Bill Would Simplify Excise Tax to 1% & Make IRA Rollover Permanent
We’re excited to report that this morning, the United States House of Representatives passed an important legislative package impacting philanthropy, the “America Gives More Act of 2014” (H.R. 4719), with a bipartisan super-majority vote of 277 to 130. Thanks to each of you who responded to our requests and contacted your representatives this week to encourage support of H.R. 4719. Your efforts paid off!
While a sizable number of Democrats voted against the bill because of concerns over how to pay for these provisions, they nonetheless expressed support for the policies advanced by the charitable provisions in the bill.
As our readers know, H.R. 4719 includes provisions that have been strongly supported by the Council for many years. It’s rewarding to see years of work paying off, recognizing of course there’s still a long road ahead.
The bill would make the IRA charitable rollover permanent law, thereby changing it from an “extender” that must be reenacted every year or two. It would also simplify the private foundation excise tax on net investment income to a single rate of 1 percent. As Sue Santa, the Council’s Senior Vice President for Public Policy and Legal Affairs, told the Associated Press, the bill will “strengthen charitable giving and give certainty to both donors and to the foundations."
Other provisions in the bill would make permanent current “tax extender” provisions that enhance the deduction contributing land conservation easements and food inventory. And, it includes expansion of the deadline for claiming charitable contributions from December 31 to April 15th of the following year. As we’ve noted before, House Ways and Means Chairman Dave Camp (R-MI-4) aims to make a select number of tax extenders permanent as part of a larger comprehensive tax reform goal.
On the other side of Capitol Hill, the Senate is considering tax extenders as well, using a different process than the House. In April, the Senate Finance Committee voted to extend the IRA charitable rollover, conservation easement the food inventory provisions for a two years, retroactive to the beginning of 2015. It has not considered the private foundation excise tax simplification.
Action by the full Senate is not anticipated this summer, and could be delayed until the lame duck session following the November mid-term elections. If the Senate does act, the two houses would then need to resolve the differences in their treatment of these important charitable tax provisions. Sue Santa was quoted in the Chronicle of Philanthropy speaking about the prospects for House and Senate to reach an agreement on the charitable extenders. "There seems to be a general consensus that these items will be addressed,” she told the Chronicle. "But it remains to be seen how the House and Senate will resolve these different approaches."
The White House issued a Statement of Administration Position (SAP) opposing H.R. 4719 on the grounds that the provisions in the bill lack spending offsets—the same concern expressed by House Democrats.
While the SAP states that the President would veto H.R. 4719 if it came across his desk, the Administration emphasizes that it “supports measures that enhance non-profits, philanthropic organizations, and faith-based and other community organizations in their many roles, including as a safety net for those most in need, an economic engine for job creation, a tool for environmental conservation that encourages land protections for current and future generations, and an incubator of innovation to foster solutions to some of the Nation’s toughest challenges.”
Coucil President and CEO Vikki Spruill released the following statement after Thursday's vote:
The Council on Foundations commends the United States House of Representatives for their bipartisan commitment to strengthening the philanthropic sector. The “America Gives More Act of 2014” will encourage charitable giving and improve foundations’ ability to serve communities across the country. This bill strengthens our national culture of giving by making permanent several policies that have proven successful in increasing community investment.
The philanthropic community is especially pleased to see a permanent IRA charitable rollover, which will give individual donors certainty when planning their charitable gifts and will result in more available money for charitable causes.
Our private foundation members are also delighted that Congress is pushing forward simplification of the counterproductive two-tier excise tax on private foundations by replacing it with a single rate of one percent. That measure will lift an administrative burden that creates a perverse incentive for private foundations to give less, not more, in times of need. For over a decade, the Council has seen this simplification as an important tool for community investment, so we view today’s action by the House as a welcome development.
This bill will have a real and positive impact on communities across the country served by the philanthropic sector. The Council thanks Congressmen Schock and Paulsen, as well as Ways and Means Committee Chairman David Camp (R-MI-4), for their continued leadership on these issues. We strongly encourage House and Senate leadership to work together on bipartisan legislation to ensure that these charitable provisions become law.
