f o u n d a t i o n ' s b u s i n e s s a c t i v i t i e s i s r e q u i r e d . Names
o f t h e o f f i c e r s , d i r e c t o r s , o r t r u s t e e s a r e n o t r e q u i r e d .
C e r t a i n l y , t h e s t o c k h o l d e r s o f a n y b u s i n e s s c o r p o r a t i o n
w o u l d w i s h t o h a v e s u c h i n f o r m a t i o n . A n d , i n t h e c a s e o f
t a x - e x e m p t f o u n d a t i o n s , t h e t a x p a y e r s a r e t h e s t o c k h o l d -
e r s s i n c e t h e y p r o v i d e t h e s u b s i d y .
M y s e c o n d j u s t i f i c a t i o n f o r u r g i n g a m o r a t o r i u m i s t h a t
t h e r e a p p e a r s t o h a v e b e e n w i d e s p r e a d d i s r e g a r d o f T r e a s -
u r y r e g u l a t i o n s , d e s p i t e p e n a l t i e s p r o v i d e d b y l a w , i n -
c l u d i n g f i n e s u p t o $ 1 0 , 0 0 0 a n d j a i l t e r m s . Uneduc ated
s h a r e c r o p p e r s a r e p r e s u m e d t o k n o w t h e l a w , b u t m a n y
o f t h e f o u n d a t i o n s u n d e r s t u d y a n d t h e i r w e l l - p a i d , w e l l -
e d u c a t e d a d v i s e r s a r e a p p a r e n t l y e x e m p t f r o m t h i s a n c i e n t
p r e s u mp t i o n , i n p r a c t i c e , i f n o t a s a m a t t e r o f s t r i c t l a w .
S i n g l i n g o u t t h e s h o r t c o m i n g s o f e a c h i n d i v i d u a l f o u n d a -
t i o n w o u l d f i l l c o u n t l e s s p a g e s s o I s h a l l o n l y r e c i t e a , f e w
1 . T h e T r e a s u r y D e p a r t m e n t r e q u i r e s e v e r y f o u n -
d a t i o n t o f i l e t h e f o l l o w i n g i n f o r m a t i o n i f i t o w n s
1 0 p e r c e n t o r m o r e o f a n y c l a s s o f s t o c k o f a n y c o r -
p o r a t i o n a t t h e b e g i n n i n g o r c l o s e o f e a c h r e p o r t i n g
p e r i o d : ( 1 ) N a m e o f t h e c o r p o r a t i o n ; (2) number
o f s h a r e s o f e a c h t y p e o f s t o c k o w n e d , i n c l u d i n g i d e n -
t i f i c a t i o n a s t o v o t i n g o r n o n v o t i n g ; a n d ( 3 ) t h e v a l u e
o f t h e s t o c k a s r e c o r d e d o n t h e f o u n d a t i o n ' s b o o k s .
We have already found 72 foundations, ow ning 10
p e r c e n t o r m o r e o f a t l e a s t 1 c l a s s o f s t o c k i n 1 o r
m o r e o f 1 8 0 d i f f e r e n t c o r p o r a t i o n s d u r i n g t h e y e a r s
1 9 5 1 t h r o u g h 1 9 6 0 , w h o f a i l e d t o r e p o r t s u c h i n f o r -
m a t i o n t o t h e I n t e r n a l R e v e n u e S e r v i c e f o r a t l e a s t
1 y e a r . T h e f o u n d a t i o n s t h a t f a i l e d t o f i l e s u c h d a t a
a r e l i s t e d i n S c h e d u l e 2 .
2 . T h e L o n g w o o d F o u n d at i o n o f W i l m i n g t o n , D e l . ,
h a d t o t a l r e c e i p t s o f $ 3 2 , 9 5 2 , 8 8 5 f o r t h e y e a r s 1 9 5 1
t h r o u g h 1 9 6 0 . T h i s f o u n d a t i o n f a i l e d t o f i l e i t s F o r m
9 9 0 - A t a x r e t u r n s f o r t h e y e a r s 1 9 5 5 t h r o u g h 1 9 5 8 .Mr. H e n r y B . d u P o n t , P r e s i d e n t o f t h e f o u n d a t i o n .s a y s t h a t t h e f a i l u r e t o f i l e w a s b r o u g h t ; t o l i g h t b y
m y i n q u i r y o f l a s t A u g u s t , a n d t h a t t h e t a x r e t u r n s
f o r t h e 4 y e a r s w e r e n o t f i l e d u n t i l S e p t e m b e r 7 - 8 ,
1 9 6 1 .
3 . The Parsons-Blewett Memorial Fund , of S t .
L o u i s , h a d t o t a l r e c e i p t s o f $ 1 , 6 0 0 , 3 1 4 f o r t h e y e a r s
1 9 5 1 t h r o u g h 1 9 6 1 . I t a d m i t s t h a t n o r e q u e s t s h a d
b e e n r e c e i v e d f o r s u b m i s s i o n o f t a x r e t u r n s p r i o r
t o 1 9 6 1 , a n d " c o n s e q u e n t l y n o n e w e r e f i l e d , " d e s p i t e
t h e f a c t t h a t t h e o r g a n i z a t i o n h a s b e e n o p e r a t i n g o n
a n e x e m p t b a s i s f o r m a n y y e a r s . I n f a c t , t h i s f u n d
d i d n o t f i l e a n e x em p t i o n a p p l i c a t i o n u n t i l O c t o b e r
1 9 5 9 , a l t h o u g h i t w a s o r g a n i z e d i n 1 9 1 6 .
4 . The Rutherford B . Hayes and Lucy W . H a y e s
F o u n d a t i o n , o f S p i e g e l G r o v e , O h i o , h a d t o t a l r e -
c e i p t s o f $ 3 3 6 , 4 4 5 f o r t h e y e a r s 1 9 5 1 t h r o u g h 1 9 6 0 .
A l t h o u g h i t h a s b e e n o p e r a t i n g o n a t a x - e xe m p t b a s i s
s i n c e 1 9 2 6 , i t d i d n o t f i l e a n a p p l i c a t i o n f o r t a x e x -
e m p t i o n u n t i l J u n e 1 0 , 1 9 6 0 , a n d f i l e d i t s l u s t F o r m
9 9 0 - A i n 1 9 6 1 - j u s t a b o u t 3 5 y e a r s a f t e r i t s t a r t e d
o p e r a t i o n s .
5 . The Isaac W . Be r n h e i m F o u n d a t i o n o f L o u i s -
v i l l e h a d t o t a l r e c e i p t s o f $ 1 , 2 0 5 , 1 0 8 f o r t h e y e a r s 1 9 5 5
t h r o u g h 1 9 6 0 . I t f a i l e d t o f i l e F o r m 9 9 0 - A f o r a l l
y e a r s p r i o r t o 1 9 5 5 , d e s p i t e t h e f a c t t h a t , i t h a s b e e n
e x e m pt s i n c e 1 9 3 0 . T h i s f o u n d a t i o n a l s o c o n t e n d s
t h a t n o o n e h a d e v e r a d v i s e d i t t h a t F o r m 9 9 0 - A " w a s
r e q u i r e d . " M r . R o b e r t P a u l , E x e c u t i v e D i r e c t o r o f
t h e f o u n d a t i o n , s a y s : " I r e m e m b e r m a k i n g i n q u i r i e s
a t t h e F e d e r a l B u i l d i n g , D e p a r t m e n t o f R e v e n u e ,
L o u i s v i l l e , K y . , a n d i t w a s o n l y a f t e r c o n s i d e r a b l e
d i f f i c u l t y I c o u l d f i n d s o m e o n e w h o c o u l d t e l l m e i n
w h a t m a n n e r t h i s f o r m s h o u l d b e m a de o u t t o m e e t
o u r p a r t i c u l ar s i t u a t i o n , c o m b i n i n g t h e t w o e n t i t i e s
I . W . B e r n h e i m T r u s t a n d I . W . B e r n h e i m F o u n d a -
t i o n . "
6 . The Howard Heinz Endow ment of Pittsburgh
h a d t o t a l r e c e i p t s o f $ 6 , 1 7 4 , 7 1 7 f o r t h e y e a r s 1 9 5 1
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through 1960 . No tax return was filed for the year
1955, and no reason given .
