Chairman Camp Releases Tax Reform Proposal
Dozens of provisions impact tax-exempt organizations
As we let our readers know in a Washington Snapshot Breaking News alert on Wednesday, House Ways and Means Chairman Dave Camp (R-MI-4) released his long-awaited comprehensive tax reform bill this week. The proposal would overhaul both the corporate and individual tax codes. The bill included dozens of provisions that might impact tax-exempt organizations. Though the bill is not likely to gain any serious momentum in Congress this year, it will provide a critical starting point for comprehensive tax reform conversations in the near future.
Our legal and policy experts have poured through the legislative language to break down some of the most important issues facing foundations.
Council president and CEO Vikki Spruill released a statement in response to the Chairman's proposal:
“The Council on Foundations supports the goal of comprehensive tax reform and commends Chairman Camp for his continued efforts to move that process forward. We applaud the Chairman for his proposal to simplify the current private foundation excise tax by introducing a single rate of one percent. Our members have long supported simplifying the complex, two-tiered private foundation excise tax to a flat rate. We are also pleased to see that the Chairman’s plan would extend the deduction for charitable contributions to April 15th, ensuring that taxpayers have adequate time to make charitable donations and take advantage of the deduction.
"Among the Council’s concerns with the proposal, however, is the impact of the proposed floor on the charitable deduction, which would deny donors a deduction for the full value of their charitable gifts. As Congress considers how to best reform the tax code, the Council urges Members of Congress to ensure that proposed reforms do not impede the philanthropic sector’s efforts to serve the country.”
Details on Chairman Camp's Bill
There are numerous elements of Chairman Camp’s proposal that we know will be of interest to our members. Here are the changes that we’ve identified so far that will directly affect our foundation members most significantly:
- 2 percent floor on the charitable deduction – Under the Chairman’s proposal, an individual’s charitable contributions could be deducted only to the extent that they exceed 2 percent of an individual’s adjusted gross income. As our readers know, the Council is opposed to any change to the charitable deduction that would reduce the value of the charitable deduction for donors.
- Private foundation excise tax simplification – The bill simplifies the current two-tiered excise tax to a flat rate of 1 percent. Many of our members will benefit from a lower tax burden as a result of this proposal. However, the proposal also removes the current exclusion for exempt operating foundations, making them subject to the excise tax for the first time.
- Mandatory e-filing of Form 990s for all tax-exempt organizations – The bill requires all tax-exempt organizations required to file Form 990s to file these returns electronically, and for the IRS to make the returns publicly available electronically. The Council believes lawmakers should understand the potential implications for small nonprofits and private foundations that could face significant compliance costs associated with e-filing. We urge Congress to weigh this concern and get input from the nonprofit sector as it considers this proposal.
- Extension of the charitable deduction to April 15th of the calendar year – This provision would allow individual taxpayers to deduct charitable gifts made after the close of a tax year but before April 15th, the calendar year deadline for the filing of tax returns. This will give donors more flexibility in planning their charitable contributions throughout the year, and the Council is supportive of this proposal.
- Five year payout requirement for donor advised funds –The proposal would assess a 20 percent excise tax on public charities—including community foundations—that fail to distribute contributions from donor advised funds (DAFs) within 5 years. The Council firmly believes that DAFs are unique giving vehicles that allow an individual to channel their philanthropic giving to projects and programs that they care about in their communities.
Chairman Camp’s proposal may create additional burdens on the organizations that utilize DAFs. The provision appears to end endowed DAFs through a mandatory payout requirement. It also limits eligible distributions to public charities. The Council supports current law which permits community foundations to hold and manage DAFs that can benefit communities for years to come. We recognize that this new legislative provision has significant implications for community foundations. To ensure we advocate for the best policy on behalf of our members, our public policy and legal team will continue talking with community foundation leaders about this and other legislative provisions that affect them.
- Repeal of Type II and Type III supporting organizations – The plan eliminates Type II and Type III supporting organizations altogether. This proposal has the potential to reduce the flexibility of community foundations and other organizations to establish separate but related entities. Type III supporting organizations are often viewed as alternatives to private foundations, but under the proposal, they must be operated, supervised or controlled by a public charity—sacrificing some of their autonomy. While some organizations may welcome the opportunity to exercise greater control and oversight over their supporting organizations, their flexibility and attractiveness to donors could diminish.
