In This Week's Edition of Snapshot…
- Bill to Increase Charitable Giving Introduced in House
- IRS Funding to be Considered by Senate Committee
- Ways and Means Holds Hearing on Tax Reform's Impact (So Far)
- Council Urges Treasury to Delay New UBIT Provisions
- In the States: States Respond to Federal Tax Reform Revenue Windfalls, States Work to Limit the UBIT Damage, States Act to Secure Complete Census Count
Last Thursday, Reps. Chris Smith (R-NJ) and Henry Cuellar (D-TX) introduced the Charitable Giving Tax Deduction Act (H.R.5771) to enact a clean, uncapped, above-the-line charitable deduction—expanding the opportunity to claim the charitable deduction to the many taxpayers who claim the standard deduction. This bill takes a critical step towards mitigating the negative impacts of tax reform on charitable giving.
The Council on Foundations and Independent Sector released a joint statement applauding the introduction of the Charitable Giving Tax Deduction Act. “At its core, our nation’s charitable giving policies should encourage and enable those small- and medium-sized donors who serve as a powerful engine in the sector’s ability to assist communities. This legislation brings those givers back into the fold by expanding the charitable deduction to millions more,” said Vikki Spruill, president and CEO of the Council on Foundations.
The Council has reached out to every congressional office to alert them of this new legislation and to encourage members of Congress to signal their support for philanthropy by cosponsoring this bill. We also urge each of you to take action now by raising your voice and reaching out to your members of Congress on this important issue.
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During the week of June 18, the Senate Appropriations Committee plans to markup the funding bill that will allocate the fiscal year (FY) 2019 funding levels for the Internal Revenue Service (IRS). According to POLITICO Tax Whiteboard, “The IRS has requested $11.5 billion as part of President Donald Trump’s budget proposal for the coming federal fiscal year. The total IRS request includes a little more than $11.1 billion in base resources as well as $362 million provided through a program integrity cap adjustment, which would be used to fund new and continuing investments in enforcement. For fiscal 2018, the IRS received about $11.4 billion, an overall increase from fiscal 2017 thanks to $320 million included for the IRS to update schedules, forms, and systems consistent with new tax laws adopted in last year’s Tax Cuts and Jobs Act H.R. 1 (115).”
Another important aspect of the outlook for the IRS is the recently passed House bill that would redesign the IRS. The Senate Finance Committee has not yet announced when they will consider the legislation, but Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) are currently reviewing the legislation and hoping to move forward on a bipartisan basis.
Yesterday, the Ways and Means Committee held the first in a series of anticipated hearings to discuss the impact that the 2017 tax code overhaul has had on the American economy. Much of the hearing was spent debating what constitutes the most effective measures of impact, with disagreement splitting largely down party lines. There was no specific mention of how the charitable or philanthropic sectors have been faring post-tax reform.
Also of note is that Rep. Brad Wenstrup (R-OH) was recommended today by the House Republican Steering Committee to become the newest member of the Ways and Means Committee (replacing Rep. Pat Meehan, who resigned from Congress last month). “Dr. Wenstrup is an excellent choice to join our Committee. A decorated war veteran, small business owner, and doctor, Brad brings proven dedication to our country and invaluable experience to the team," Committee Chairman Kevin Brady (R-TX) said in a statement.
This week, the Council sent a letter to Treasury Secretary Steven Mnuchin and Acting Internal Revenue Service Commissioner David Kautter regarding two new provisions related to unrelated business income tax (UBIT) that were passed into law under the 2017 tax code overhaul. These new provisions require that 1) tax-exempt organizations with more than one unrelated trade or business activity treat each activity separately for the purposes of calculating unrelated business income, and 2) tax-exempt organizations pay UBIT on the value of certain fringe benefits provided to employees—such as transportation benefits and on-premises gyms.