Chairman Camp made a strong floor statement in support of the bill:
“The goodwill of the American people is unmatched, and we should do everything we can to encourage Americans to give more, enabling charities, nonprofits, foundations and schools across the country to expand their reach and serve those most in need,” he emphasized.
Other Members of Congress also spoke highly of the sector in their floor remarks.
Congressman Sander Levin (D-MI-12) acknowledged that “All of us support the good work of the public charities.
Congressmen Tom Reed (R-NY-23) said, “This bill is a common sense bill that is the right thing to do for America.”
We’ll keep you posted as we learn how the House and Senate will work to resolve differences in their tax extenders packages. Throughout the summer, leaders from charitable and philanthropic sector have encouraged lawmakers to support these important measures. We encourage you to remain vocal about the importance of making these charitable provisions permanent.
Just yesterday, the House voted 228-195 to cut the IRS’s funding for fiscal year 2015 by $1.2 billion (25 percent) over its funding level from the current fiscal year. The agency’s appropriated funding has continued to decrease over the past few years, even with added enforcement responsibilities brought about by the Affordable Care Act and other new statutory duties.
Jeremy Scott of Forbes wrote an op-ed on the accumulated impact of these cuts, “A crippled tax collector means a damaged tax system. And a damaged tax system only hurts taxpayers and the federal government as a whole. Congress should focus more on punishing those responsible for the various missteps at the IRS and less on gutting the nation’s revenue collection and tax administration system as a whole.”
The Senate has not yet passed appropriations bills for the next fiscal year due to a disagreement over amendments. Unless both Chambers act swiftly over the next few weeks and in September, a stopgap funding measure, known as a continuing resolution, appears likely to keep the government running after October 1st.
Council Summarizes Tax Policy Center Report
Last week, we told you a new report written by the Tax Policy Center at Urban Institute and the Brookings Institution, entitled, “Description and Analysis of the Camp Tax Reform Plan.” You can find a summary of the report from the Council on our website that focuses on the report’s findings on Chairman Camp’s proposed changes to charitable giving incentives.
In sum, the report found that the combined impact of Chairman Camp’s proposed 2 percent of AGI floor, drastic decrease in the number of taxpayers who itemize deductions, and decrease in marginal tax rates would increase the cost of charitable giving for all income groups—discouraging charitable giving.
Coming Soon - Council Advocacy Toolkit
As Congress breaks at the end of the month for August recess, we know many of our readers will want to connect with their elected officials as they spend time back in their districts. To assist you in scheduling local meetings with Members of Congress and district staff, the Council Public Policy team is putting together an online, interactive advocacy toolkit.
Resources will include a template meeting request letter (or e-mail), a talking points and frequently asked questions to use to prepare you for your meeting, contact information for your lawmakers, and information on how your lawmakers have supported philanthropy in recent months so you can go into your meetings confident and fully-informed.
We’ll share the toolkit link with our readers next week!
Op-ed on Immigrant Children Crisis
As an op-ed in Nonprofit Quarterly points out, the issue of how to address the situation of nearly 52,000 unaccompanied children at the U.S. border continues to grow. In the absence of political agreement over immigration reform, the nonprofit sector has begun to step up and take action to provide shelter, medical and mental health treatment, educational and recreational programs, and legal services for the children.
The groups taking action are predominantly faith-based and human services-oriented nonprofit organizations. Although this alone will not eliminate the problem, many nonprofits recognize that their services and resources are critical for helping to provide basic human needs to the increasing number of children collecting at the border, and supporting the states in which they have taken shelter.
Social Impact Bonds in the Spotlight
On Wednesday, Congressmen Todd Young (R-IN-9) and John Delaney (D-MD-6) discussed their new, bipartisan Social Impact Bond Act (H.R. 4885) at a Congressional staff briefing hosted by Results for America. Social impact bonds (SIBs), also known as Pay for Success, are public-private partnerships that harness private sector investments to scale up proven social programs, with payments made by government if, and only if, outcomes are met or exceeded.
