Tax Reform Work Still Ongoing, McConnell Says
This week, Senate Majority Leader Mitch McConnell (R-KY) expressed his doubts that comprehensive tax reform will occur in the next two years. However, McConnell emphasized that even without comprehensive reform, Congress will still pursue tax policy changes.
On the House side, Ways and Means Committee Chairman Paul Ryan (R-WI-1) has said that he is open to a narrower tax reform bill that could address issues such as our international tax system and tax code changes that offer revenue to fix the highway trust fund by the end of the summer.
But Likely Action on "Extenders"
Other Senators and Representatives have stated clearly that they intend to take up the “tax extenders,” including provisions like the IRA charitable rollover, sooner rather than later. And some have indicated continued interest in making some provisions permanent.
On Wednesday, at a legislative seminar on Capitol Hill attended by Council team members, several of the lawmakers who spoke offered their commitment to acting on the extender provisions before December, recognizing that a lack of certainty for taxpayers and others who benefit from the provisions is damaging and is not sound policy.
Senate Working Groups' Deadline is June 26
The Senate Finance Committee’s Tax Reform Working Groups are scheduled to deliver their reports on comprehensive tax reform by June 26th. These working groups have been meeting since earlier this year to address how different parts of the tax code could be revamped. It’s likely the reports will include broad principles for reform rather than specific proposals to change the tax code. Therefore, we do not anticipate the reports including specific proposals for addressing the tax policies that impact exempt organizations.
Along with our colleagues in the field, the Council has spoken and met with many of the key working groups staff to ensure that the reports do not contain any damaging proposals and to put forth ideas for positive changes, such as making the IRA charitable rollover permanent and simplifying the private foundation excise tax.
As a reminder, the issues that impact charitable organizations and individual donors fall within the “business” and “individual” working groups. The business working group will address tax provisions that impact the business and operations of charitable organizations, and the individual working group will address giving incentives for individuals.
Ryan, Hatch Seek 501(c)(4) Rulemaking Documents
House Ways and Means Committee Chairman Paul Ryan (R-WI-1) and Senate Finance Committee Chairman Orrin Hatch (R-UT) have asked the IRS for un-redacted documents from Treasury on its upcoming regulations regarding the political activity of tax-exempt organizations. These leaders and other Republican lawmakers have expressed strong concerns about the upcoming regulation expected from the IRS this month.
When the first version was released in 2013, lawmakers made numerous efforts to block its advancement. We anticipate a similar response to the revised version, expected to regulate not just 501(c)(4)s but the political activity of other 501(c) organizations.
As our readers will recall, the IRS issued a rulemaking on 501(c)(4) political activity in 2013 that received a record-breaking number of public comments, many opposed the rule as written. In our own comments to the IRS, the Council expressed concern about how an evolving regulatory environment for nonprofit political activity would impact 501(c)(3) organizations. This new proposed rulemaking is an effort to address the public comments.
We anticipate that the rulemaking will directly address 501(c)(3) political activity. We will closely scrutinize and respond to the proposal.
IRS Releases Tax Forms in Accordance with FOIA Request
As our readers may recall, the Council has followed the progression of a case in California where the judge ruled that the IRS must provide computer-readable copies of Form 990s requested through the Freedom of Information Act (FOIA).
Late last week, this was enacted into reality with the IRS releasing the nine requested tax forms in a format that is readable and searchable by computers. This marks the latest development in a trend of calls for more readable and accessible Form 990 information for nonprofits. Our colleagues at The Aspen Institute’s Program on Philanthropy and Social Innovation have been leaders on this issue through The Nonprofit Data Project. Aspen has convened leading figures in the field of nonprofit research and data since 2007 to discuss and assess the nonprofit data collection system in the U.S.
Tax Deduction for Gift of Partial Interest in a Boat?
A potential donor, with dreams of nautical and charitable swashbuckling adventures, contacted his local community foundation. His plan was to purchase a charter boat and donate the right to use it for three months of the year to the foundation. For the other nine months, he hoped to retain the right to use the boat freely.
He asked the foundation whether it was possible to claim a tax deduction for his donation of partial interest in the boat. Uncertain of the exact rules that would apply in this situation, the community foundation contacted Legal Affairs to help navigate the foundation through these unfamiliar waters.
The Council’s legal team responded that the IRS would likely not be on board with the donor taking a deduction for his partial maritime contribution.
Section 170(f)(3) of the Internal Revenue Code states that no charitable deduction will be allowed for a gift of an interest in property that consists of less than the owner’s “entire interest” in that property. And under this section, “the right to use property” is treated as a contribution of less than the owner’s entire interest.