- Changes to the treatment of certain unrelated business income – Chairman Camp’s proposal extends the Unrelated Business Income Tax (UBIT) and changes the manner in which it is calculated. It applies UBIT to all name and logo licensing, ends aggregate calculations for the net unrelated taxable income of unrelated trade or business activities, applies UBIT to income from fundamental research that is not made available to the public, and heavily regulates when UBIT applies to sponsorship at a recognized event. These changes could chill the innovative ways that some tax-exempt organizations generate additional revenue.
- Phase-out of itemized deductions for certain taxpayers – The Chairman’s plan phases out itemized deductions for single taxpayers with adjusted gross incomes above $250,000 and married taxpayers with incomes above $300,000, which could have an impact on what portion of their charitable contributions these taxpayers can deduct.
- Excise tax on certain private colleges and universities – The bill imposes a one percent excise tax on the net investment income of many private colleges and universities, similar to the private foundation excise tax. The tax would apply to those private colleges and universities with investment assets that exceed $100,000 per full-time student.
- Excise tax on excess executive compensation – Chairman Camp proposes a 25 percent excise tax on executive compensation in excess of $1 million paid to any of an organization’s five highest paid employees for the tax year.
Reactions to Chairman Camp's proposal
Responses to Chairman Camp’s proposal came from all sides this week. A Wall Street Journal editorial said “the smarter Republicans are trying to reclaim the mantle of economic opportunity,” and that Chairman Camp stepped up to that task “by proposing a detailed tax reform.” Stephen Moore, Chief Economist at the Heritage Foundation, said “this is a gutsy and courageous first attempt to take on the beehive of special interests in Washington and grow the economy while making the tax system fairer and more comprehensible.” That support, however, was muted and overshadowed by the reality that this bill will most likely not receive any traction in Congress for the remainder of 2014. USA Today reports that “House Speaker John Boehner, R-Ohio, said the plan was a way to start a discussion about tax reform, but when asked about the details, he responded, ‘Blah, blah, blah, blah.’”
Criticism also poured in from various sectors. There was, as one Wall Street Journal post put it, “something for everyone (to hate).” This comprehensive bill left virtually no one untouched. The National Association of Realtors said in a statement that they “are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform draft released today, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes.” The United States Conference of Mayors hammered the plan’s proposals to “impose a 10 percent surtax on interest income from otherwise tax-exempt municipal bonds” and “eliminate the deduction for personal state and local income, property, and sales taxes.”
On issues closer to home for our members, nonprofits have begun to respond to many of the proposals. Brian Gallagher, CEO of United Way Worldwide, said “that plan, combined with the 2-percent threshold, would erode the tax incentive for middle-income Americans to give to charity… we will clearly be adamantly opposed to that.” William Daroff, vice president of public policy at the Jewish Federations of North America, told The Chronicle of Philanthropy that he was “very distressed” by Chairman Camp’s proposal. Howard Husock, in an editorial in Forbes, praised the Chairman for not proposing a cap on the charitable deduction, for “steering clear” of issues like hierarchy of charitable purposes, and for embracing “the key understanding that the charitable deduction should not be lumped in with special interest tax ‘expenditures.’”
Finally – and most importantly for the Council’s members to remember – this bill will be the starting point for all future efforts to reform the tax code. If Representative Paul Ryan (R-WI-1) assumes leadership of the House Ways and Means Committee in 2015, Politico says “Camp’s proposal essentially lays the ground work for Ryan to assume the gavel and have a fighting shot at rewriting the tax code for the first time since 1986.”
For more information on any of provisions in Chairman Camp’s tax reform bill, contact the Council’s Public Policy team.
Chairman Camp’s tax reform bill, along with the expected release of President Obama's budget proposal next week, have focused the philanthropic community on Washington's policymakers.
With so much happening, it's the perfect time to have over 150 leaders from across the field converging on the capital for Philanthropy Week in Washington.
For more information visit the Philanthropy Week website.
