Nonprofit Tax Legislation Addresses Donor Privacy and the Charitable Deduction

While a slim summer schedule has the House and Senate on extended recesses through much of July and August, legislators continue to introduce and vote on bills addressing noteworthy concerns in the nonprofit industry, with consequences both long and short-term.

Donor Privacy

In mid-June, the House passed legislation known as the “Preventing IRS Abuse and Protecting Free Speech Act,” which would prevent IRS from requiring tax-exempt organizations to disclose the names of their donors on Form 990.

Introduced by the House Ways and Means Oversight Subcommittee chairman Peter Roskam (R-Ill.), the bill came after the IRS’s Exempt Organizations unit fell under scrutiny for asking organizations seeking tax-exempt status under Section 501(c)(4) about their political activities, and in some cases, for lists of their donors. Additionally, the bill effectively eliminates the Schedule B from Form 990, which requires most 501(c) nonprofits to report the names of donors who give more than $5,000.

Proponents argue the bill protects free speech and public policy discourse by preventing the leaking of donor names as a chilling mechanism. Meanwhile, critics of the bill argue that the legislation could encourage the flow of “dark money” contributions, including funds from foreign sources, to political organizations in elections if donor names are undisclosed.

Charitable Deduction for Taxpayers

Previous bills and budget proposals have attempted to reduce the benefits of the charitable deduction for taxpayers. The charitable sector demonstrated in numerous hearings that such a reduction would have a widespread and adverse impact on organizations’ ability to deliver services. As a result, Congress is now exploring actions that could help protect the charitable deduction.

Senator John Thune (R-S.D.) introduced S. 2750, the CHARITY Act (Charities Helping Americans Regularly Throughout the Year). This bill states that the goal of tax reform should be to encourage charitable giving, and Congress should ensure that the charitable deduction endures through a comprehensive rewrite of the tax code. The bill also includes the following provisions:
  • The Individual Retirement Account (IRA) rollover to charities would be available for a rollover from a donor advised fund;
  • The excise tax on private foundations’ investment income would be reduced to 1 percent;
  • In order to enhance transparency, all Forms 990 would be filed electronically;
  • The mileage rate for charitable volunteer services using an automobile would match the rate for medical expenses; and
  • An exception to the excess business holding rules would allow a business received by a private foundation through a will or trust to be held by the charity if the business’s profits go to the charity.
Senator Tom Udall (D-N.M.) introduced S. 2648, Create Act of 2016, which includes a special rule allowing a donor who makes a qualified artistic charitable contribution (i.e., literary, musical, artistic or scholarly work, or contributes the copyright to a charitable organization) to deduct the fair market value of the contribution from gross income.

As the sector stands by during the final months leading up to the election, we’ll be watching and waiting for more notable developments in tax legislation.