Representative Young, describing himself as a legislative entrepreneur, believes that experimenting with SIBs can help create a market for evidence-based approaches to solving social problems, all while saving taxpayer dollars and improving outcomes for those most in need. Representative Delaney, also touting the taxpayer benefits of SIBs, highlighted the ability of SIBs to improve outcomes and enhance social service metrics, unleash the power of innovation in government, and increase the amount of financial capital focused on improving people’s lives.
Meanwhile this week, Congressman Dennis Ross (R-FL-15) and several co-sponsors introduced the Pay for Success Affordable Housing Energy Modernization Act of 2014. Through a Pay for Success project within the Department of Housing and Urban Development, this bill would incentivize affordable housing units to improve energy and water usage. While the SIB Act would impact the entire federal government, this bill is an example of a Pay for Success initiative concentrated within one agency.
Outside of Capitol Hill, both the New York Times and the Chronicle of Philanthropy featured articles on SIBs this week. While the Chronicle reporting featured perspectives from those who support and are wary of the new financial tool, the New York Times focused on the opportunity SIBs present to continue the growing emphasis of data, measurement, and accountability in government.
If you have any questions about SIBs or would like to speak with a Council staff person about them, contact Laura Tomasko.
Commentary Surrounding 1023-EZ Release
As we noted last week, the IRS’s Form 1023-EZ along with its instructions became available for public use two weeks ago. The form is intended to serve as a streamlined application for 501(c)(3) tax-exempt status. The IRS estimates that 17 percent of 501(c)(3) applicants will be eligible to use the 1023-EZ.
As we’ve noted in our past coverage, state charity regulators and some nonprofits groups have spoken out to oppose the new form on the grounds that it could make it easier for bad actors to operate and hinder enforcement efforts. A Time Magazine piece this week covers some of these concerns.
Alissa Hecht Gardenswartz, President of the National Association of State Charity Officials, told Time that “[t]he Form 1023-EZ will increase opportunity for fraud” and “make it harder to protect charitable assets from fraud and abuse and to ensure that charitable assets are used for the purposes represented to the public.”
Marc Owens of Caplin & Drysdale expressed concern that the form could make it easier to funnel “so-called dark political money” into 501(c)(3) organizations. From within the nonprofit world, President and CEO of the National Council of Nonprofits, Tim Delaney, said, “[i]t’s easier to get tax-exempt status under 1023-EZ than it is to get a library card.”
Yet, the Treasury Department and the IRS defend the new form on the grounds that it will be simpler and more efficient for groups seeking tax-exempt status. In an interview with Time, IRS Commissioner John Koskinen said that the new abridged form would create “’efficiencies [that] will translate into a faster and better review’ of bigger nonprofits, while clearing a 66,000-application backlog that has resulted in yearlong waits for groups seeking to start a charity.”
If you have any questions about the new form, please feel free to contact our Legal team at firstname.lastname@example.org
Upcoming NASCO Conference
The National Association of Attorneys General/National Association of State Charity Officials' Annual Conference, “The Evolving Role of Charitable Regulation in the 21st Century,” will take place on October 6, 2014 at the Hyatt Regency Capitol Hill in Washington, D.C.
This year’s conference discussions will focus on how charitable regulation is evolving and adapting to the ever-changing nonprofit landscape. Topics will include emerging issues under UPMIFA, regulator-sector opportunities for collaboration in addressing disaster relief, examining the way charities are evaluated by watchdog agencies, and questioning whether charities are, in the traditional sense, still charitable.
More details coming soon!
Rocky Mountain Tax Seminar
The El Pomar Foundation’s annual Rocky Mountain Tax Seminar will take place Wednesday, September 17th, through Friday, September 19th. The seminar is designed to update and inform managers and trustees of private foundations about the ever-changing tax laws that affect private foundations and to encourage dialogue with the panel of speakers about practical problems foundation managers face in the day-to-day management of their foundations. Check out the website for a list of high-profile speakers and registration details!