As Bill Dolan was preparing his tax return three years ago, he noted that he'd earned $3.43 in interest on a checking account. "It was just ridiculous," Dolan recalled.
The interest would make little or no difference to his tax obligation, and trying to track such small amounts when balancing his monthly statements was simply "a nuisance." He figured it probably cost the bank more to generate and mail out the Form 1099 tax statement than he received in interest. And he imagined that tens of millions of other taxpayers were similarly looking at pocket change earned on their checking and savings accounts.
He realized these small amounts were "found money" and thought: Why not donate it to charity?
Households and nonprofits hold more than $10 trillion in savings, checking and money-market mutual funds, according to the Federal Reserve. But most of the estimated 80-million plus households that own these accounts collect less than $10 a year in interest and dividends, according to government statistics, Dolan said. These payments, insignificant to any individual, when pooled together could funnel between $250 million and $750 million per year to charitable organizations nationwide, he estimated.
The retired Minneapolis attorney figured that "if the idea had merit, any bank I introduced it to would take it over." He originally pitched the idea to a couple of dozen financial institutions, from large super-regional banks to small community banks and credit unions. Many were encouraging, but none would take on the idea by itself. He laughs at how naive his original assumption turned out to be.
Now, three years later, Dolan's idea is close to becoming a reality: a nonprofit called Interest for Others. But what he first imagined would be a few days of explaining his concept to enthusiastic bankers turned into two-and-a-half years of 40 hour weeks at a time when Dolan said he expected to be enjoying retirement. Later this year, he expects to partner with a super-regional bank — though it's not yet ready to be announced publicly — to launch a pilot program in both in the Twin Cities and Southern California.
And earlier this month, after Dolan had discussed the idea with several lawmakers, U.S. Rep. Erik Paulsen, R-Minn., introduced the Interest for Others Act, which would exclude from taxable income up to $50 in interest from each checking and savings account or dividends from money-market mutual funds donated to charity — even for taxpayers who do not itemize deductions.
But getting here was not a straight path. Most banks were enthusiastic about the concept in theory, Dolan said, not just because they could market the program to customers as a tax benefit and a community-relations program, but if they could eliminate the cost of issuing all of those tax forms, the savings would be "significant." The IRS, he said, would see increased tax compliance, since many taxpayers do not even receive 1099 forms for amounts under $10 and therefore don't report these small amounts. If the idea caught on, the IRS would have fewer forms overall to process, he added.