7 . The Inland Steel-Ryerson Foundation of Chi-
cago had total receipts of $10,189,864 f or the years
1 9 5 1 t h r o u g h 1 9 6 0 . It is among a number of founda-
tions that failed to file Form 990-A f or at least 1 year .
F o r t h e y e a r s 1 9 5 8 t h r o u g h 1 9 6 0 , i t f i l e d F o r m 9 9 0
which is closed to public inspection .
8 . Th e Z a c h a r y S m i t h R e y n o l d s Tr u s t o f W i n s t o n -
S a l e m , N .C . , had total receipts of $8,067,757 for the
y e a r s 1 9 5 1 t h r o u g h 1 9 6 0 . It has not filed a proper
information return since it was established in 19 36 .
It has filed a Form 1041 instead of a Form 990-A the
former being closed to public inspection . The Mer-
c a n t i l e - S a f e D e p o s i t & Tr u s t C o . of Baltimore, the
trustee, says that the Internal Revenue Service has
n e v e r r eq u e s t e d t h a t i t f i l e a F o r m 9 9 0 - A f o r t h e
Zachary Smith Reynolds Trust .
9 . M a n y o f t h e f o u n d a t i o n s w e h a v e e x a m i n e d o m i t
important information required by the Treasury De-
partment . Little or no attention is paid to filing
t h e p o r t i o n s o f t h e t a x r e t u r n w h i c h m u s t be m a d e
available to the public . This is particularly true of
information relating to disbursements such as con-
tributions, gifts, grants, etc .The Olin Mathieson Chemical Corp . CharitableTrust, of East Al ton, Ill ., had total receipts of $9,-
615,630 for the years 1951 through 1960 . It says that
schedules itemizing capital gains (or losses) were not
filed for any year from 1951 through 1957, despite the
fact that it had gains or losses in each year .
The Donner Foundation of Philadelphia-whose
financial statements are prepared by Price Waterhouse& Co.-had total receipts of $24,7 60,043, includingc a p i t a l g a i n s o f $ 1 2 , 9 4 7 , 8 2 7 , f o r t h e y e a r s 1951
t h r o u g h 1 9 6 0 . This foundation did not file a capital
gain schedule showing details of assets sold for any
of those years .
The Monarch Machine Tool Co . Foundation, of Sid-
ney, Ohio, had total receipts of $153,333 for the years
1953 through 1960 . It also failed to file capital gain
schedules for 1955 and 195 7 ; nor did it file schedules
for miscellaneous expenses during the years 1954 and
195 9 .
Any member of this body will recognize that infractions
such as these by ordinary citizens would have the Internal
Revenue Service pursuing them in force .
The third justification for urging a moratorium relates
to that provision of the Revenue Act of 19 50 which pro-
hibits "unreasonable" accumulations of income by founda-
tions . The group of foundations we examined had ac-
c u m u l a t e d i n c o m e o f $ 9 0 6 , 1 3 6 , 2 5 6 at the close of the last
a c c o u n t i n g p e r i o d f o r w h i c h t h e y s u bm i t t e d d a t a t o t h e
committee (usually 1960), as against $271,615,73 3 at the
close of the first accounting period (usually 1951) for
w h i c h t h e y p r o v i d e d i n f o r ma t i o n . T h e r e a s on s f o r t h i s
huge increase in accumulated income will require further
study . One of the problems is the failure of many founda-
tions to report any information regarding their accumu-
l a t e d i n c o m e . For example, the Lillia Babbitt Hyde
Foundation of New York City had aggregate total re-
ceipts of $10,295,632, including capital gains, contribu-
t i o n s , g i f t s , g r a n t s , e t c ., for the years 1 9 5 1 t h r o u g h 1 9 6 0 .
Its accumulation of income at the end of 1960 was $4,405 ;
7 6 2 . The foundation's tax returns fo r the years 1951
through 1958 offer no explanation of its acc umulated in-
come ; its returns of 1959 and 196 0 hint that capital gainsare included in accumulations of income during the earlier
years .
4The fourth justification for urging a moratorium is that
tax exemption for foundations needs reassessment in the
light of the present times . There is every indication that
m a n y t a x - e x e m p t c h a r i t a b l e f o u n d a t i o n s a r e be i n g u s e d
for purposes not related to charity . The laws of the past
are no longer effective . Congress could not envision the
g i g a n t i c p r o p o r t i o n s t h a t t h e f o u n d a t i o n b u s i e s w o u l d
reach . During the last accounting period (usually 1960)
for which the foundations submitted data to the commit-
tee, they had total receipts of $1,034,710, 518, as against
total receipts of $554,740,568 during the first accounting
period (usually 1951) .
In 1960, there were 7,213,000 families, including unat-
tached individuals, in the United States who had income
o f l e s s than $2,000 before taxes . Th e i r a g g r e g a t e i n c o m e
was $8,040 million . Thus, the $1,034,710,518 received by
the 534 tax-exempt foundations in 1960 was almost 13
percent of the income of 7,213,000 American families . In
other words, the aggregate receipts of these 534 f oundar
tions were equal to that of 928,000 American families in
1 9 6 0 .
Moreover, the $1,034,710,518 received by the 534 tax-
exempt foundations in 1960 was substantially more-in
fact, almost 20 percent more-than the $864,435,000 com-
bined net operating earnings, after taxes, of the 50 largest
banks in the United States .
The followin g is a breakdown of the receipts of the 534
foundation s from whom we gathered data for the taxable
years 1951 through 1960
Gross sales or receipts from business activities___ $114,292,477
Gross profit from business activities'3,900, 347Interest received78,8 93,332Dividends received,161, 886, 913Rents and royalties received7 0 , 6 0 1 , 2 0 7Total gain from sale of assets, 4 7 7 , 2 7 2 , 8 4 1Other income14,352,010
Total gross income, excluding contributions,
gifts, grants, etc., received, 6 7 6 , 9 0 6 , 6 6 0Total contributions, gifts, grants, etc ., received____ 2,,W4,282,109Total receipts, including contributions, gifts,grants, etc. , r e c e i v e d,981,188,76 91 Some foundations failed to show gross sales less cost of sales or ofoperations .What is the significance of the huge amounts accruing in
t h e f o r m o f c a p i t a l g a i n s ? Th e $ 1 , 4 7 7 , 2 7 2 , 8 4 1 i n c o m e
figure from capital gains suggests that many foundations
have become a vehicle for trading in securities and dodging
the capital gain tax . Foundatio n capital gains are not
only tax exempt, but the foundations are permitted to place
them in the principal account instead of the income
a c c o u n t .
Note the following capital gains of the Lillia Babb itt
H y d e F o u n d a t i o n o f N e w Y o r k C i t y f r o m a c t i v i t y i n t h e
s t o c k m a r k e t
I No such information was filed on the tax return .
