In This Week's Edition of Snapshot…
- Bill Targeting University Endowments and Contributions Introduced
- Charitable Giving Discussed at Senate Hearing
- Attacks Against Johnson Amendment Continue
- Ways and Means Announces Subcommittee Updates
- IRS Provides Guidance for Grantmakers and Donors
- Treasury and IRS to Propose New Regulations on SALT Workarounds
- Senate Continues Review of President Trump’s IRS Nominee
- Election Roundup
- In the States: Mandatory Volunteerism State Expansion Update
On Tuesday, Rep. Tom Reed (R-NY) introduced the Reducing Excessive Debt and Unfair Costs of Education (REDUCE) Act (H.R. 5916). The bill is one component of broad plan the Rep. Reed announced in late 2016 to address college affordability.
According to the press release, “key provisions of the REDUCE Act include:
- Requires colleges to have a plan to keep tuition increases below the rate of inflation.
- Mandates reporting of easily digestible information about how colleges are being managed and where their money is spent.
- Requires the wealthiest universities to distribute 25 percent of the profits from their massive endowments to assist students from working-class families.
- Encourages university donors to give money that will assist low and middle-income students and eliminates tax deductions for large restricted college donations.”
Once bill text is available, we will provide a more thorough analysis of this legislation.
On Tuesday, the Senate Appropriations Subcommittee on Financial Services and General Government held a hearing to review the fiscal year (FY) 2019 budget request from the U.S. Department of the Treasury. At the hearing, both Treasury Secretary Steven Mnuchin and IRS Acting Commissioner David Kautter testified before the panel on a range of issues including increased funding for IT systems for the IRS, the breakdown of the IRS website on tax filing deadline-day, and the potential to prioritize tax returns prepared by licensed tax preparers.
Importantly for our sector, the effects of the recent tax code overhaul also came up. Sen. Chris Coons (D-DE), the ranking member of the subcommittee, asked Sec. Mnuchin if he was concerned that tax reform would have a negative impact on charitable giving and if the Secretary would support a universal charitable deduction that would allow all taxpayers—regardless of their itemizing status—to claim the charitable deduction. Sec. Mnuchin acknowledged that charitable contributions are an important part of communities in society. The Secretary said he did not think that charitable giving would decrease because of the new tax law, but if it did over time, he would look at it and potentially address it.
Chairman Jim Lankford (R-OK) also touched on charitable giving with Sec. Mnuchin by asking how quickly data would become available on the charitable giving trends in light of the new law. Sec. Mnuchin was unsure of when Treasury would have those figures but promised to work with the IRS commissioner and get the data to Congress when they could. Finally, at the end of the hearing—and shortly after David Kautter confirmed that the number of taxpayers who would itemize on their 2018 taxes would drop to 10 – 12%, down from 35% in 2017—Sen. Coons asked Kautter how he thought charitable giving would be affected given the decrease in filers who would itemize. Acting Commissioner Kautter answered that he thought some people might bundle their charitable giving and give every two or three years in order to get above the recently-raised standard deduction.
To view the aforementioned exchanges, note the following:
- The first mention of the charitable deduction is by Sen. Coons in a question to Sec. Mnuchin around 1:12:00;
- Sen. Jim Lankford (R-OK) follows up with a charitable giving question around 1:19:20;
- Around 2:04:10, David Kautter mentions the decrease in the number of itemizers for next year (he is answering a Sen. Lankford question that begins at 2:03:30); and
- Sen. Coons asks Acting Commissioner Kautter a charitable deduction question at 2:04:50.
The House Appropriations Subcommittee on Financial Services and General Government is marking-up its companion FY 2019 budget bill today.
As mentioned above, the House Appropriations Subcommittee on Financial Services and General Government marks-up its bill today. The bill includes a “rider” provision that would carve-out an exception to enforcement of the “Johnson Amendment” for churches.
The Johnson Amendment is a provision in the law that prohibits 501(c)(3) charitable organizations from participating or intervening in any political campaign in support of/opposition to a candidate running for public office. The language in the appropriations bill (which appears in Sec. 112) would prevent the Internal Revenue Service (IRS) from enforcing the Johnson Amendment as it applies to any “church, integrated auxiliary of a church, or convention or association of churches” unless the following three conditions are met:
- The IRS Commissioner personally consents to a determination of unlawful conduct;
- The House Ways and Means Committee and Senate Finance Committee are informed of the determination within 30-days of the decision; and
- The IRS does not enforce the determination sooner than 90-days from the time of notification of the House and Senate tax-writing committees to enforce the Johnson Amendment.
Functionally, this would allow churches (classified as 501(c)(3) charitable organizations under the Internal Revenue Code) to engage in unlimited political and campaign activity—including using charitable dollars for which individuals received a charitable deduction to be used for non-charitable, political purposes. This explicitly encourages selective enforcement of the law and would threaten the integrity of the entire sector by corrupting and exploiting the intent of the charitable deduction as a means of supporting charitable activities.
The Council strongly opposes these and any other efforts to weaken or repeal the Johnson Amendment.
After being recommended by the House Republican Steering Committee to become the newest member of the Ways and Means Committee last week (replacing the recently departed Rep. Pat Meehan, R-PA), Chairman Kevin Brady (R-TX) confirmed the selection as he announced updated subcommittee assignments for the remainder of the 115th Congress. Rep. Wenstrup will serve on the Human Resources and Oversight Subcommittees.
