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Government Relations

Legislative Update

March 1, 2012

Welcome to the Partnership's Legislative Update highlighting national legislative issues of interest to charitable gift and estate planners.

Presidents Budget Once Again Calls for Limiting Charitable Deduction

President Obama released his fiscal year 2013 budget and for the fourth consecutive year he is proposing to limit the value of itemized deductions including the charitable deduction at 28 percent for couples with incomes of more than $250,000 and individuals with incomes of more than $200,000 (see page 39). This year, however, the Presidents budget proposal also lays out broad principles of tax reform and includes the so-called "Buffet Rule," which would require that individuals earning more than $1 million per year pay at least a 30% effective tax rate. Notably, under this iteration of the Buffet Rule, the charitable deduction would be preserved as the text of the Presidents plan states that the rule should be implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions (also see page 39).

The Presidents fiscal year 2013 budget also includes a number of other tax provisions of great interest to exempt organizations. For example, the budget calls for reinstatement of the IRA Charitable Rollover, which expired at the end of 2011.

 Democratic Members of Congress Begin to Embrace the Buffet Rule

Building on a proposal first put forth by President Obama during his State of the Union address (and then incorporated in his fiscal year 2013 budget), Senator Sheldon Whitehouse (D-RI) and nine other Democratic Senators have introduced the Paying a Fair Share Act (S. 2059), which would require that individuals earning more than $1 million per year pay at least a 30% effective tax rate. Similar to the Presidents proposals, this legislation would also provide a special carve out for charitable giving by permitting wealthy taxpayers to receive a credit equal to the value of the charitable contributions deduction under the regular income tax. In the House, Representative Tammy Baldwin (D-WI) and 15 Democratic Representatives have introduced companion legislation (H.R. 3903).

 Finance Committee Holds Hearing on Tax Extenders  

The Senate Finance Committee recently held a hearing on Extenders and Tax Reform: Seeking Long-Term Solutions where lawmakers discussed how to address the more than 60 tax provisions including the IRA Charitable Rollover that expired at the end of 2011 and what role these provisions should play in individual and business tax reform. Video of the hearing, statements from Senators, and witness testimony are available online.

Lawmakers are currently under pressure to retroactively extend many of these expired tax provisions. The cost of such an extension, however, continues to remain a significant hurdle to final enactment. Excluding a patch for the Alternate Minimum Tax, which is typically grouped with any tax extenders package that moves through Congress, the cost of a one-year extension of all expiring provisions is estimated at $30 billion to $35 billion over 10 years. PPP continues to push on Capitol Hill for inclusion of the IRA Charitable Rollover in whatever tax extenders package may be under consideration this year.

 IRS EO Division Releases 2012 Work Plan

The IRS Exempt Organizations division released its fiscal year 2012 work plan, which details the areas where the IRS will deploy resources over the coming year. The document suggests the tax agency will use the vast amount of information it has collected on the new Form 990 to examine organizations that report unrelated business income activities on Form 990 but have not filed a Form 990-T. The IRS notes there are organizations that consistently report significant gross receipts from unrelated business income activities but declare no tax due. In the coming year, the IRS will also look at connections between certain governance practices and tax compliance and focus on serious allegations of impermissible political intervention. The work plan also provides very brief updates on the divisions projects on colleges and universities and private foundations.

 Dirty Dozen List Includes Charity Abuses

For yet another year, the annual Dirty Dozen list of tax scams put out by the IRS includes abuse of charitable organizations and deductions. The IRS release states that the agency continues to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The release also states that the IRS is investigating schemes that involve the donation of non-cash assets including situations in which several organizations claim the full value of the same non-cash contribution.

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