Year Gross salesprice ofsecurities
Capital gains
1951221,800.721952
) 364, 697.88
1953611,352 .38 170,899.331954,486,033 . 95 479,588.401955,417,302 .26 694,383.671956,161,747 .67 353, 536 .741957, 3 6 0 , 3 1 3 .63 350,995.88195924, 573 .29 304, 852.841959, 6 9 8 , 5 7 1 .25 944, 960.5919602 , 5 3 0 , 9 3 1 .90 1,992,681.2 9
Total2, 090,826.33 5 , 7 8 8 , 3 7 7 .3 4
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H y d e F o u n d a t i o n ' s t a x r e t u r n s f o r 1 9 5 1 a n d 1 9 5 2 . More-
o v e r , i t s r e t u r n s f o r t h e y e a r s 1 9 5 6 a n d 1 9 6 0 d o n o t s h o w
a c q u i s i t i o n d a t e s , a l t h o u g h T r e a s u r y r e g u l a t i o n s r e q u i r e
s u c h i n f o r m a t i o n . Ad d i t i o n a l l y , T r e a s u r y r e g ul a t i o n s
r e q u i r e a d e s c r i p t i o n o f t h e m a n n e r i n w h i c h t h e s e c u r i t i e s
w e r e a c q u i r e d b y t h e f o u n d a t i o n - b y g i f t o r p u r c h a s e , e t c .
T h i s f o u n d a t i o n d i d n o t f i l e a n y s u c h i n f o r m a t i o n f o r t h e
y e a r s 1 9 5 1 t h r o u g h 1 9 6 0 . I t d i d , h o w e v e r , f u r n i s h b o t h
d a t e s o f a c q u i s i t i o n a n d d a t e s o f s a l e o f s e c u r i t i e s f o r t h e
y e a r s 1 9 5 3 , 1 9 5 7 , 1 9 5 8 , a n d 1 9 5 9 . E xa m i n a t i o n o f t h e s e
r e t u r n s i n d i c a t e s t h a t t h e r e w a s s p e c u l a t i o n i n s e c u r i t i e s
w i t h s t o c k s a n d b o n d s b e i n g b o u g h t a n d s o l d d u r i n g t h e
s a m e y e a r a n d s o m e t i m e s w i t h i n a m a t t e r o f a f e w d a y s .
T h i i g~e o f a c t i v i t y by f o u n d at i o n s -w i t h h u- e , u n -
t a x e d f u n d s a t eir is osa~- oses some q u e s t i o n s i n
e i g o t e r e c e n s a p . r e a s i n t o m a r e nmyview - - tax-exemptf o u n d a t i o n s -a f l o f w h o m a r e s u p po r t e d
b y t h e t a x p a y e r s - s h o u l d n o t b e p e r m i t t e d t o u s e p u b l i c
f u n d s f o r s p e c u l a t i o n i n t h e s t o c k m a r k e t . T h e i r m i s -
t a k e s o r m i s f o r t u n e s a r e t o o l i k e l y t o h a v e a d i s a s t r o u s
e f f e c t o n m i l l i o n s o f o u r c i t i z e n s .
The f i f t h j u s t i f i c a t i o n f o r u r g i n g a m o r a t o r i u m i s t h e
n e e d f o r a c h i e v i n g a m o r e e q u i t a b l e d i s t r i b u t i o n o f t h e
tax burden-one of the most pressing problems facing
t h e C o n g r e s s . I n f a i r n e s s t o a l l t a x p a y e r s , t h e C o n g r e s s
s h o u l d e x p l o r e t h e f o u n d a t i o n b u s i n e s s a s a p o s s i b l e n e w
s o u r c e o f r e v e n u e .
T o d a y f u n d s a r e b e i n g p u t i n t o f o u n d a t i o n s w h i c h y i e l d
n o t a x a b l e i n c o m e . S i n c e t h e m o n e y l o s t t o t h e p u b l i c ' s
T r e a s u r y m u s t b e f o u n d s o m e w h e r e , t h e b u r d e n i s s h i f t e d
t o p e o p l e w h o a r e o b l i g e d t o w o r k f o r a l i v i n g - t o t h e
w i d o w w i t h a c o t t a g e i n s t e a d o f a p a l a c e , t o b u s i n e s s m e n ,
a n d t o t h e f a r m e r .
I n m y v i e w , i t i s e x t r e m el y u n f a i r f o r t h e t a x pa y e r s o f
t h e F i r s t D i s t r i c t o f T e x a s a n d t h e r e s t o f t h e c o u n t r y t o
b e c o m p e l l e d t o p a y f o r t h e m a i n t e n a n c e o f t a x - e x em p t
f o u n d a t i o n s . T h e y m a i n l y l i g h t e n t h e b u r d e n o f w e a l t h y
p e o p l e w h o d o n o t r e q u i r e g o v e r n m e n t s u b s i d y . T h i s i s
n o t b a c k e d b y j u s t i c e , e q u i t y , o r s o u n d A m e r i c a n p r i n -
c i p l e s .
T h e s e f i v e p o i n t s a r e m e r e l y a s u m m a r y s t a t e m e n t o f
t h e j u s t i f i c a t i o n s f o r u r g i n g a n i m m e d i a t e m o r a t o r i u m o n
t h e c r e a t i o n o f a n y m o r e o f t h e s e t a x - e x e m p t f o u n d a t i o n s
u n t i l t h e C o n g r e s s h a s t a k e n a p p r o p r i a t e a c t i o n - b u t l e t
m e p r o c e e d w i t h t h e r e p o r t i n m o r e d e t a i l o n t h e d i f f i c u l t i e s
w e h a v e e n c o u n t e r e d , t h e e v i d e n c e s o f t h e n e e d f o r c h a n g e s
i n t h e l a w , i n t h e r e g u l a t i o n s , a n d i n t h e a d m i n i s t r a t i o n
o f t h e s e o r g a n i z a t i o n s .
P R O B L E M S R E S U L T IN G F R O M T H E S H O R T C O M I N G S O F
FOUN DA TIONS IN ACC OUNTING
N o w I s h o u l d l i k e t o t e l l y o u a l i t t l e a b o u t t h e c o m m i t -
t e e ' s p r o b l e m s r e s u l t i n g f r o m t h e s h o r t c o m i n g s o f t h e
f o u n d a t i o n s i n t h e i r a c c o u n t i n g .
T h e a c c o u n t i n g d a t a f u r n i s h ed b y f a r t o o m a n y o f t h e
f o u n d a t i o n s i s d e f e c t i v e i n m a n y w a y s . This has posed
p r o b l e m s i n t h e p r e p a r a t i o n o f o u r r e p o r t .
T h e l a c k o f u n i f o r m i t y i n a c c o u n t i n g p r o c e d u r e s , a n d
t h e a c c o u n t i n g p r a c t i c e s g e n e r a l l y i n t h e f o u n d a t i o n i n -
d u s t r y , s h o u l d b e a m a t t e r o f c o n c e r n t o t h e c e r t i f i e d p u b l i c
a c c o u n t a n t pr o f e s s i o n .
T h e r e a r e f a r t o o m a n y d e p a r t u r e s f r o m r e c o g n i z e d b o o k -
k e e p i n g p r o c e d u r e s . S o m e a n n u a l r e p o r t s , f o r i n s t a n c e ,
i d e n t i f y t h e s o u r c e o f c e r t a i n i n c o m e a s " v a r i o u s t r a n s -
a c t i o n s . "
A s i n d i c a t e d a b o v e p r o c e e d s w e r e n o t s h o w n o n t h e T h e l i s t o f d e f e c t s i n c l u de s t h e f o l l o w i n g
1 . T h e b i g g e s t p r o b l e m e n c o u n t e r e d h a s b e e n t h e
i l l e g i b l e c o p i e s o f F o r m 9 9 0 - A f u r n i s h e d b y c e r t a i n
f o u n d a t i o n s . S o m e c o p i e s , t h o u g h a d e q u a t e l y r e p r o -
d u c e d , a r e p r e p a r e d w i t h s u c h p o o r p e n m a n s h i p t h a t
t h e y a r e s t i l l u n r e a d a b l e . T h i s r e q u i r e d c o m p u t a t i o n
o f n u m e r o u s i t e m s m a n u a l l y .
