October 18, 2001 | Read Time: 2 minutes
A federal district court has ruled that an organization in Washington that helps donors make anonymous gifts to charities does not itself qualify as a charity. The decision could lead to increased scrutiny by the IRS of groups applying for tax-exempt status, said a lawyer for the organization.
The Fund for Anonymous Gifts is not a charity, ruled Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia, because it doesn’t meet all the standards established by the IRS. To qualify as a charity, the revenue service requires an organization, among other things, to show that it has broad support for its causes, such as a large number of donors from the general public. (The organization does qualify as a private foundation, the court said.)
The Fund for Anonymous Gifts fails this “public-support test” for charities because its trustee, William J. Lehrfeld, a Bethesda, Md., lawyer, plans to rely solely on people whom he knows personally to contribute to the fund and has no plans to expand his list of donors, the court said.
Mr. Lehrfeld said he plans to appeal the decision, arguing that he has more than enough potential donors to constitute broad support under the law. If Mr. Lehrfeld fails in his appeal, he said, other organizations could have a more difficult time in the future qualifying as charities. “It would probably give the IRS ammunition to make greater demands on new, smaller organizations vying for charity status,” he said.
Some observers were surprised that the court did not rule on a larger issue: whether donations to donor-advised funds, such as the Fund for Anonymous Gifts, constitute public support — regardless of the number of donors.
The Fund for Anonymous Gifts sued the IRS in 1996 after the agency denied the organization tax-exempt status. Its goal, said Mr. Lehrfeld, is to allow donors to secretly support controversial or unpopular causes without jeopardizing their social standing.
