Douglas Pessefall

Business philanthropy continues to thrive in the United States. In fact, notwithstanding an uncertain economic and tax climate, there has been a proliferation of new and expanded business giving programs in recent years by companies in all industries and of all sizes.

According to the Giving USA: Annual Report on Philanthropy, corporate giving totaled $18.97 billion in 2012 and accounted for 6 percent of all charitable giving in the United States, which excludes advertising expenditures in cause-related marketing. The Foundation Center reported that, in the same year, there were more than 2,600 company-sponsored foundations that gave more than $5.5 billion. The numbers are expected to grow as more companies get in the game and look for ways to stand out from the crowd.

Advantages of business giving

There are good reasons for the uptick in business philanthropy – it's good for business, the community and company morale. For example, formal giving programs:

• Increase a company's visibility and leadership in the community.

• Increase a company's brand and identity, and allow it to differentiate itself from competitors.

• Generate positive news stories, goodwill and influence for the company.

• Foster stronger relationships with customers, community leaders, elected officials and the general public.

• Help a company set goals and focus its limited financial resources on those areas in which it might have the greatest impact by balancing and weighing requests for sponsorships and financial support against stated goals.

• Improve the quality of life in the geographic locales in which a company operates.

• Engage and connect with employees by improving morale and helping achieve recruitment goals.

• Maintain a consistent level of giving by creating a “cookie jar” reserve that avoids the peaks and valleys of the company's usual business cycle and/or limiting the amount of giving to earnings on an endowment.

• Allow a company to optimally time tax deductions by pledging contributions without reducing current cash flow.

• Reduce controversy over giving by shifting decisions to select personnel and/or, in the case of a foundation, to another entity.

Types of business giving

There are generally two types of business giving – direct giving programs and company-sponsored foundations – and some companies engage in both types.

Direct giving programs are usually run internally with full or part-time personnel assigned to administer the programs. Such programs often include gifts of in-kind products, sponsorships or purchases of naming rights, matching employee donations or offering an expanded payroll deduction program, gifts to charities for which employees volunteer, employee volunteerism programs and establishing a donor-advised fund with a community foundation.

On the other hand, a company-sponsored foundation is established as a separate legal entity that helps create the discipline necessary to set strategic goals and focus a company's giving. A foundation maintains close connection with the company through overlapping directors and officers, and typically is funded through the creation of an endowment (earnings of which are used to maintain consistent giving levels) or through periodic contributions from the company. A company-sponsored foundation usually is classified as a private foundation (or sometimes as a public charity) exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code, so that the foundation may solicit contributions that are deductible by the donor, make tax-free purchases of goods and services and use nonprofit bulk mailing rates.

There are special tax rules that govern a private foundation. The foundation needs to distribute its income for each tax year at a time and in a manner that avoids the tax on undistributed income, not engage in any act of self-dealing, not retain any excess business holdings, not make any jeopardizing investments and not make any taxable expenditures. Private foundations are also subject to a small tax (1 to 2 percent) on net investment income.

Starting or expanding a business giving program

When business giving is structured and monitored properly, a company is often able to improve the bottom line. When structuring and monitoring a business giving program:

• Identify and quantify the company's existing formal and informal giving efforts.

• Review or develop written guidelines to establish measurable goals and assure giving programs are designed to achieve those goals.

• Consider consolidating programs in a single department or a company-sponsored foundation to ensure focused giving, appropriate staffing and accountability.

• Consider the administrative burdens associated with the giving program. Contrary to popular myth, a foundation may be a cost-effective way to consolidate, expand and perpetuate existing programs.

• Implement a consistent communications strategy. The real value in a business giving program is improving the bottom line by letting others know of the program's success.

Douglas Pessefall is an attorney at Whyte Hirschboeck Dudek S.C. in Milwaukee.