2. F a r t o o m a n y f o u n d a t i o n s f a i l e d t o f u r n i s h a n -
n u a l r e p o r t s - f i n a n c i a l s t a t e m e n t s . M a n y o f t h o s e t h a t
w e r e s u b m i t t e d l e a v e m u c h t o b e d e s i r e d . They are
a m o n g t h e p o o r e s t I h a v e e v e r s e e n . T h e y g e n e r a l l y
s a y n o t h i n g a b o u t o f f i c e r s , d i r e c t o r s , o r t r u s t e e s .
O d d l y e n o u g h , a f e w i n d i v i d u a l s , w h o s e n a m e s h a v e
b e e n s u b m i t t e d t o u s a s d i r e c t o r s , s u b s e q u e n t l y d e n i e d
s u c h a f f i l i a t i o n s .
M a n y o f t h e s t a t e m e n t s o f f e r l i t t l e d e t a i l a b o u t c o n -
t r i b u t i o n s r e c e i v e d , a n d , w h e n t h e y s h o w t h e i r p o r t -
f o l i o s , t h e y f r e q u e n t l y l i s t o n l y t h e s e c u r i t y , t h e n u m -
b e r o f s h a r e s , a n d t h e f o u n d a t i o n ' s c a r r y i n g v a l u e s .
O t h e r s s i m p l y l i s t t h e s e c u r i t i e s a n d t h e n u m b e r o f
s h a r e s . M a r k e t v a l u e s a r e o m i t t e d m o r e o f t e n t h a n
n o t . S o m e i n c l u d e l i t t l e m o r e t h a n a b r i e f i n c o m e
s t a t e m e n t a n d b a l a n c e s h e e t . T h e 1 9 6 0 a c c o u n t a n t ' s
statement of the Richardson Fou ndation, of New
Y o r k C i t y a n d G r e e n s b o r o , N. C . , p r e p a r e d b y P r i c eWaterhouse & Co . , s h o w s n o l i s t o f s e c u r i t i e s , a l -
t h o u g h t h e f o u n d a t i o n h e l d s e c u r i t i e s v a l u e s a t a b o u t
$ 5 0 m i l l i o n .
S t i l l o t h e r f o u n d a t i o n s f a i l e d t o s h o w s c h e d u l e s o f
c a p i t a l g a i n s .
T h e 1 9 6 0 s t a t e m e n t o f t h e B u h l F o u n d a t i o n , o f
Pittsburgh, prepared by Price Waterhouse & Co . ,
f a i l e d t o s h o w i n d i v i d u a l s e c u r i t i e s h e l d . A l s o , t h i s
f o u n d a t i o n d e l e t e d c e r t a i n p o r t i o n s o f i t s a u d i t o r ' s
s t a t e m e n t f o r t h e y e a r e n d i n g J u n e 3 0 , 1 9 5 6 . The
f o u n d at i o n ' s r e a s o n s f o r i t s f a i l u r e t o s u b m i t t h e e n -
t i r e s t a t e m e n t t o u s w e r e a s f o l l o w s
" I n t h e y e a r e n d e d J u n e 3 0 , 1 9 5 6 , t h e a u d i t o r s
s u b m i t t e d a s a s u p p l e m e n t t o t h e i r a u d i t r e p o r t
c e r t a i n d e t a i l e d s t a t i s t i c a l a n d f i n a n c i a l i n f o r -
m a t i o n w h i c h t h e y h a d e x t r a c t e d f r o m t h e r e c -
o r d s o f t h e f o u n d a t i o n a t o u r r e q u e s t . T h i s m a -
t e r i a l w a s n o t a p a r t o f t h e a u d i t r e p o r t . These
a t t a c h m e n t s , t h e r e f o r e , w e r e n o t i n c l u d e d f o r
t h a t r e a s o n a n d a l s o f o r t h e r e a s o n t h a t s u b s t a n -
stantially all of the information contained
t h e r e i n w a s s u b m i t t e d t o y o u f o r t h a t p a r t i c u l a r
y e a r i n o t h e r d o c u m e n t s . "
T h e f o l l o w i n g f o u n d a t i o n s w e r e a m o n g t h o s e s u b -
m i t t i n g s t a t e m e n t s t h a t d i d n o t s h o w i n d i v i d u a l s e -
c u r i t i e s h e l d f o r t h e y e a r 1 9 6 0
B. F . G o o d r i c h F u n d , I n c . , o f Ak r o n, s t a te m en tp r e p a r e d b y E r n s t & E r n s t .T h e P r e s s e r F o u n d a t i o n o f P h i l a d e l p h i a a n d
t h e F u n d f o r t h e R e p u b l i c , o f S a n t a B a r b a r a ,
C a l i f . , s t a t e m e n t s p r e p a r e d b y L y b r a n d , R o s s
Bros. & Montgomery .
And the following found ations were among
t h o s e t h a t s h o w e d i n v e s t m e n t p o r t f o l i o s b u t f a i l e d t o
l i s t m a r k e t v a l u e s o f i n d i v i d u a l s e c u r i t i e s h e l d a t t h e
c l o s e o f t h e y e a r 1 9 6 0 :
William Volker Fund of Burlingame, Calif . ,
statement prepared by krthur Y oung & Co .
John Simon Guggenheim Memorial Founda-
tion, of New York C i t y , s t a t e m e n t p r e p a r e d b y
H a s k i n s & S e l l s .
5
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3 . M a n y o f t h e f o u n d a t i o n s u n d e r s t u d y d i d n o t
b o t h e r t o u s e t h e o f f i c i a l F o r m 9 9 0 - A . They adopted
t h e i r o w n F o r m a n d a t t a c h e d a s c h e d ul e w i t h t h e i r
o w n b r e a k d o w n s w i t h o u t r e g a r d f o r e v e n t h e o r d e r
of arrangement on Form 99 0-A . T h i s h a s m a d e o u r
t a s k o f c o m p i l a t i o n v e r y d i f f i c u l t .
I n t h i s r e g a r d , t h e b a n k s a n d t r u s t c o m p a n i e s a r e
t h e w o r s t o f f e n d e r s . M a n y p r e p a r e d t h e i r o w n s c h e d -
u l e s , w h i c h w e r e u s e d i n l i e u o f F o r m 9 9 0 - A, o n a
d a y - t o - d a y " j o u r n a l " b a s i s - s o m u c h r e c e i v e d a n d s o
m u c h d i s b u r s e d w i t h o u t r e g a r d t o c l a s s i f i c a t i o n . U n -
d e r t h i s s y s t e m o f r e p o r t i n g , t h e v a r i a n c e i s s o g r e a t
t h a t l i t t l e c a n b e g l e a n e d f r o m t h e i n f o r m a t i o n f u r -
n i s h e d . A c a s e i n p o i n t i s t h e F i r s t T r u s t C o . o f
S t . P a u l , f i s c a l a g e n t f o r t h e T o z e r F o u n d a t i o n , o f
S t i l l w a t e r , M i n n . , w h o s e t o t a l r e c e i p t s w e r e $ 1 , 2 4 3 , 1 1 6
f o r t h e 1 0 - y e a r p e r i o d . O ur s t a f f s p e n t m a n y m a n -
h o u r s t r y i n g t o m a k e t h e c o n t e n t s o f t h e b a n k ' s a n -
n u a l r e p o r t s c o n f o r m w i t h t h e i n f o r m a t i o n r e q u i r e d
in Form 990-A . W e f o u n d i t t o b e a n i m p o s s i b l e t a s k
a n d t h e r e f o r e r e q u i r e d t h e t r u s t c o m p a n y t o f i l l o u t
t h e i n c o m e a n d b a l an c e s h e e t s ( p p . 1 a n d 2 ) o f F o r m
9 9 0 - A f o r t h e p e r i o d o f 1 9 5 1 t h r o u g h 1 9 6 0 . About
3 w e e k s a f t e r o u r r e q u e s t w a s m a d e , t h e t r u s t c o m -
p a n y a d v i s e d u s t h a t t h e y h a d b e e n w o r k i n g o n t h e s e
r e t u r n s f o r s o m e t i m e a n d f o u n d t h a t t h e b r e a k i n g
d o w n o f t h e i r o w n a c c o u n t i n g s t a t e m e n t s w a s " t a k i n g
a s o m e w h a t l o n g e r t i m e " t h a n t h e y e x p e c t e d .