You can view a full list of subcommittee assignments on the Ways and Means website.
The IRS recently released guidance for grantmakers and donors regarding how these entities verify that the recipient organization of their grant or charitable contribution is verified as a charitable organization by the Internal Revenue Service (IRS).
The IRS maintains a database called the Tax Exempt Organization Search (TEOS) to list organizations that are verified as eligible to receive charitable grants and contributions. Revenue Procedure 2018-32 sets forth a number of parameters by which a grantmaker or donor can safely rely on the information in TEOS to confirm that they are making a lawful contribution to a charity.
TEOS provides a range of information pertaining to an organization’s eligibility to receive charitable contributions—including its determination as a 501(c)(3) charity and whether it classified as a public charity or a private foundation. It also indicates if an organization’s charitable status has been revoked, rendering it ineligible to receive tax-exempt/deductible contributions.
Revenue Procedure 2018-32 advises that grantmakers and donors may rely on the information provided in TEOS at the time the contribution is made unless the intended recipient organization is designated as a terrorist organization by the U.S. Office of Foreign Assets Control (OFAC).
Yesterday, the U.S Department of the Treasury and the Internal Revenue Service (IRS) posted a notice declaring their intent to propose regulations “in the near future” for state and local tax (SALT) workarounds. Several states—including New Jersey, New York, and California—already passed laws or declared their intent to do so in order to get around the new limit of a $10,000 SALT deduction cap put in place by the recent tax code overhaul. (Members can listen to a webinar the Council hosted on this subject last month.)
According to POLITICO, “Federal regulators indicated Wednesday they may take a tough line on state laws aimed at allowing taxpayers to get around a new limit on deducting their state and local taxes from their federal income taxes. … The regulations will cover laws that some state legislatures have already passed or are considering for their residents to get around the $10,000 ceiling on the federal deduction for state and local taxes. New York and New Jersey, for example, have passed laws to let their residents contribute to state charities, which would come with a federal deduction. ‘Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,’ the notice said. It added: ‘The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers. The proposed regulations will assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction for state and local tax payments.’”
According to POLITICO’s Morning Tax, the Senate Financial Services Committee is still vetting President Donald Trump’s nominee for IRS commissioner. The publication noted, “[Sen. Orrin] Hatch [R-UT] told Pro Tax’s Aaron Lorenzo that the committee still isn’t done with its background work on Chuck Rettig…and that the process isn’t likely to wrap up this week—ahead of the Memorial Day recess. ‘We have to get all the prep work done before the hearing. We’re in the throes of doing that,’ Hatch said.”
In the weeks ahead, we will include updates from the midterm election trail. This is intended to provide nonpartisan, matter-of-fact election news about the primary races that will play a key role in the outcome of the November elections.
Arkansas, Georgia, Kentucky, and Texas Hold Elections
On Tuesday, primary elections were held in Georgia, Kentucky, Arkansas, and Texas—where there were run-off elections for races where neither candidate initially received more than 50% of the vote in March.
In Georgia, Stacey Abrams won the Democratic nomination for governor in her bid to become the first female, African-American governor in history. On the Republican side, they “will have to wait another two months before they officially have a nominee. Lt. Gov. Casey Cagle and Secretary of State Brian Kemp are headed for a July 24 runoff,” according to NPR.
In a bid to unseat incumbent GOP Rep. Andy Barr, former Marine fighter pilot Amy McGrath won the Democratic nomination for Kentucky’s 6th congressional district—defeating Jim Gray, the mayor of Lexington.
In Texas, Lupe Valdez became the first openly gay and the first Latina woman to win a major party nomination for governor by winning the Democratic primary run-off election. According to the New York Times, “Ms. Valdez, 70, a former Dallas County sheriff, will face off against Gov. Greg Abbott, the Republican incumbent with a $41 million war chest, who is expected to win in November. It has been nearly 30 years since Texas voters elected a Democrat as governor.”
In Arkansas state Rep. Clarke Tucker won the Democratic nomination for the 2nd congressional district. According to POLITICO, “[state Rep.] Tucker won the nomination outright, capturing 58 percent of the vote in a four-way race. He’ll be able to take the fight to GOP Rep. French Hill in a district Trump won by 10 points without first having to deal with a June runoff.”
Exclusive from our colleagues at the National Council of Nonprofits.
Mandatory Volunteerism State Expansion Update
New Hampshire became the fourth state (after Kentucky, Indiana, and Arkansas) to receive federal approval to include a work and volunteering requirement for eligibility for Medicaid benefits. The New Hampshire approach is the most stringent, requiring able-bodied adults to participate in 100 hours per month of “community engagement activities, such as employment, education, job skills training or community service.” “Community service” typically means volunteering at charitable nonprofits and foundations and receiving certification from the organization of the number of hours worked. Ohio is also taking steps to require recipients to work at least 20 hours per week, look for work, or attend school or job training.
State legislatures are also looking to impose community service requirements on Medicaid recipients, with Oklahoma enacting a mandate for recipients to engage in work, job training, or volunteering with charitable nonprofits earlier this month. The Colorado, Connecticut, Minnesota, and Wyoming, legislatures adjourned without approving bills to impose the community service requirement on Medicaid recipients. More detail on mandatory volunteerism and its effects on nonprofits can be found in the blog, "Don’t Take Away the Commitment to Giving Back," and watch our very brief (2:29) video on Mandatory Volunteerism.