The Council on Foundations would like to wish all of our readers a safe and enjoyable 4th of July!
Tax Blueprint Proposes Ideas that Could Impact Charitable Giving
Our readers will recall that last week Speaker Paul Ryan (R-WI) and his Task Force on Tax Reform released their blueprint on tax reform. As promised, the Council has reviewed the details of this document and provided a summary below.
In this blueprint, we have flagged several issues that could have a chilling effect on charitable giving, including:
- The elimination of itemized deductions, except the deductions for charitable contributions and mortgage interest. We are encouraged that the charitable deduction is retained, and the policy paper that accompanies the blueprint release promises that House tax-writers will develop options to ensure the tax code continues to encourage donations. However, it is also possible that by eliminating so many itemized deductions, the number of itemizers will decrease (from the current 33% to an estimated 5%)—resulting in fewer individuals taking advantage of the charitable deduction in their giving.
- The expansion of standard deduction. The blueprint proposes the idea of increasing the standard deduction to $24,000 for married individuals filing jointly, $18,000 for single individuals with a child in the home, and $12,000 for other individuals, adjusted for inflation. Similar to the elimination of many itemized deductions, a larger standard deduction will likely mean fewer itemizers and therefore fewer taxpayers taking advantage of the charitable deduction in their giving.
- The elimination of the estate tax. Giving by bequests accounted for approximately $31.76 billion (or 9%) of all charitable giving in 2015. The practice of leaving charitable bequests has been encouraged by existence of the estate tax. Eliminating this tax could reduce charitable giving by high net worth individuals upon their deaths.
- Changes to the marginal tax rates for individual and corporate income taxes. The reduction in a taxpayer’s liability from taking the charitable deduction is generally proportional to the taxpayer’s marginal rate. The blueprint proposes changes to marginal tax rates that could reduce the incentives for charitable giving for some taxpayers, especially high-income taxpayers.
We understand the House Ways and Means Committee plans to begin drafting legislation in preparation for legislative action in 2017, and recognize that this blueprint likely will serve as a basis for those efforts. The Council will continue to engage with Speaker Ryan, Ways and Means Chairman Kevin Brady (R-TX), and other members of the tax-writing committee on the proposed ideas in this blueprint that impact charity as they work to transform these ideas into a legislative proposal.
Pay-for-Success Bill Advances from House
Before adjourning last week, the House of Representatives voted to pass the Social Innovation Partnerships Act (H.R. 5170).
Introduced by Congressman Todd Young (R-IN) and John Delaney (D-MD), this is the latest bipartisan effort to establish a fund to promote pay-for-success projects at the Federal level. Our readers will recognize the bill title from efforts last year to pass similar legislation. While the 2015 bills passed out of Committee in the House and the Senate, this is the first time legislation has passed either full body.
If adopted into law, the bill would establish a fund to support state and local pay-for-success initiatives that aim to produce Federal cost savings.
The bill also incorporates a number of provisions that were in the 2015 Senate version—namely the provision that would house the fund at the Treasury Department—and it reduces the total appropriation to $100 million from the original $300 million. The House also agreed to two amendments: an extension of the TANF program and a requirement that 50% of the funding be used on projects impacting children.
With a long history of bipartisan support and the backing of the White House, it remains to be seen if the Senate will consider this bill in the midst of activity leading up to the November elections.
FATF Approves Changes to Recommendation 8
As our readers know well, the Financial Action Task Force (FATF) has been working to change the framework for the regulation of the nonprofit sector to prevent abuse by terrorists. This week, changes to Recommendation 8 were approved.
The previous language in R8 characterized nonprofits as “particularly vulnerable” to terrorist abuse. The new wording acknowledges existing grantmaker due diligence and recognizes that not all nonprofits are at risk. It directs countries to undertake a risk-based approach when considering counter-terrorism financing measures.
For more information on this new development, you can read the Council’s press release here.
Scholarships Paid to Service Academies
A community foundation recently contacted the Council’s legal team about a scholarship recipient who was planning to attend the Air Force Academy. This recipient requested that the scholarship be made payable to the U.S. Department of Treasury.