S u b s e q ue n t l y , w h e n w e q u e r i e d t h e F i r s t T r u s t C o .
o f S t . P a u l a s t o w h y t h e y h a d o m i t t e d d e t a i l e d c a p i t a l
g a i n s s c h e d u l e s w h i c h a r e r e q u i r e d b y T r e a s u r y r e g -
u l a t i o n s , t h e t r u s t c o m p a n y a d v i s e d u s t h a t " t h e I n -
t e r n a l R e v e n u e S e r v i c e h a s b e e n s a t i s f i e d w i t h c o p i e s
o f o u r f i s c a l y e a r a c c o u n t s . . . . "
4 . I n s o m e c a s e s o u t d a t e d f o r m s 9 9 0 - A , i n u s e p r i o r
t o 1 9 5 6 , w e r e u s e d b y t h e f o u n d a t i o n s i n s u b s e q u e n t
y e a r s .
5 . C er t a i n f o u n d a t i o n s f i l e d t h e i r i n f o r m a t i o n o n
F o r m 9 9 0 i n s t e a d o f F o r m 9 9 0 - A , d e s p i t e t h e f a c t t h a t
t h e l a t t e r i s r e q u i r e d b y l a w . F o r m 9 9 0 i s n o t o p e n
t o p u b l i c i n s p e c t i o n .
6 . F e w o f t h e f o u n d a t i o n s f i l e d a l l t h e i n f o r m a t i o n
o n F o r m 9 9 0 - A i n t h e m a n n e r p r e s c r i b e d b y T r e a s u r y
r e g ul a t i o n s . M a n y d i d n o t f i l e c l a s s i f i c a t i o n s o f t h e
d i s b u r s em e n t s t h e y m a d e i n t h e f o r m o f c o n t r i b u t i o n s ,
g i f t s , e t c . S u c h i n f o r m a t i o n i s o p e n t o p u b l i c i n -
s p e c t i o n .
7 . I n s o m e i n s t a n c e s , c u r r e n t i n c o m e w a s n o t s e p a -
r a t e d f r o m p r i n c i p a l .
8 . A t t i m e s , f i g u r e s w e r e e n t e r e d i n t h e w r o n g l i n e .
9 . S o m e t i m e s , s u p p o r t i n g s c h e d u l e s w e r e n o t a t -
t a c h e d . I n o t h e r c a s e s , t h e y w e r e a t t a c h e d b u t d i d
n o t a l w a y s j i b e w i t h t h e p a r e n t r e t u r n .
1 0 . I n c e r t a i n i n s t a n c e s , p h o t o c o p i e s f a i l ed t o d i f -
f e r e n t i a t e b e t w e e n r e d i n k a n d b l a c k i n k . T h i s r e -
q u i r e d c o m p u t a t i o n o f n u m e r o u s i t e m s .
1 1 . S o m e t o t a l s w e r e o m i t t e d o r i n c o r r e c t l y s t a t e d
a n d r e q u i r e d t i m e - c o n s u m i n g c a l c u l a t i o n b y u s .
1 2 . I n s o m e c a s e s , i d e n t i c a l i t e m s w e r e i n s e r t e d
u n d e r d i f f e r e n t h e a d i n g s e a c h y e a r .
1 3 . A n o t h e r p r o b l e m w a s t h a t c e r t a i n f o u n d a t i o n s
u s e a c a l e n d a r y e a r f o r t h e t a x r e t u r n a n d a f i s c a l
y e a r f i n a n c i a l s t a t e m e n t . F o r e x a m p l e , t h e B e n w o o d
F o u n d a t i o n , o f C h a t t a n o o g a , f i l e d i t s t a x r e t u r n f o r
1 9 6 0 o n a c a l e n d a r y e a r b a s i s , b u t i t s f i n a n c i a l s t a t e -
ment was prepared by Arthur Andersen & Co . u s i n g
a f i s c a l y e a r e n d i n g A p r i l 3 0 .
6
1 4 . T h e r e i s a l a c k o f u n i f o r m i t y i n t h e a c c o u n t i n g
p e r i o d s - s o m e r e p o r t o n a f i s c a l y e a r b a s i s , o t h e r s o n
a c a l e n d a r y e a r .
1 5 . C e r t a i n f o u n d a t i o n s s w i t c h f r o m o n e a c c o u n t -
i n g y e a r e n d t o a n o t h e r .
1 6 . I n f o r m a t i o n f u r n i s h e d o n t h e t a x r e t u r n s d o e s
n o t a l w a y s a g r e e w i t h t h e d a t a i n t h e f o u n d a t i o n ' s
f i n a n c i a l s t a t e m e n t s .
1 7 . O t h e r f o u n d a t i o n s r e p o r t e d c a p i t a l g a i n s o n
t h e i r t a x r e t u r n s a s c o n t r i b u t i o n s r e c e i v e d i n s t e a d o f
a s i n c o m e e a r n e d . A n d , i n s o m e i n s t a n c e s , t h e g a i n
w a s n o t r e p o r t e d o n t h e r e t u r n e i t h e r a s i n c o m e
e a r n e d o r a s a c o n t r i b u t i o n b e c a u s e , a c c o r d i n g t o t h e
f o u n d a t i o n , a l l t h e p r o c e e d s w e r e r e i n v e s t e d .
For example-for the period of 195 1 through
1 9 6 0 - t h e E l i s a b e t h S e v e r a n c e P r e n t i s s F o u n d a t i o n ,
o f C l e v e l a n d , s h o w s a l o s s o f $ 9 3 o n l i n e s 7 , p a g e 1 ,
o f i t s t a x r e t u r n s . Y e t t h e s c h e d u l e s a t t a c h e d t o t h e
r e t u r n s f o r t h e 1 0 y e a r s s h o w n e t c a p i t a l g a i n s o f
$ 1 , 8 6 3 , 4 4 5 . T h e f o u n d a t i o n c a r r i e d i t s g a i n s o r l o s s e s
d i r e c t l y t o t h e n e t w o r t h s e c t i o n d u r i n g e a c h y e a r .
I n o u r c o m p u t a t i o n s , w e h a v e c l a s s i f i e d a l l c a p i t a l
g a i n s - t h at i s , a l l w e c o u l d l o c a t e - a s i n c o m e e a r n e d .
1 8 . A t t i m e s , d e t a i l e d s t a t e m e n t s w i t h r e s p e c t t o
a s s e t s s o l d w e r e n o t f i l e d . T r e a s u r y r e g u l a t i o n s r e -
q u i r e t h a t t h e f o l l o w i n g i n f o r m a t i o n b e f i l e d o n F o r m
9 9 0 - A r e s p e c t i n g a s s e t s s o l d : (a) Date and manner
o f a c q u i s i t i o n , ( b ) g r o s s s a l e s p r i c e , a n d ( c ) c o s t o r
o t h e r b a s i s ( v a l u e a t t i m e o f a c q u i s i t i o n , i f d o n a t e d ) .
H o w e v e r , m a n y o f t h e f o u n d a t i o n s u n d e r s t u d y f a i l e d
t o f u r n i s h a l l o f t h i s i n f o r m a t i o n o n t h e i r t a x r e -
t u r n s .
1 9 . W i t h r e s p e c t t o c o n t r i b u t i o n s r e c e i v e d , i n s t r u c -
t i o n 3 , p a g e 4 , o f F o r m 9 9 0 - A , r e q u i r e s t h a t , w h e r e a
f o u n d a t i o n r e c e i v e s m o n e y o r p r o p e r t y f r o m a d o n o r
i n t h e a m o u n t o f $ 1 0 0 o r m o r e , i t m u s t a t t a c h a n i t e m -
i z e d s c h e d u l e s h o w i n g t h e a m o u n t r e c e i v e d a n d t h e
n a m e a n d a d d r e s s o f t h e d o n o r . When such informa-
t i o n w a s f u r n i s h e d , m a n y f o u n d a t i o n s s h o w e d o n l y
t h e a m o u n t r e c e i v e d a n d t h e n a m e o f t h e d o n o r ; t h e
a d d r e s s w a s o m i t t e d .
