In This Week's Edition of Snapshot
- House GOP Leaders Release Tax Reform Bill
- Treasury Assistant Secretary for Tax Policy Named Acting Commissioner of IRS
- Congress Must Raise Debt Limit by January 2018
- In the States: Locals Focus on Supporting Community Nonprofits and Volunteers, North Carolina Considers Two-Year Judicial Terms
Earlier today, GOP leaders in the House—led by Speaker Paul Ryan (R-WI) and Ways and Means Chairman Kevin Brady (R-TX)—released the long-awaited text of their tax reform bill, the Tax Cuts and Jobs Act. In a press conference this morning, Chairman Brady stated that the bill is “focused entirely on growing our economy, bringing jobs back to our local communities, increasing paychecks for our workers, and making sure Americans are able to keep more of the money they earn.”
The bill follows relatively closely to the signaling documents that have been released over the past year. Some of the key provisions included in this bill are:
- Consolidates the number of individual tax brackets from seven to four, with rates of 12%, 25%, 35%, and 39.6%;
- Increases the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples;
- Doubles the threshold for income that is subject to the estate tax from $5 million to $10 million, and phases-out the estate tax, entirely, over a period of six years;
- Repeals the state and local tax (SALT) deduction for income and sales taxes, but retains a deduction for state and local property taxes up to $10,000;
- Expands the Child Tax Credit from $1,000 to $1,600.
The provisions that directly impact tax-exempt charities include:
- Preserving the charitable deduction in its current form;
- Simplifing the private foundation excise tax to a flat rate of 1.4 %;
- Weakening the “Johnson Amendment”—which prohibits 501 (c)(3) organizations from participating in, or intervening in (including the publishing and distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office—specifically, for organizations that operate exclusively for religious purposes to allow political speech that is in the ordinary course of the organization’s business and its expenses are de minimus.
- Subjecting private colleges and universities that have at least 500 students and an endowment of at least $100,000 per student at the close of the preceding tax year to an excise tax of 1.4% on net investment income.
- Eliminating the “Pease limitation,” which places a limit on the total amount of allowable itemized deductions;
- Increasing the adjusted gross income (AGI) limitation for cash contributions from 50% to 60%;
- Eliminating the alternative gift substantiation exception, where the donee organization files separate documentation rather than provide a gift receipt to donors for contributions exceeding $250;
- Treating “fringe benefits” for employees of tax-exempt organizations (i.e. on-premises gyms and other athletic facilities) as unrelated business taxable income (UBTI);
- Requiring that an art museum claiming the status of a private operating foundation be open to the public for at least 1,000 hours every year to be recognized as such;
- Exempting Private foundations from the excess business-holdings tax if they own a for-profit business under these conditions: (1) the foundation owns all of the for-profit business’ voting stock, (2) the private foundation acquired all of its interests in the for-profit business other than by purchasing it, (3) the for-profit business distributes all of its net operating income for any given tax year to the private foundation within 120 days of the close of that tax year, and (4) the for-profit business’ directors and executives are not substantial contributors to the private foundation nor make up a majority of the private foundation’s board of directors. **Donor Advised Funds (DAFs) are explicitly excluded from this provision.
- Requiring DAFs to disclose annually their policies on donor advised funds as well as the average amount of grants made.
The Council released a statement from President & CEO Vikki Spruill, which says, in part:
For nearly 70 years, the Council on Foundations has worked to inspire and expand a culture of charitable giving and enhance philanthropy’s ability to contribute to vibrant, healthy and thriving communities across the globe. Today’s legislation introduced in the House of Representatives fails to enhance those efforts in a number of significant ways. … The Council will continue to analyze the bill and work with House and Senate leaders on legislation that empowers our nation’s decades-long tradition of charitable giving. The Council also looks forward to galvanizing our members, who live in every congressional district, to work with their elected representatives to improve this legislation. For years, philanthropy has worked hand in hand with citizens to play a critical role in improving our communities. We hope to see legislation that enables this rich tradition.
Our government relations and legal team is working on a more thorough analysis of this bill and its impact on philanthropy and charitable organizations. We will be sure to share this as soon as it is available.