Exceptions to the partial interest rule do exist, including “a remainder interest in a personal residence or farm;” but the legal team highly doubted that a charter boat would qualify as a “personal residence.” The Treasury Regulations state that a personal residence need not be the taxpayer’s primary residence and could be a vacation home, but unfortunately did not speak to boats, thus taking the wind out of the donor’s sails.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
North Carolina Senate Targets Nonprofit Tax Incentive
Exclusive from our Colleagues at the National Council of Nonprofits
Bucking the trend across the country, North Carolina Senate leaders unveiled a tax plan on Wednesday that would subject charitable donations to the current $20,000 cap on itemized deductions in that state. The plan would also raise the standard deduction to $17,500 next year and $18,500 by 2020. By one calculation, the resulting maximum tax benefit from charitable contributions (assuming large donations, with no mortgage or other itemized deductions) would net out to no more than $82.50 per year. The Senate proposal also calls for severely capping sales-tax reimbursements to larger nonprofits and switching all nonprofits to an annual reimbursement schedule. In North Carolina, nonprofits currently pay sales taxes and are reimbursed by the state twice a year for their tax payments. The North Carolina Center for Nonprofits is actively engaged in advocacy efforts on the bill and is the place to go for updates.
The new Senate tax bill comes at a time of surplus in the North Carolina budget and ignores the experiences of legislatures elsewhere in the country. Earlier this year, legislators in Hawaii and Vermont rejected proposed revisions to their states’ laws on charitable deductions. In 2013, six states considered and rejected curbs to charitable giving incentives, including North Carolina which expressly carved out the charitable deduction from the $20,000 cap on itemized deductions. The Kansas legislature is currently struggling to erase a $400 million deficit through tax hikes, but so far has refused to touch charitable deductions. The only other state challenging the charitable tax deduction this year is Maine, where the Governor is seeking to repeal all itemized deductions and some property tax exemptions for nonprofits, as well as repeal the states income tax entirely.
Nonprofits and States - Interpreting First Amendment Law Pertaining to License Plates
Nonprofit Quarterly featured an interesting article this week about the extension of the First Amendment to license plates. The article examines a recent case in New York where it was ruled that the Department of Motor Vehicles has the right to both determine what type of content is allowed on special interest license plates and exclude “controversial, politically sensitive messages.”
Some nonprofits in New York apply for special plates as part of their fundraising strategy. In this particular case, the issue pertained to an organization’s special interest license plate that takes a stance on the controversial topic of abortion. The ruling indicated that the content of these custom plates is “private speech.”
The U.S. Supreme Court is currently considering a similar case in Texas where one organization sought to have a specialty plate that featured an image of the Confederate flag. These cases have sparked a debate around the country about where to draw the line with the use of these specialty plates in nonprofit fundraising efforts.
New Paper for GrantCraft Leadership Series
This past week, President and CEO of the Silicon Valley Community Foundation, President and Visiting Professor at the Indiana University’s Lilly Family School of Philanthropy, Emmett Carson, published a new paper as part of GrantCraft’s Leadership Series.
He discusses the evolution of community foundations and the circumstances of today’s society that have prompted these organizations to reassess their methods and approaches to making an impact. He also raises the idea of “community” as a dynamic, two-pronged concept that is both geography-based and people-based, and how this has influenced the way community foundations view the scope of their work.
Russian Law Permits Shutdown of "Undesirable" NGOs
We strive to keep you informed not only of policy developments here in the U.S., but also developments overseas that could impact global grantmaking.
According to our colleagues at Foundation Center, Russian president Vladimir Putin signed a bill into law that gives Russian prosecutors the power to declare foreign and international nonprofit organizations "undesirable" and shut them down.
This law will allow government officials to limit or halt completely the activities of foreign organizations that they believe are a threat to Russia’s constitutional order, defense, or security. This newest law is aligned with a trend through Putin’s regime of increased restrictions on NGOs, particularly those organizations that receive foreign funding.
This law allows prosecutors to curtail the activities of NGOs they deem a threat to Russia's constitutional order, defense, or security. Human rights organizations worldwide are concerned about the effect of the law on civil society in Russia, and domestic organizations that receive money from foreign organizations.
Opinion: Making Informed Observations of the Philanthropic Sector
In an opinion piece for The Chronicle of Philanthropy, Brian Mittendorf—Professor of Business and Accounting at The Ohio State University—offers insight for sorting out the misinformation about public charities in light of recent Clinton Foundation news media stories. He argues that critics often fail to understand important differences between private foundations and public charities—which are necessary to meaningfully discuss the issues that they often raise. Beyond that, they often fail to understand the complex structures of some organizations and make assumptions and assertions based on partial information.
He raises the challenge of using the same measurements to gauge impact across organizations that operate very differently.
Nonprofit News Organizations continue to Fill Void in State News Coverage
The decline in traditional for-profit media outlets has left a gap in local-news reporting in many communities around the country. In California, one group saw this gap as an opportunity to step in and fill the void.
A new nonprofit organization, CALmatters, is set to begin business this July to provide “deeply reported narratives on state policies and political topics.” The founders of this Sacremento-based group believe that residents of the city are under-informed about issues that will have a great impact on their lives, and are seeking to “narrow the void” between citizens and what happens around the state.