2 0 . I n c o m p l e t e d a t a w a s s o m e t i m e s s u b m i t t e d r e -
s p e c t i n g a c c u m u l a t i o n o f i n c o m e .
2 1 . S o m e t i m e s i t e m s o f a n u n u s u a l n a t u r e w e r e n o t
e x p l a i n e d o r c l a r i f i e d .
2 2 . M o s t o f t h e f o u n d at i o n s m a i n t a i n t h e i r f i n a n c i a l
r e c o r d s o n t h e b a s i s o f t h e h i s t o r i c c o s t o r v a l u e o f
s e c u r i t i e s a s o f d a t e o f r e c e i p t .
2 3 . I n o t h e r i n s t a n c e s , b a l a n c e s h e e t s o n t h e F o r m
9 9 0 - A f r e q u en t l y d o n o t r e c o n c i l e t h e e n d i n g f i g u r e s
f o r 1 y e a r a n d t h e o p e n i n g f i g u r e s f o r t h e f o l l o w i n g
y e a r . I n s o m e c a s e s , t h e r i d e r s b e a r i n g b a l a n c e s h e e t
i n f o r m a t i o n d o n o t a g r e e w i t h t h e b a l a n c e s h e e t e n -
t r i e s o n t h e f a r m . I n s t i l l o t h e r c a s e s , t h e b a l a n c e
s h e e t s d o n o t a g r e e w i t h t h e a c c o u n t a n t ' s a n n u a l f i -
n a n c i a l s t a t e m e n t .
2 4 . I n a n u m b e r o f c a s e s , i n v e s t m e n t s w e r e n o t s e g -
r e g a t e d i n t h e m a n n e r r e q u i r e d o n t h e f o r m - t h a t i s ,
i n v e s t m e n t s w e r e g r o u p e d u n d e r c a p t i o n s t h a t d i d n o t
c o r r e s p o n d t o t h e f o r m . S o m e f o u n d a t i o n s f a i l e d t o
s e p a r a t e t h e i r a s s e t s o f U . S . o b l i g a t i o n s f r o m a s s e t s
o f n o n - U . S . o b l i g a t i o n s .
2 5 . I n c e r t a i n c a s e s , c a p i t a l a s s e t s w e r e s h o w n a s n e t
w i t h o u t i n d i c a t i n g t h e c o s t a n d t h e a m o u n t o f r e s e r v e
f o r d e p r e c i a t i o n , a n d i n s o m e c a s e s , l a n d a n d d e p r e c i -
a b l e a s s e t s w e r e l u m p e d t o g e t h e r . A l s o , b r e a k d o w n s
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in the net worth section of Form 990-A were some-
t i m e s o m i t t e d .
26 . S o m e f o u n d a t i o n s a p p r a i s e v a l u a b l e a s s e t s a t
n o m i n a l a m o u n t s , b e a r i n g n o r e l a t i o n s h i p t o f i n a n c i a l
r e a l i t y .
27 . I n s o m e c a s e s , s t o c k i s v a l u e d o n t h e b a s i s o f t h e
f o u n d a t i o n ' s e q u i t y i n t h e n e t a s s e t s o f t h e c o r p o r a -
t i o n , w h o s e a c c o u n t i n g y e a r e n d m a y d i f f e r f r o m t h e
f o u n d a t i o n ' s b y m o n t h s o r a s m u c h a s a y e a r .
2 8 . Where a foundation reported ownership of 10
percent or more stock of a corporation-beginning
w i t h t h e y e a r 1 9 5 6 - s u c h o w n e r s h i p w a s u s u a l l y s h o w n
a s o f t h e b e g i n n i n g o r a s o f t h e e n d o f t h e y e a r , w h e r e -
a s t h e r e g u l a t i o n s r e q u i r e b o t h b e g i n n i n g a n d e n d o f
t h e y e a r f i g u r e s u n l e s s t h e r e w a s n o c h a n g e i n s u c h
h o l d i n g s .
OTHER TYPES OF ABUSESNow, I should like to d eal with some other types of
a b u s e s .
O n e e x a m p l e o f p r a c t i c e s t h a t r e q u i r e c l o s e e x a m i n a t i o n
i n v o l v e s t h e e s t a b l i s h m e n t , d u r i n g 1 9 6 1 , o f s o - c a l l e d c h a r i -
t a b l e f o u n d a t i o n s b y t w o o f t h e N a t i o n ' s l a r g e s t b a n k s :
Morgan Guaranty Trust Co . of New York and Chemical
Bank New York Trust Co . T h e d e t a i l s a r e a s f o l l o w s
O n A u g u s t 3 1 , 1 9 6 1 , f o u r o f t h e N a t i o n ' s l a r g e s t b a n k s
s o l d c o n t r o l ( 6 0 p e r c e n t ) o f t h e D i s c o u n t C o r p . of New
York, a primary dealer in U . S . G o v e r n m e n t s e c u r i t i e s ,
b a n k e r s a c c e p t a n c e s , a n d n e g o t i a b l e t i m e c e r t i f i c a t e s o f d e -
p o s i t . T h e b a n k s d i s p o s e d o f t h e i r s t o c k b y p r i v a t e p l a c e -
m e n t t o i n s t i t u t i o n a l i n v e s t o r s , i n c l u d i n g a n u m b e r o f
f o u n d a t i o n s . The number of shares owned and sold by
e a c h s e l l i n g s t o c k h o l d e r w a s a s f o l l o w s
S h a r e .
I n t e r n a t i o n a l B a n k i n g C o r p . ( a w h o l l y o w n e d
The 9,739 shares ow ned by the Morgan Guaranty Trust
Co . C h a r i t a b l e T r u s t a n d t h e 4 , 9 9 8 s h a r e s o w n e d b y t h e
Chemical Bank of New York Trust Found ation had been
acquired by the present Morgan Guaranty Trust Co . o f
New York and the present Chemical Bank of New York
Trust Co., respectively-through mergers and acquisi-
t i o n s d u r i n g t h e y e a r s 1 9 1 8 t h r o u g h 1 9 5 9 .
The Morgan Guaranty Trust Co . ' s c o s t b a s i s f o r t h e
9 , 7 3 9 s h a r e s w a s $ 1 , 5 4 8 , 1 7 9 . 1 2 . On January 4, 1961, the
m a r k e t v a l u e o f t h e 9 , 7 3 9 s h a r e s w a s $ 2 , 4 9 3 , 1 8 4 , s o , o n t h a t
d a t e , t h e b a n k h a d a g a i n o f $ 9 4 5 , 0 0 5 . Whereupon, on the
same date, January 4, 1961, the Morgan Guaranty Trust
Co . of New York established the Morgan Guaranty Trust
Co . of New York Charitable Trust and contributed the
9 , 7 3 9 s h a r e s o f D i s c o u n t C o r p . t o s a i d t r u s t . T h o s e s h a r e s
w e r e t h e C h a r i t a b l e T r u s t ' s s o l e a s s e t s o n J a n u a r y 4 , 1 9 6 1 .