The Council's letter makes three distinct requests:
- Delay the implementation of the two new UBIT provisions;
- Ensure that such a delay is made retroactive to January 1, 2018; and
- Provide official guidance and a transition period for tax-exempt organizations to establish procedures and systems to comply with the new provisions.
The Council will continue to engage with leaders at the Department of Treasury and Internal Revenue Service on this matter to ensure that guidance provided addresses the concerns of Council members. If you have questions, please contact the Council’s Senior Counsel and Vice President of Legal Affairs Suzanne Friday.
Exclusive from our colleagues at the National Council of Nonprofits.
The new federal tax law has created certain windfalls for many states due to the repeal of personal exemptions and other changes that are leading to state taxation of higher levels of adjusted gross income, resulting in increased state tax revenues. In the short term, state and local governments saw tax revenues spike abnormally, by 9.4 percent and 8.9 percent, respectively, in the fourth quarter of 2017. According to two new reports, both increases resulted largely from taxpayers rushing before year end to take advantage of the deductions then-available for state and local taxes (SALT) and mortgage-interest that are now capped under the new federal tax law.
The new federal tax law resulted in increased state taxes because most states use federal definitions of income—leading some states to consider reopening their tax codes for changes. Some states have cut their taxes to avoid higher tax bills on residents. Six states (Georgia, Idaho, Kentucky, Michigan, Minnesota, and Nebraska) passed laws cutting income tax rates, among other provisions. Citing ongoing economic recovery after the failed tax experiment from a few years ago, however, lawmakers in Kansas rejected a bill at the end of session that would have provided an estimated $80 million cut to taxpayers. Iowa Governor Reynolds has indicated support of a tax overhaul to provide $2.16 billion in tax relief over six years by reducing marginal tax rates, collapsing tax brackets, repealing federal deductibility, and decoupling state law from the new federal $10,000 SALT deduction cap. North Carolina is set to begin its legislative session and faces an estimated $600 million surplus to distribute over the biennium. Rather than tax cuts, state employees, teachers, and retirees may be the beneficiaries of the windfall.
States Work to Limit the UBIT Damage
Some states are looking to decouple aspects of state tax law from the federal tax code in order to protect nonprofits from adverse effects of the unrelated business income taxes (UBIT) under the new federal tax law. Section 512(a)(6) of the federal law directs nonprofits “with more than one unrelated trade or business” to compute unrelated business income separately, but the Treasury Department and IRS to date have failed to provide clarification on how to determinate what constitutes a trade or business. A bill in final negotiations in the Minnesota Legislature would retain the prior law for state UBIT purposes and relieve nonprofits of having to calculate profits and losses in individual trades or businesses. New federal Section 512(a)(7) requires nonprofits that provide transportation and parking benefits to employees to pay a 21 percent income tax on these expenses. In response, the North Carolina Center for Nonprofits is asking lawmakers to not automatically follow the new law and instead relieve nonprofits of a state three-percent UBI tax on transportation expenses.
States Act to Secure Complete Census Count
Although the U.S. Constitution places responsibility for a fair, accurate, and complete census count squarely on Congress, several states are taking it upon themselves to step up to the challenge of making sure every person in their states is counted. Maryland has created a Census Grant Program to provide matching funds next year for census promotion and outreach activities by nonprofits and local governments. Georgia, Minnesota, and Oregon have likewise provided funding to support census activities in their states. A Utah House resolution urges Congress to properly fund the 2020 Census, expressing “concern that rural and marginalized communities are at risk of being undercounted." Worried that the controversial citizenship question could stifle participation and reduce accuracy, the Illinois House recently approved a resolution requesting that the U.S. Census Bureau not reinstate the citizenship question to the 2020 Census. Further, governors in several states, including California, Kentucky, and Mississippi, are following the advice of the National Conference of State Legislatures and creating state-level complete count committees or commissions to encourage individuals, communities, civic organizations, faith-based groups, and the media to support the census and promptly complete the census on time.