Tax Deadline for Hedge Fund Fees Could Offer Fundraising Opportunity

Tax Deadline for Hedge Fund Fees Could Offer Fundraising Opportunity

A little-known tax rule enacted during the financial crisis has created a rare opportunity for charities to raise funds from hedge fund managers, the Chronicle of Philanthropy reports.

The 2008 measure requires hedge fund managers who earned fees outside the United States and did not pay taxes on those fees to repatriate the revenue — estimated to total as much as $100 billion — by the end of this year. According to the Chronicle, some fundraisers already are helping hedge fund managers reduce their tax burden by directing some of that money to philanthropy.

Eileen Heisman, president of the National Philanthropic Trust, told the Chronicle that the hedge fund managers she has spoken with typically are looking at two options: directing gifts to charities — usually donor-advised funds or hospitals and universities — or to charitable lead trusts, in which an asset is set up to generate income for a charity over a specific period of time, after which the remainder goes to the trust's beneficiaries. There is a sense of urgency among hedge fund managers with income that will need to be repatriated, however, given that many had hoped the tax code would be overhauled to enable them to keep more of their offshore gains. "[I]f it hasn't happened by now," said Heisman, whose organization manages donor-advised funds, "it's probably not going to happen this year."

"It's going to be a big event, and charities who are ready for it have an opportunity to close some major gifts,"  she added. But while NPT has been preparing for the deadline for a year, Heisman said she has not heard much chatter among nonprofit fundraisers. "It's possible there's a lot of activity, and no one wants to talk about it," she told the Chronicle. "Maybe they don't want anyone to know, because they don't want to split the pie up."

"Charities don't know about it because honestly they have so few donors who fall into this group," said Brian Sagrestano, CEO of Gift Planning Development. Charities hoping to claim  a share of the potential hedge-fund bounty, he and Heisman added, should do their prospect research, get to know the potential donor's passions, and study up on the tax rules.

Heather Joslyn. "$100 Billion Opportunity: Tax Deadline Offers Rare Chance for Fundraisers." Chronicle of Philanthropy 08/22/2017.