Though commissioned student officers at U.S. service academies typically earn a military salary and have many of their school expenses covered, there are still a number of expenses these students are personally responsible for (i.e. books, uniforms, etc.).
Accordingly, these service academies typically advise that any scholarships granted to commissioned students be deposited into the personal accounts these students are required to have for such expenses.
As such, the Council’s legal team informed the community foundation that it may send the payment to The Air Force Academy, payable to the U.S. Treasury. And to ensure the scholarship is directed to the awarded student’s account, the legal team recommended that the student’s name and social security number be included in the memo line of the check.
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.
New State Laws Go Into Effect July 1
Today marks the beginning of the fiscal year for most states, as well as the effective date for thousands of new state laws enacted in legislative sessions earlier in the year. Many of those affect the missions and operations of foundations and their grantees. Here is a brief sampling.
With the new fiscal year comes several tax-law changes. Georgia delayed the sunset from this year until the end of 2021 for an income tax credit for the qualified donation of real property for certain conservation purposes. The Peach State likewise extended an exemption from sales and use tax for sales of food and food ingredients to qualified food banks and continues the exemption as applied to qualified nonprofit agencies and that use the food for hunger relief. Florida adds temporary “food contests” and “cook-offs” hosted by a school, religious group, or nonprofit civil or fraternal organization from having to pay a licensing fee or undergo an inspection from the Division of Hotels and Restaurants. Starting today, Virginia and Florida exempt certain nonprofit veterans organizations from sales and use taxes.
The Governor of Louisiana signed legislation this week that prevents a July 1 sales tax hike on many nonprofit operations and that repeals new taxes imposed on nonprofits earlier in the year. The Legislature had temporarily suspended hundreds of tax exemptions and exclusions, including those affecting Girl Scout cookie sales, YMCA and YWCA memberships, and tickets to arts events, in an effort to fill a vast budget deficit before the close of the 2016 fiscal year that ended yesterday. In exchange for the restored exemptions/exclusions, a separate new law requires affected nonprofits to file an annual report listing those items that were exempted.
Employment policy received considerable attention in the 2016 legislative sessions. New laws going into effect today include Maryland’s minimum wage hike from $8.25 to $8.75 per hour. It is scheduled to go up to $9.25 next year and reach $10.10 in July 2018. Oregon’s tiered minimum wage increase also starts today: $9.75/hour for all but rural areas of the state; rising over six years to a top rate of $14.75 in high-density counties. The minimum wage in the District of Columbia rises to $11.50 and in San Francisco it goes up to $13.00 per hour. Employers in the City of Los Angeles have two new employment standards taking effect today: a minimum wage hike to $10.50/hour (limited to workplaces with more than 25 workers) and a new sick leave policy that guarantees 48 hours of paid time off per year, double the state requirement. Idaho, on the other hand, joined Alabama, Missouri, and other states in prohibiting local governments from setting minimum wages higher than the state standard.
Virginia law now provides that assisted living facilities, adult day care centers, licensed and registered child welfare agencies, and family day homes cannot employ individuals who have been convicted of specific offenses that are barriers to employment. Similarly, Indiana now requires a criminal background check for home health care workers.
A new Florida law is intended to provide job opportunities and financial independence for people with disabilities. A related law in Florida authorizes programs that provide educational aid and higher-education opportunities to families whose children have developmental disabilities.
Finally, administrative functions received legislative attention. In Maryland, the audit threshold goes up from $500,000 in gross income from charitable contributions to $750,000 for nonprofits that must submit an audit with their annual registration statement files with the Secretary of State. Idaho benefit corporations no longer must file an annual benefit report with the Secretary of State.
Council President Pens Op-Ed on Philanthropy's Role Following 'Brexit'
Council President and CEO Vikki Spruill has written a reflection on Britain's decision to leave the European Union.
Brexit has already affected the world's financial markets, and the long-term effects may be an even greater cause for concern. As Brexit becomes a reality, philanthropy can and should step up to the challenges it will present.