Tuesday March 4
12:00 – 1:00pm | Senate Philanthropy Caucus Roundtable Discussion, “Philanthropy and Government: Partnerships in Times of Less”
This discussion will focus on how American philanthropy is bringing new ideas and an evolving field of social finance tools to bear on the challenges facing the country.
Wednesday March 5
8:00 – 11:45am | Alliance for Charitable Reform Summit for Leaders
A half-day event to learn more about what you can do to protect the charitable deduction and educate lawmakers about the critical role of charitable organizations in a free society.
12:00 – 1:00pm | Looking into the Crystal Ball: Future of State and Federal Tax Incentives for Charitable Giving
Programming by Forum of Regional Associations of Grantmakers' PolicyWorks for Philanthropy Initiative, lunch hosted by the Council on Foundations
Thursday March 6
8:00 – 9:30am | Breakfast with Federal Departments
Federal departments and agencies have been invited to join FOTH attendees for informal breakfast networking at the Embassy Suites hotel. This is an opportunity for participants to meet informally with philanthropic liaisons from across the federal government to talk about the work they do and to discuss possible partnerships. Representatives from the following departments will attend:
- Department of Education
- Department of Justice
- EPA, E3 Initiative
- Climate Education Collaborative (NOAA, NASA, NSF)
- State Department
- Department of Health and Human Services
- Corporation for National and Community Service
- Department of Agriculture
12:00 – 1:00pm | House Philanthropy Caucus Briefing, “Understanding the Role of American Philanthropy”
The briefing will highlight the role of foundations as collaborating partners with local governments and other private sector partners in regional and local community development and revitalization. A panel of foundation leaders will share examples of successful partnerships, followed by small table conversations between Congressional staff and foundation delegations visiting Capitol Hill this week.
Friday March 7
12:00 – 1:00pm | Philanthropy Week Twitter Chat
The Council on Foundations will co-host a twitter chat with The Chronicle of Philanthropy. This chat will touch on a variety of topics including: perspectives on the president’s proposed budget and its impact on the sector, a look at the current policy debate around philanthropy’s role in the economy and creating jobs, the challenges of responding to increase demand when resources are limited, and the increasing importance of public philanthropic partnerships.
This chat will be part of the #cf100 series of Twitter chats, marking the 100th anniversary of community foundations. Participate in the Twitter Chat by using the following hashtags: #pwdc, #cf100.
Other Philanthropy Week Resources
For a variety of resources on Philanthropy Week as well as ways to engage if you are not going to be in Washington visit our website.
Council Submits Comments on Proposed 501(c)(4) Regulations
After months of updating you on 501(c)(4) news in Washington Snapshot, the Council is excited to share the formal comments we submitted to the IRS in response to proposed rules on the political activity of 501(c)(4) social welfare organizations. The Council strategically addressed three primary concerns in its submitted comments that will we believe affect our member foundations directly:
- The rules would chill civic engagement and education efforts of 501(c)(3)s—activities that are vital for a thriving democracy;
- If applied to our 501(c)(3) members, the political activity standard in the rules would be inconsistent with current tax law, which permits foundations to fund certain voter education and voter registration activities;
- The rules go beyond the Treasury Department’s rulemaking authority.
To read President and CEO, Vikki Spruill’s statement on the submission or for more details, please view our press release.
The Council is a strong voice among many in the review of proposed 501(c)(4) regulations. While the IRS comment period on the proposed regulations closed this week, the proposed regulations continue to be in the news. The Washington Post reports that Congress received 122,000 comments on the advocacy rules. Diana Aviv of the Independent Sector testified in a sub-committee hearing on the proposed revisions. The Hill featured a blog post by Emily Peterson-Cassin, the Bright Lines Project coordinator at Public Citizen, calling on the IRS to balance the need to curb abuse and to preserve the opportunity for programming that fosters an informed and engaged citizenry.
Philanthropy and Government
President highlights foundations' investments in My Brother's Keeper initiative announcement
Foundation leaders in the Executives Alliance to Expand Opportunity for Boys and Men of Color – a coalition of philanthropic institutions committed to leveraging philanthropy’s role in improving life outcomes for boys and men of color -- joined President Obama at Thursday’s signing of a Presidential Memorandum establishing the My Brother’s Keeper Task Force.