A markup of this bill by the Ways and Means Committee is expected to begin next Monday.
The Senate is expected to introduce their version of tax reform as early at Nov. 8, however, their timing remains fluid. According to POLITICO, “[Sen. Orrin] Hatch [R-UT] said he is ‘not particularly’ committed to rolling out a Senate bill on Nov. 8, which Sen. Bob Corker (R-TN) on Tuesday said was the target date.” While many of the details remain in the dark, BGov notes that, “Senate Finance Committee aides are mulling a limit on the amount of life insurance reserves that can be deducted, a 2 percent excise tax on the investment income of certain colleges, and changes to reporting and new withholding rules for the on-demand economy, according to a document obtained today by Bloomberg Tax. … One provision would levy a 25 percent excise tax on nonprofits for compensation in excess of $1 million paid to any of its five highest paid employees, a reflection of the existing limit on deductibility of executive compensation at corporations.”
Now that the House bill is out, the Senate will likely be taking clues from the reactions of various stakeholders as they finish crafting their version of the tax code overhaul. Earlier estimates of timing had the Senate passing tax reform sometime after Thanksgiving and Congress sending a bill to President Trump’s desk before the end of the year.
Last week, the White House named David Kautter—currently the assistant secretary for tax policy at the U.S. Department of Treasury (Treasury)—as the acting IRS commissioner. Kautter will begin serving in both roles on Nov. 13, when John Koskinen’s (the current acting IRS commissioner) term expires. According to Bloomberg, “It was expected that Koskinen wouldn’t be reappointed, since he was hired by President Barack Obama and is loathed by congressional Republicans, some of whom tried to impeach him in 2016.” The White House is continuing to search for a permanent commissioner.
This week, the U.S. Department of Treasury released an updated estimate for when Congress will need to raise the federal debt limit. “The debt limit is a limitation on the total amount of money that the United States is authorized to borrow to meet its existing legal obligations,” the statement says, in part. It continues, “If Congress fails to increase or further suspend the debt limit by December 8, Treasury, as it has in the past, can take certain extraordinary measures to continue to finance the government on a temporary basis.” Congress raised the debt ceiling in September as part of the continuing resolution to fund the federal government.
Exclusive from our colleagues at the National Council of Nonprofits.
Locals Focus on Supporting Community Nonprofits and Volunteers
Voters in Tucson, Arizona will cast ballots November 7 to decide two local ballot measures that propose increasing sales taxes to benefit the local zoo and fund early childhood education. Earlier this year, the community voted to approve new taxes to fund local roads and public safety. Polling suggests that the zoo-funding measure will pass, but there appears to be organized opposition to the early childhood education initiative from outside groups, including Americans for Prosperity, an anti-tax lobby. Elsewhere, states and localities are considering tax incentives, including tax breaks, for rural community volunteers. The Borough Council of Morton, Pennsylvania provides volunteer emergency first responders a 20 percent property tax break. The local measure may be copied in other neighboring localities because of a 2016 Pennsylvania statute that enabled localities to provide such relief. This approach, however, does not go as far as Connecticut’s benefits for emergency service volunteers (such as volunteer firefighters and ambulance drivers) that allow municipalities to provide property tax relief, group health insurance, tuition waivers, protections against discrimination, and worker’s compensation coverage.
North Carolina Considers Two-Year Judicial Terms
A new bill in the North Carolina Senate would place a constitutional amendment on the 2018 primary ballot to shorten the terms in office for state judges to two years. Currently, District Court judges serve for four-year terms, and Supreme Court justices, Court of Appeals judges, and Superior Court judges serve for eight-year terms. If the General Assembly approves this change and it receives a majority vote on the ballot in spring 2018, all state court judges would be up for election in November 2018. The General Assembly could take up this bill, along with other potential state constitutional amendments, when it returns for a special session in January. The North Carolina Center for Nonprofits is very concerned that the bill, if approved, would politicize the courts, disadvantage North Carolinians, nonprofits, and foundations in judicial matters, and undermine the separation of powers in the state.