Stakeholders in every sector—including the Council—continue to delve into House Ways and Means Committee Chairman Dave Camp’s (R-MI-4) Tax Reform Act of 2014 to get to the bottom of its wide-reaching implications.
As we’ve been commenting since the bill’s introduction, this draft legislation is a critical marker for comprehensive tax reform conversations. Its proposals will either serve as the framework for a bill that Chairman Camp will advance or as a blueprint for future tax writers—like Representative Paul Ryan (R-WI-1), who is eyeing the Ways and Means Committee Chairmanship, or Representative Kevin Brady (R-TX-8), who some speculate will challenge Ryan for the chair position. And, there may be some bipartisan, bicameral consensus building for certain aspects of Chairman Camp’s plan.
During a hearing on the President’s Fiscal Year 2015 Budget, Senate Budget Committee Chairwoman Patty Murray (D-WA) listed some provisions in the Camp bill that she supports, such as the proposed changes to carried interest in the individual tax code, along with several provisions on the corporate tax side. It is imperative for the philanthropic community to be publicly engaged in tax policy conversations, to demonstrate support for some provisions in the bill, to express opposition to others, and to craft and negotiate changes to those provisions we oppose so that we have the best possible language in this framework. Philanthropy Week in Washington was an excellent starting point, but these conversations will continue for several months ahead.
To recap the Council’s current posture on the Camp draft legislation:
The Council is deeply concerned about the proposal to impose a 5-year payout on donor advised funds (DAFs). We’re concerned not only about the proposed provision but also the underlying motivation for including such stringent restraints. We believe that DAFs are unique charitable vehicles that allow individuals to channel their philanthropic giving to projects and programs that benefit the communities in which they live. We support current law, which permits community foundations to hold and manage DAFs that can benefit the community for years to come. Along with our members and our colleagues in the field, we will educate lawmakers about DAFs and underscore their value as giving tools, build confidence on the integrity of these funds and identify how we can eliminate or reshape this provision to assure continued for this giving vehicle. We know our community foundation members are deeply concerned with this proposal. Please feel free to reach out to us directly if you would like to express your opinion or concerns.
As our readers know, the Council also remains steadfast in opposing the proposed limitations on the charitable deduction, along with any proposed policy changes that reduce the value of charitable giving incentives. We are concerned that the proposed charitable deduction floor, combined with a higher standard deduction that could reduce the number of taxpayers who choose to itemize and a phase-out of itemized deductions, could cause a decline in charitable giving—particularly for those donors who make smaller gifts.
The proposal to repeal Type II and Type III supporting organizations is also deeply troubling. Again, we must address the motivation for this proposal as well as the language itself. This provision has the potential to reduce the flexibility of community foundations in particular to establish separate but related entities.
We are also monitoring the provision mandating electronic filing of Form 990s, along with a similar requirement and associated penalties that appears in President Obama’s Fiscal Year 2015 Budget that came out last week. Council Senior Vice President of Public Policy & Legal Affairs Sue Santa told Tax Notes, a publication of Tax Analysts,that the Council generally supports the concept of mandatory e-filing, but that smaller organizations may need more time and resources to comply. She also expressed a concern that the complicated investment data that some foundations are required to file could be hard to transfer to an electronic medium. "We don't doubt this is achievable; we just want to be sure that this is implemented in a reasonable way so that the foundations and charities can conform," she emphasized.
On a more positive note, Chairman Camp’s bill proposes to simplify the current two-tiered private foundation excise tax to a flat rate of one percent. The Council resolutely supports this simplification. Many of our members will recognize a lower tax burden as a result, and face fewer headaches and compliance costs associated with tracking complicated investment activity. The bill also allows for the deduction of charitable contributions through April 15th of the calendar year, which will allow individual donors more flexibility in planning their charitable contributions throughout the year. "We're really encouraged by any provision that might increase the amount of charitable giving,” as Sue Santa told Tax Notes.
The Council has been in close touch with Ways and Means Committee staff on provisions of the bill that are especially concerning, including the proposed DAF payout requirement and the elimination of Type II and Type III supporting organizations. Stay tuned in the coming weeks for alerts on opportunities for you to learn more about the Camp proposal and the progress the Council and our colleague organizations are making and to weigh in on bill provisions. We believe that it is critical to get a comprehensive picture of how Council members assess the various provisions in the bill as we undertake our education and advocacy efforts on Capitol Hill on your behalf. In the meantime, please feel free to contact the Council’s Policy Analyst Katherine LaBeaufor more information about the Camp bill or to expressyour concerns.
The IRS received a received a whopping 143,764 public comments on the controversial proposed rules on 501(c)(4) political activity—signaling a record-breaking level of public interest in the rules. Nonprofit Quarterly’s Rick Cohen reviewed a cross-section of these responses, and notes that most of them expressed strong opposition to the proposed rules. The piece points out that in addition to calling out the harmful effect the rules will have on 501(c)(4)s, many organizations weighing in were concerned about how the rules will effect 501(c)(3)s.
Cohen cites the Council’s comments that emphasize the potential impact on 501(c)(3)s: “These regulations are far too sweeping…. First, the proposed rules go beyond the rulemaking authority given to Treasury by Congress in that they reinterpret ‘social welfare’ to exclude a category of civic education activities that Congress did not intend to bar. Second, if applied to 501(c)(3) organizations, the ‘candidate-related political activity’ standard would conflict with a statutory provision that explicitly permits foundations to fund nonpartisan voter registration activities. Finally, the proposed rules, while not directly applicable, would nevertheless drastically chill the civic engagement activities of 501(c)(3) organizations, leaving a gaping void in vital nonpartisan civic education that has enhanced democratic participation for decades.”
Meanwhile, Congressional Republicans are using a variety of tactics to prevent the proposed rules from advancing. As we’ve covered in past editions, Chairman Camp introduced the Stop Targeting Political Beliefs by the IRS Act of 2014 (H.R. 3865), which passed the House. Senator Ted Cruz (R-TX) has also introduced a similar bill in the Senate (S. 2072) that would prevent the IRS from assigning a tax status to an organization based upon political beliefs or activities. These bills are not likely to move forward, but they signal growing, widespread opposition to the proposed rules from Republicans and Democrats alike.
Check out this interactive recap of everything that happened during Philanthropy Week in Washington.
LA Times op-ed: DAFs are here to stay
Donor advised funds (DAFs) have been receiving a lot of attention lately, primarily because of Chairman Camp’s proposal for a 5-year payout requirement. Yet, a Los Angeles Times op-ed from this week brings up DAFs for a different reason. “Love it or hate it, the philanthropic revolution is on and donor-advised funds are winning,” says Jack Shakely, president emeritus of the California Community Foundation in Los Angeles and senior fellow at the Center for Philanthropy and Public Policy at USC.
Shakely covers the history of DAFs and their evolution as giving tools, and highlights high-profile donors, like Mark Zuckerberg, who have opted to make charitable contributions through DAFs. Notably, Shakely joins a growing alliance of voices throughout the philanthropic sector in refuting the concerns about a lack of disbursement rules and reporting requirements expressed by Boston College Professor Ray Madoff and others He points out that regardless of when DAF funds are paid out, they can only be spent for a philanthropic purpose and cannot be retrieved by the donor.
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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.