E i g h t m o n t h s l a t e r , o n A u g u s t 3 1 , 1 9 6 1 , t h e C h a r i t a b l e
T r u s t s o l d t h e 9 , 7 3 9 s h a r e s t o i n s t i t u t i o n a l i n v e s t o r s , i n -
c l u d i n g a n u m b e r o f f o u n d a t i o n s . T h e n e t pr o c ee ds t o t h e
C h a r i t a b l e T r u s t w a s $ 2 , 5 1 5 , 7 3 5 . 4 7 . On March 12, 1962,
t h e C h a r i t a b l e T r u s t f i l e d i t s a p p l i c a t i o n f o r F e d e r a l i n -
come tax ex emption . Since an organization must be in
e x i s t e n c e f o r a t l e a s t 1 2 m o n t h s b e f o r e a p p l y i n g f o r F e d -
e r a l t a x e x e m p t i o n , t h e C h a r i t a b l e T r u s t d i d n o t b e c o m e
e l i g i b l e f o r e x e m p t i o n u n t i l J a n u a r y 4 , 1 9 6 2 . The Chari-
t a b l e T r u s t w a s g r a n t e d F e d e r a l t a x e x e m p t i o n o n J u l y 1 2 ,
1 9 6 2 , a n d s u c h e x e m pt i o n w a s r e t r o a c t i v e .
7
The Chemical Bank New York Trust Co . ' s a d j u s t e d
c o s t b a s i s f o r i t s 4 , 9 9 8 s h a r e s o f D i s c o u n t C o r p. w a s $ 2 9 9 , -
880. O n A u g u s t 1 1 , 1 9 6 1 , t h e m a r k e t v a l u e o f t h e 4 , 9 9 8
s h a r e s w a s $ 1 , 3 8 6 , 9 4 5 . As of August 11, 1961 , the bank
h a d a g a i n o f $ 1 , 0 8 7 , 0 6 5 . Whereupon, on the same date,
A u g u s t 1 1 , 1 9 6 1 , t h e C h e m i c a l B a n k e s t a b l i s h e d t h e C h e m -
i c a l B a n k N e w Y o r k T r u s t F o u n d a t i o n a n d c o n t r i b u t e d i t s
4 , 9 9 8 s h a r e s o f D i s c o u n t C o r p . t o s a i d f o u n d a t i o n . Those
s h a r e s w e r e t h e f o u n d a t i o n ' s s o l e a s s e t s o n A u g u s t 1 1 ,
1 9 6 1 . O n A u gu s t 3 1 , 1 9 6 1 , t h e f o u n d a t i o n s o l d t h e 4 , 9 9 8
s h a r e s t o t h e s a m e i n s t i t u t i o n a l i n v e s t o r s w h o h a d p u r -
chased the Morgan Guaranty's shares of Discount Corp .
The net price received by the Chemical Bank New York
T r u s t F o u n d a t i o n w a s $ 1 , 2 9 1 , 0 6 1 . 3 1 . T h e f o u n d a t i o n f i l e d
an application for exemption in November 1962 . I f t h e
foundation is granted Federal tax exemption, such ex-
e m p t i o n w i l l a l s o b e r e t r o a c t i v e .
Thus, if the Morgan Guaranty Trust Co . a n d t h e C h e m -
i c a l B a n k h a d s o l d t h e a f o r e m e n t i o n e d s e c u r i t i e s o n J a n u -
a r y 4 , 1 9 6 1 , a n d A u g u s t 1 1 , 1 96 1 , i n s t e a d o f c o n t r i b u t i n g
t h e m t o t h e i r r e s p e c t i v e f o u n d a t i o n s , t h e t w o b a n k s w o u l d
have had to pay capital gain tax on gains of over $2
m i l l i o n .
The Chase Manhattan Bank has engaged in simi lar
t r a n s a c t i o n s . O n N o v e m b e r 1 4 , 1 9 5 8 , t h e b a n k e s t a b l i s h e d
a trust known as the Chase Manhattan Bank Foundation .
S e v e n m o n t h s l a t e r , o n M a y 6 , 1 9 5 9 , t h e b a n k c o n t r i b u t e d
t h e f o l l o w i n g s e c u r i t i e s t o i t s f o u n d a t i o n
2,000 shares Philip Morris, Inc ., common
$5 par (acquired by the bank on January
1 0 , 1 9 5 5 , u p o n l i q u i d a t i o n o f a f o r m e r s u b -
s i d i a r y ) .
5 , 0 0 0 s h a r e s I m p e r i a l B a n k o f C a n a d a c a pi t a l
s t o c k ( a c q u i r e d b y t h e b a n k i n 1 9 3 0 ) .
5 , 0 0 0 r i g h t s I m p e r i a l B a n k o f C a n a d a .
T h e b a n k ' s c o s t b a s i s o n t h e s e s e c u r i t i e s w a s $ 1 1 6 , 2 9 2 .
The market value on May 5, 1959 , the last date of the
b a n k ' s o w n e r s h i p , w a s $ 5 4 2 , 6 3 1 . As of May 5, 1959 the
b a n k ' s g a i n o n t h e s e c u r i t i e s w a s $ 4 2 6 , 3 3 9 . On May 13,
1 4 , a n d 1 8 , 1 9 5 9 , a n d J u n e 5 , 1 9 5 9 , s h o r t l y a f t e r t h e b a n k
c o n t r i b u t e d t h e s t o c k t o i t s f o u n d a t i o n , t h e l a t t e r s o l d t h e
s t o c k f o r a t o t a l o f $ 5 4 2 , 8 1 7 .
Seven months later, in January 1960 , the Chase Man-
h a t t a n B a n k F o u n d a t i o n f i l e d a n a p p l i c a t i o n f o r F e d e r a l
i n c o m e t a x e x e m p t i o n . A f e w m o n t h s t h e r e a f t er , o n A p r i l
1 2 , 1 9 6 0 , t h e I n t e r n a l R e v e n u e S e r v i c e g r a n t e d t h e e x e m p -
t i o n , a n d s u c h e x e m p t i o n w a s r e t r o a c t i v e .
O n M a r c h 3 1 , 1 9 6 0 , t h e C h a s e B a n k h a d c o n t r i b u t e d a n -
o t h e r 6 , 7 7 6 s h a r e s o f P h i l i p M o r r i s c o m m o n $ 5 p a r s t o c k
t o i t s f ou n da t i on . T h e s e s h a r e s h a d a l s o b e e n a c q u i r e d b y
t h e b a n k o n J a n ua r y 1 0 , 1 9 5 5 . T h e b a n k ' s c o s t b a s i s w a s
$ 3 2 , 1 2 5 . The market value on March 30, 1960, the last
d a t e o f t h e b a n k ' s o w n e r s h i p , w a s $ 4 1 7 , 5 7 1 . As of March
3 0 , 1 9 6 0 , t h e b a n k h a d a g a i n o n t h i s s t o c k o f $ 3 8 5 , 4 4 6 .
O n A p r i l 1 1 , 1 9 6 0 , 1 d a y p r i o r t o t h e d a t e o f t h e I n t e r n a l
Revenue Service letter granting exemption, the Chase
B a n k F o u n d at i o n s o l d t h e s t o c k f o r a t o t a l o f $ 4 0 3 , 2 5 7 .
Then, on May 2, 196 1, the Chase Bank contributed
207,753 shares of H & B American Machine Co . , I n c . ,
c a p i t a l s t o c k w h i c h i t h a d a c q u i r e d o n M a y 2 , 1 9 5 4 , a s
a w o r k o u t o f a b a d l o a n . T h e b an k ' s c o s t b as i s w a s $ 34 8 , -
440. T h e m a r k e t v a l u e o n M a y 1 , 1 9 6 0 , t h e l a s t d a t e o f
t h e b a n k ' s o w n e r s h i p , w a s $ 9 4 7 , 8 7 3 . As of May 1, 1961,
t h e b a n k h a d a g a i n o n t h i s s t o c k o f $ 5 9 9 , 4 3 3 . O n M a y
9 a n d M a y 1 0 , 1 9 6 1 , a w e e k a f t e r t h e b a n k c o n t r i b u t e d t h e
s t o c k t o t h e f o u n d a t i o n , t h e l a t t e r s o l d t h e s t o c k f o r a
t o t a l o f $ 8 0 5 , 7 5 8 .
