Senate Finance Committee Markup of "Tax Extenders" Package
This Tuesday, the Senate Finance Committee convened to markup a bill that would renew 52 of the “tax extenders,” including the charitable provisions, for the 2015 and 2016 tax years. As our readers will recall, these charitable “tax extenders” include the IRA charitable rollover and deductions for contributions of land conservation easements and food inventory.
To assure a swift and relatively “clean” markup of the bill, Chairman Orrin Hatch (R-UT) put into place strict guidelines for amendments that could be considered. These rules excluded a number of proposed amendments from consideration—including an amendment to make the charitable “extenders,” that were included in the America Gives More Act, permanent.
The private foundation excise tax simplification, which was included in the America Gives More Act, was not in the Senate Finance Committee package of “tax extenders” since it is not a tax extender provision. However, the Council continues to push for this provision to be included in a year-end tax bill.
The Committee approved the bill with a straight two-year extension on the charitable “extenders” by a 23-3 vote. It is not yet clear if or when this bill will move to the full chamber for discussion or a vote.
House Hearing on IRS Audit Process
Chairman Peter Roskam (R-6-IL) of the Ways and Means Oversight Subcommittee held a hearing yesterday to discuss internal controls at the IRS—specifically, how they go about deciding which nonprofits to audit.
The hearing coincided with a report released by the Government Accountability Office (GAO) on the practices of the IRS in conducting audits of tax exempt organizations. This report was commissioned by the House Ways and Means Oversight Subcommittee after the targeting controversy in 2013 to investigate whether the IRS targets certain groups for their political beliefs in their audit decisions.
The report found that there are “control deficiencies” in the IRS’s audit process, which could allow personal biases of individual employees on the basis of an organization’s “religious, educational, political, or other views” to interfere with the neutrality of recommending audits.
House Committee to Review Proposed Change for Overtime Compensation
Our readers will recall that the Department of Labor (DOL) recently proposed a change to the Fair Labor Standards Act (FLSA) that would impact employee eligibility for overtime compensation. The proposal would make more workers eligible for overtime pay.
The House Committee on Education and the Workforce held a hearing yesterday to discuss this DOL proposal. Chairman Tim Walberg (R-7-MI) stated in a press release that, “of all the concerns we’ve heard about this proposal, the ones I find most alarming are those that it will limit flexibility and opportunity in the workplace… as employers struggle to cope with the added costs of these new overtime rules.” Chairman Walberg is concerned about the possibility that employers will respond to this rule by transitioning salaried employees to hourly employees.
If implemented, this new regulation would have a varying impact on nonprofit organizations. Larger organizations, like those that compete with for-profit and governmental agencies in providing services, would experience different types of challenges than smaller nonprofits that provide services through grants and government contracts. To learn more about how this proposal may affect you, visit this page, hosted by our colleagues at the National Council of Nonprofits.
Delay for Combined Federal Campaign Changes
Last April, we reported on the final changes to the rules that would impact the administration of the Combined Federal Campaign (CFC). The CFC is a massive, national effort that helps federal employees make charitable contributions to many organizations and causes of their choice. The changes to the rules shifted much of the administration and responsibility from local outreach coordinators to a few central administrators. Many nonprofits were vocal about their concerns with these changes.
Previously scheduled to take effect on January 1, 2016, the effective date for the changes has been pushed back a year to 2017. Sam Schumach, Press Secretary for the Office of Personnel Management, indicated recently that the delay will help “ensure that the tools needed to put these reforms in place—including the pivotal online charity-application and donor-pledging systems—are thoroughly tested and fully operational before being made available to charities and donors.”
When a Scholarship is Not a Scholarship
In order to be a “qualified scholarship” that is and excluded from a recipient’s gross income under § 117 of the Internal Revenue Code, a scholarship grant may only be used for tuition and related expenses of a degree candidate at an educational institution.
A community foundation contacted the Council’s Legal Affairs Team for guidance on one of their scholarship funds. This particular fund, which the foundation called a scholarship, had a clearly defined application process and a selection process that is overseen by a committee.
However, these grants were being directed to nonprofit youth symphonies and churches rather than ‘traditional’ educational institutions, such as primary or secondary schools and colleges or universities. Additionally, the “scholarship” recipients were not working toward earning a degree. The foundation wanted to know whether these grants were “qualified scholarships” under the tax code.
IRC § 4945(g) refers to scholarships, grants or awards (however the foundation refers to them) as “individual grants,” and there are three types under the tax code:
- Scholarships and fellowship grants to educational institutions (“qualified scholarships”);
- Individual prizes and awards; and
- A grant to achieve a specific objective, which includes improving or enhancing the “capacity, skill, or talent of the grantee.”
The Legal Team agreed that grants to the youth symphony or churches were not scholarships to educational institutions. As a result, the scholarships were not “qualified scholarships” (i.e., educational institution, degree candidate) that would be excluded from the recipient’s gross income.
However, the Legal Team found that these grants qualify as “individual grants” intended to enhance the grantee’s “capacity, skill, or talent” that would be excludible from the recipient’s income as a gift under § 102. The legal team recommended that the foundation include an asterisk or footnote in the award letter stating that while the foundation referred to these grants as “scholarships,” they do not meet the requirements for “qualified scholarships” under the tax code but may still be excludible from the recipient’s gross income as gifts.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at firstname.lastname@example.org.
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.
Exclusive from our colleagues at the National Council of Nonprofits.
Controversy in California over Charitable Raffles
In California, the national popularity of raffles to support the work of charitable nonprofits is splitting the nonprofit community as some groups seek special treatment, potentially at the expense of public good will for the broader sector.
For nearly 15 years, California has allowed charitable raffles, but only as long as 90 percent of a raffle’s proceeds go to beneficial and charitable purposes. A Senate-passed measure would permit raffles held by nonprofits affiliated with professional sports teams to pay out 50 percent of proceeds to winners, and the remaining half going to the nonprofits.
CalNonprofits, the state association of nonprofits in California, opposes the legislation out of concerns over fairness and likely public confusion. “Current law ensures that the primary purpose of any charitable raffle is to benefit a nonprofit,” the organization recently wrote. “Raffles with a 50/50 split move away from that intent and may inadvertently put more focus on gambling to win a cash prize. And the public could rightfully become confused about whether raffles really benefit nonprofits at all.”
Last year, voters in Kansas, South Carolina, and Tennessee approved constitutional amendments authorizing charitable raffles that apply broadly to charitable nonprofits, and are not limited to a class of organizations or business-related entities.
Preserving the Charitable Deduction in NC: A Case in Support of Philanthropy
Our readers may be familiar with our featured coverage of a proposed tax plan in North Carolina that would subject charitable donations in the state to a $20,000 cap, and raise the standard deduction to $18,500 by the year 2020.
This past Wednesday, Sallye Liner, Chairwoman of the United Way of Forsyth County Board of Directors, voiced her concerns about this proposal in the Winston-Salem Journal. She cites the importance of the nearly $17 million that the organization received in donations last year on funding programs to address the most pressing community needs.
Specifically, she notes the negative impact the budget proposal could have on the strategic partnership funding this United Way has been involved with to support increasing the high school graduation rate in the community.