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Government Relations
Legislative Update July 7, 2011
Welcome to the Partnership's Legislative Update highlighting national legislative issues of interest to charitable gift and estate planners.
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.
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.
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.
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.
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.
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.
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.
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.
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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