H e n c e , i f t h e C h a s e M a n h a t t a n B a n k h a d s o l d t h e a f o r e -
m e n t i o n e d s e c u r i t i e s o n M a y 5 , 1 9 5 9 , M a r c h 3 0 , 1 9 6 0 , a n d
s u b s i d i a r y of t h e F i r s t N a t i o n a l C i t y B a n k
of N e w Y o r k ), 9 9 8B a n k e r s T r u s t C o, 9 9 9M o r g a n G u a r a n t y T r u s t C o . of New YorkC h a r i t a b l e T r u s t,739T h e C h e m i c a l B a n k N e w Y o r k T r u s t F o u n d a -t i o n, 9 9 8T o t a l9, 734
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i t s f o u n d a -
h e b a n k w o u l d h a v e h a d t o p a y c a pi t a l g a i n t a x
.
T h e n e t r e s u l t o f t h i s l e g a l i z e d t a x dodging i s t h a t
l m u s t b e p i c k e d
a y e r s , i n c l u d i n g s m a l l b u s i n e s s m e n .
FOUNDATIONS AS AGENTS OF CONCENTRATIONI n t h e p a s t t w o d e c a d e s n u m e r o u s b u s i n e s s o r g a n i z a t i o n s
a f f i l i a t e d w i t h o r m e r g e d i n t o s o - c a l l e d c h a r i -
. A s w e a l l k n o w , t r u e c h a r i t y h a s a l -
r e e l y g r a n t e d b y o u r
. However, when
e v a d e t a x e s a n d t o g a i n a d v a n t a g e s
m e t o c a r e f u l l y e x -
. E a c h t a x e xe m p t i o n n a t u r a l l y i n c r e a s e s
s a n d b u s i -
. I f t h e b u r d e n o f s m a l l b u s i n e s s b e c o m e s t o o g r e a t ,
b u s i n e s s e s w i l l f a i l a n d d i s a p pe a r , a n d o u r e c o n o m y
.
T o d a t e , o u r r e c o r d s d i s c l o s e 1 1 1 f o u n d a t i o n s t h a t o w n e d
i n 1 o r m o r e
. They
e d ul e s 2 a n d 3 . T h e c o m p a n i e s a r e i n
: R o c k a n d g r a v e l , l i m e a n d
d r i n k s , r a i l w a y e q u i p m e n t , c h e m i c a l s , p a p er
p r o d u c t s , s t o v e s , o i l a n d m i n e r a l s , d r u g s , b a k -
a m m u n i t i o n , i n s u r a n c e , p e r -
r e f r i g e r a t o r s , c o n s t r u c t i o n ,
s h o p p i n g c e n t e r s , b u i l d i ng m a t e -
o d e n b a r r e l s ,
.
T h e s t o c k o w n e r s h i p o f c e r t a i n f o u n d a t i o n s u n d e r s t u d y
1 0 0 p e r c e n t a n d i n c l u de s t h e f o l l o w i n g
nown companies-among others-which are listed
. I t s h o u l d b e r e m e m b e r e d t h a t w h e r e
n t r o l m a y b e e x e r c i s e d t h r o u g h a
o u n d a t i o n ' s h o l d i n g s a n d t h e h o l d i n g s
. " A l s o , n o n v o t i n g s t o c k m a y s o m e t i m e s b e
. F o r e x a m p l e , t h e c l a s s A
g s t o c k o f t h e F o r d M o t o r C o . , w h i c h i s h e l d b y
e x c h a n g e d o n a
t h e
w i t h t h e s a m e d i v i d en d
.
K a i s e r I n d u s t r i e s C o r p . ( 1 5 . 4 p e r c e n t o f t h e c o m -
m o n n o n v o t i n g s t o c k o w n e d b y t h e H e n r y J . K a i s -
e r F a m i l y F o u n d a t i o n , O a k l a n d , C a l i f . ) .
C a l l o w a y M i l l s C o . ( 1 0 0 p e r c e n t o f t h e c a p i t a l c o m -
mon voting stock owned by the Callaway Commu-n i t y F o u n d a t i o n , L a G r a n g e , Ga . ) .
C o c a - C o l a I n t e r n a t i o n a l ( 1 5 . 2 1 p e r c e n t o f t h e c o m -
m o n v o t i n g s t o c k o w n e d b y E m i l y & E r n es t W o o d -
r u f f F o u n d a t i o n , A t l a n t a ) .
8
George D . Roper Corp . ( 1 1 . 7 7 p e r c e n t o f t h e c o m -mon v o t i n g s t o c k o w n e d b y S e a r s R o e b u c k F o u n -d a t i o n , C h i c a g o ) .
Midwest Oil Corp . ( 1 8 .34 percent of the common
v o t i n g ~ ~ s t o c k o w n e d ' b y S t a n d a r d O i l F o u n d at i o n ,
I n c . , C h i c a g o ) .
E l i L i l l y & C o . ( 4 5 . 2 6 p e r c e n t o f t h e c o m m o n c l a s s
A v o t i n g s t o c k , a n d 1 0 . 4 0 p e r c e n t o f t h e c l a s s B
common nonvoting stock owned by Lilly Endow-
m e n t , I n c . , I n d i a n a p o l i s ) .
Kellogg Co . ( 5 8 p er c e n t o f t h e p r e f e r r e d n o n v o t i n g
stock owned by W . K . K e l l o g g F o u n d a t i o n , a n d 5 1
p e r c e n t o f t h e c o m m o n v o t i n g s t o c k o w n e d b y W .K. Kellogg Foundation Trust, Battle Creek,M i c h . ) .
S . S . K r e s g e C o . ( 3 4 p e r c e n t o f t h e c a p i t a l v o t i n g
s t o c k o w n e d b y K r e s g e F o u n d at i o n , D e t r o i t ) .
U n i t e d S t a t e s S u g a r Corp . ( 4 8 . 2 pe r c e n t o f t h e c o m -
mon stock owned b C h a r l e s S t e w a r t M o t t F o u n -
d a t i o n , F l i n t , M i c h . ) ) .B. Altman & Co. (New York) (84 . 5 9 p e r c e n t o f t h ecapital voting stock ow ned by Altman Founda-
t i o n , N e w Y o r k ) .
Connecticut Railway & Lighting Co . ( 9 9 . 2 5 p e r c e n t
o f t h e 5 p e r c e n t c u m u l a t i v e p r e f e r r e d v o t i n g s t o c k ,
and 51 .07 percent of the common voting stock
owned by Charles Ulrick & Josephine Bay Foun-
d a t i o n , I n c . New York) .
D u k e P o we r C o . ( 5 7 . 2 4 p e r c e n t o f t h e c o m m o n v o t i n g
s t o c k , a n d 8 2 . 0 2 p e r c e n t o f t h e 7 p e r c e n t p r e f e r r e d
voting stock ow ned by Duke Endowment, New
York) .
Ford Motor Co . ( 1 0 0 p e r c e n t o f t h e c l a s s A n o n -
v o t i n g s t o c k o w n e d b y t h e F o r d F o u n d at i o n , N e w
York) .
W T . Grant Co . ( 1 0 . 7 p e r c e n t o f t h e c o m m o n v o t -ing stock ow ned by the Grant Foundation, Inc . ,New York) .
G r e a t A t l a n t i c & P a c i f i c T e a C o . , I n c . ( 3 3 . 9 8 p e r c e n t
of the common voting stock ow ned by John A .
H a r t f o r d F o u n d a t i o n , I n c . , N o w Y o r k ) .
S . H. K r e s s & C o . ( 4 1 . 9 p e r c e n t o f t h e c o m m o n v o t -
ing stock owned by Samuel H . K r e s s F o u n d a t i o n ,
New York) .
American Chain & Cable Co . , I n c . ( 1 7 . 8 pe r c e n