Tax Reform Working Groups Report on Charitable Deduction and Exempt Organization Issues

In a move towards increased transparency and a belief that more is better, House Ways and Means Chairman Dave Camp and Senate Finance Committee Chairman Max Baucus launched a website to gather additional input from the public on overhauling the tax code. Their new, open forum-style website allows the general public to present ideas on how the U.S. tax system should be structured. The site’s launch follows a recent call by Congress to have 11 working groups on tax reform solicit public comments that eventually would be compiled into a report produced by the Joint Committee on Taxation.  On May 7, their report to the House Committee on Ways and Means (JCS 3-13) was released. The 558-page report contains information strictly devoted to exempt organizations (pp. 491- 497) including comments covering charitable giving, tax-exempt status, unrelated business income tax and  other key topic areas.

Overall, it appears that the public believes the charitable deduction should not be tampered with in any manner that would reduce charitable giving. In fact, one suggestion was to exclude charitable contribution deductions from the reach of the most recent tax legislation that imposes overall limits on itemized deductions of the wealthy. Other ideas that had been floated and commented on include:
  • Limiting the value of the charitable deduction to 28 percent.
  • Dollar caps on deductions for charitable contributions.
  • Conversion of the charitable deduction into a credit.
  • Allowing a deduction only for charitable contributions in excess of a specified amount, or “floor.”
Other charitable giving comments expressed were:
  • Concerns about treating contributions to some 501(c)(3) organizations, such as cultural organizations, differently than contributions to humanitarian relief organizations.
  • Expansion of the rules for augmented deductions for contributions of inventory used for “the ill, needy or infants” to inventory used for “fundraising events and campaigns that benefit the ill, needy and/or minors within a local community.”
  • Repeal or modification to 2004 legislation that amended the charitable deduction rules for contributions of automobiles and other vehicles.
Among the provisions in the unrelated business income tax (UBIT) arena, suggestions included:
  • Eliminating UBIT for payments from controlled corporations when the transaction is at fair market value, regardless of when the contracts were made.
  • An across the board exception to the unrelated debt-financed income rules for any organization where the transaction involves real estate. Currently, only certain qualified organizations such as schools and qualified pension organizations have this exception.
  • Extending the UBIT rules to employee stock ownership plans (ESOPs).
Interestingly, the report also includes a suggestion that Congress legislate that the gift tax not apply to contributions given to 501(c)(4) organizations. In the recent past, there have been concerns regarding the political activities of 501(c)(4) organizations. The IRS has indicated that it had the authority to impose the gift tax on contributions made to these organizations, but subsequently said they would not pursue the tax.

While this article only makes mention of a few proposed ideas, there are several more that have been suggested as options regarding charitable giving and other exempt organization issues. Read the report and let us know your thoughts on these proposed ideas in the Comments section below.

Stay tuned to the Nonprofit Standard blog for more coverage around charitable deduction changes!

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