The Annie E. Casey Foundation, The Atlantic Philanthropies, Bloomberg Philanthropies, The California Endowment, The Ford Foundation, The John and James L. Knight Foundation, The Open Society Foundations, The Robert Wood Johnson Foundation, The W.K. Kellogg Foundation, and The Kapor Center for Social Impact announced their commitment to work collaboratively with the federal task Force over the next 90 days to design a strategy and infrastructure for coordination of these investments, which can be aligned with additional commitments from other public sector and business leaders.
The President’s charge to the Federal Task Force is to determine what public and private efforts are working and how to expand upon them, how the Federal Government’s own policies and programs can better support these efforts, and how to better involve State and local officials, the private sector, and the philanthropic community in these efforts.
The foundations supporting today’s call to action have already made extensive investments, including $150 million in current spending that they have already approved or awarded. Building on that, the foundations announced that they seek to invest at least $200 million over the next five years, aligned with additional investments from their peers in philanthropy and the business community, to find and rapidly spread solutions that have the highest potential for impact in key areas, including: early child development and school readiness, parenting and parent engagement, 3rd grade literacy, educational opportunity and school discipline reform, interactions with the criminal justice system ladders to jobs and economic opportunity and healthy families and communities.
The Council recognizes the importance of this significant public-private partnership and looks forward to continuing dialogue on the range of issues affecting young men and boys of color. We intend to highlight efforts of the field at Philanthropy Exchange, the Council’s annual conference in June.
For more information on the Federal Task Force, contact Stephanie Powers, the Council’s Executive Branch Liaison at firstname.lastname@example.org.
Lawmakers must understand philanthropy to make better policy choices
Alicia Phillipp and John Tyler wrote a piece in the Chronicle of Philanthropy challenging foundations to actively engage with policy makers about who we are and what we do as individual foundations so that policymakers understand the broad impact of philanthropy.
"Extend the Charitable Deduction to Every American" opinion piece
Thomas Peters, the chief executive officer of the Marin Community Foundation wrote an opinion piece asking readers to consider extending the charitable deduction to individuals that do not itemize their taxes. He cites a study by the Committee for a Responsible Federal Budget that offers the ideas for increasing charitable giving.
Celebrating community foundations: 100 years in America, 98 years in Indiana
The Indiana Senate adopted a resolution honoring Indiana’s community foundations and the field’s centennial anniversary yesterday. “On the field’s 100th anniversary, we want to celebrate all the good work being done by community foundations throughout America and especially right here in Indiana,” said Senator Randy Head (R) from Logansport, who offered the resolution. “In communities throughout the state, the generosity of countless donors and partner organizations continues to make life better for all of us.” Marisa Manlove, President and CEO of the Indiana Philanthropy Alliance celebrated the resolution in a press release stating, “Thanks to our community foundations, people in cities and towns throughout Indiana can pool their charitable funds into community resources for the benefit of all.”
Maine charities fear state deduction cap will cut giving
The Chronicle of Philanthropy reports that the Maine Association of Nonprofits estimates that charities across the state could lose $20 to $30 million this year due to a newly implemented limit on state tax deductions. The change in Maine’s tax code, enacted last year to help close the state’s $37 million budget deficit, caps a taxpayer’s state deductions at $27,500. Brenda Peluso, Director of Public Policy for the nonprofit association, predicted that with the incentive to donate reduced Maine residents will rein in giving by about 5 percent.
New York Attorney General warns donors about telemarketers
Several news outlets, including USA Today, report that telemarketers who solicit donations on behalf of charities kept an average of 62 cents of every dollar donated to charities in 2012 in New York state. "New Yorkers who open their hearts and wallets deserve to know how their hard-earned dollars are being spent and how much of their money is going to pay telemarketers' salaries and costs," New York Attorney General Eric Schneiderman said in a statement. New York Council of Nonprofits CEO Doug warned charities to not use telemarketing firms if possible, but some local organizations cited in the piece said they lack the resources to solicit donations on their own.
Keep in Touch!
Please feel free to reach out to any of us on the public policy team with any comments or concerns, or to share an issue, article, event, or op-ed you’d like to see covered in a future Washington Snapshot.