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Partnership for Philanthropic Planning®
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Legislative Update
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July 7, 2011
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White House, Lawmakers Continue Efforts to Modify Charitable Deduction
President Obama, Vice President Biden, and key leaders in the Senate and House are continuing their high-stakes negotiations on deficit reduction and the debt ceiling as August 2nd, the date the Treasury Department has estimated the United States will exceed its borrowing authority, rapidly approaches. As part of these negotiations, the White House and Congressional Democrats continue to examine ways to raise revenue and are beginning to coalesce around the idea of limiting the value of itemized deductions, including the charitable deduction, in order to achieve the broader goal of reducing the deficit. Republicans involved in the talks oppose the inclusion of revenue raisers in any deal to raise the debt ceiling this summer, but they are still contemplating a major rewrite of the tax code to ease the burden for both corporations and individuals, and such an overhaul would no doubt affect the charitable deduction. For more information on efforts to modify the charitable deduction and to take action to preserve this critical giving incentive, visit PPPs new charitable deduction resource page.
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CBO Analyzes Options for Major Changes to Charitable Deduction
The Congressional Budget Office released a report, which analyzes a number of options for significantly changing the tax treatment of charitable giving. The report examines changes that can be grouped into four categories, including adding a floor to the current deduction, making the deduction available to taxpayers who do not itemize, replacing the deduction with a 25 percent non-refundable credit, and replacing the deduction with a 15 percent non-refundable credit. Each of the latter three options come in three variations: no floor, a $500 floor ($1,000 for families), or a two percent of income floor. The report was prepared at the request of the House Budget Committee and is serving to guide policy discussions currently taking place on Capitol Hill.
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Grassley Confirms Request for Estimate of Tax Exemption Costs
Senator Charles Grassley (R-IA), a senior member of the Senate Finance Committee, has once again indicated he has asked the Joint Committee on Taxation (JCT) to calculate the total cost to the federal government of nonprofit tax exemption. Senator Grassley said he stopped short of making a formal request to JCT given the committees crowded schedule with various tax reform issues but confirmed he has met with JCT staff and asked them to develop an estimate in the near future. Specifically, Senator Grassley has said he is interested in knowing how much money the federal government is losing by not requiring some tax-exempt organizations, particularly so-called fee-for-service organizations, to pay taxes. Senator Grassleys request to JCT comes as lawmakers are scouring the tax code to find tax expenditures they can eliminate in an attempt to reduce the federal deficit.
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House Votes to Ban Tax Strategy Patents
The House approved legislation (H.R. 1249) that would, among other things, ban the patenting of tax strategies, including charitable strategies. Under the bill, the Patent and Trademark Office would not be allowed to approve any more tax strategy patents, whether they are pending or in future applications. A similar bill (S. 23) passed the Senate in March. Lawmakers are now working to reconcile the two bills before final legislation is sent to the President who has indicated he will likely sign such patent reform legislation into law. PPP joined the American Institute of CPAs and a coalition of national organizations in efforts to enact this important legislation.
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House Lawmakers Introduce Foundation Excise Tax Legislation
Representatives Erik Paulsen (R-MN) and Danny Davis (D-IL) have introduced H.R. 2311, legislation that would reduce and streamline the private foundation excise tax on investment income by eliminating the current two-tiered tax rate and setting a flat tax of 1.39 percent. Senator Charles Schumer (D-NY), a member of the Senate Finance Committee and the third-ranking member of the Democratic leadership, introduced identical legislation (S. 593) earlier this year. Bill sponsors say such a change in the law would encourage grant makers to give more during these difficult economic times for charities, and they are expected to try to attach this legislation to future tax bills later in the Congressional session.
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IRS Revokes Exemptions of 275,000 Nonprofits
The IRS released a list of 275,000 nonprofit organizations, about 14 percent of the total number of tax-exempt groups in the country, whose exemptions have been revoked because they failed to submit tax filings for three consecutive years as required by the Pension Protection Act of 2006. Most of the groups on the list are charities, which means donors to these organizations cannot claim a charitable deduction for any gifts made after publication of the exemption list. As part of this revocation announcement, however, the IRS also issued guidance on how organizations can apply for reinstatement of their tax-exempt status, including retroactive reinstatement.
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IRS Committee Recommends Eliminating Group Returns
In a recent report, the IRS Advisory Committee on Tax Exempt and Government Entities recommended that the agency eliminate group returns and require chapters of tax-exempt parent organizations to file individual Form 990 returns. Under current law, certain affiliated organizations are allowed to obtain recognition of their exempt status on a group basis, rather than by filing separate applications. These group exemption rules also relieve the subordinate organizations from the requirement to file an annual Form 990. The ACT panel recommended that the group exemption process be retained but called for eliminating group returns and also recommended new guidance for parent organizations to use in exercising supervision or control over their subordinate organizations. IRS officials were receptive to the ACT recommendations and suggested in press reports that they may go a step further and eliminate group exemptions altogether.
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IRS Seeks Comment on Form 990 Redesign
The IRS is seeking public comment on transitional issues and frequently asked questions involving the redesigned Form 990. Although the form underwent a major reconstruction in 2008, the IRS continues to refine it in response to questions and comments from the public. Accordingly, the agency is seeking input on 11 issues including how a filing organizations payments to management companies and other third parties for the services of officers, directors, trustees, and/or key employees should be reported and whether some or all of the compensation reporting thresholds for key officers and employees should be lowered, raised, or retained as is. Comments are due by August 1st.
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Reports Show Modest Increase in Charitable Giving Despite Poor Economy
According to Giving USA 2011, the annual report on philanthropy, total estimated charitable giving in the United States rose 3.8 percent in 2010 (2.1 percent adjusted for inflation) to $290.9 billion. Giving by individuals rose an estimated 2.7 percent in 2010 (1.1 percent adjusted for inflation) while chartable bequests saw the biggest growth of any type of giving, an estimated 18.8 percent increase over last year (16.9 percent adjusted for inflation). The study also found grant-making by private, community, and operating foundations fell by 1.8 percent in 2010, to an estimated $41 billion.
In another study on giving, the Association for Healthcare Philanthropy reports that United States nonprofit hospitals and health care systems managed an 8 percent increase in philanthropic donations last year to over $8 billion. Planned gifts, including bequests, charitable gift annuities and charitable remainder trusts accounted for 9.5 percent of donations last year, similar to pre-recession levels. |
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