On January 24, 2009, National Heritage Foundation filed for Chapter 11 bankruptcy protection in federal court. Is this the end for NHF?
National Heritage Foundation, NHF, was founded by J. T. “Dock” Houk as a 501(c)(3) fiscal agency for nonprofits using a donor-advised funds scheme. NHF operated under the premise that people shouldn’t have to be burdened by the regulatory compliance headache of running their own 501(c)(3) in order to do good and charitable things. One could just start an NHF “foundation” and have donors give directly to NHF, but designate the funds to their “foundation”. “Foundation” is in quotes because that is NHF’s terminology. NHF “foundations” are not considered true foundations. The idea was that by signing up with NHF, people could have what looks like a charity, but piggy-back on NHF’s tax-exemption. In theory, the “foundations” were an extension of NHF’s charitable mission. In return for its efforts, NHF took a small percentage of the donations for operating expenses.
Like so many theories, NHF’s didn’t work so well in practice. Early on, NHF aggressively promoted the idea that “foundation” directors should pay themselves well, even if they were the primary donor. In other words, you could start a “foundation” to do whatever, donate to your own “foundation” tax-deductibly through NFH, then pay yourself for your good deeds. Needless to say, this generated enormous controversy within charitable circles and drew the ire of the IRS and Congress. But technically, there was no law directly prohibiting such since these “foundations” were part of NHF and, in theory, NHF controlled the expenditure of funds.