In This Week's Edition of Snapshot…
- “Tax Cuts 2.0” Passes House, Expected to Stall in Senate
- Government Shutdown Averted, December Vote Looms
- Tax Writers Remain Hopeful That IRS Reform Will Happen Before Year’s End
- Rettig Officially Sworn In to Become IRS Commissioner
- Sen. Scott Sends Letter to Treasury About Opportunity Zones
- Single Portal Filing Debuts as “Soft Launch” in Two States
- Nonprofit and Foundation Tax Exemptions Remain in Flux
Last Friday, the House voted—mostly along party lines—to pass the package of three bills (H.R. 6760, H.R. 6757, and H.R. 6756) that has been referred to as “tax cuts 2.0.” The legislation would make permanent the individual and small business tax cuts that were passed at the end of 2017 and currently expire in 2025. A number of these provisions raise significant concerns due to their expected negative impact on charitable giving (e.g. changes to the individual income tax rates, the increased standard deduction, and the increased threshold for the estate tax). One positive provision that would become permanent under this plan is the 60% AGI limitation for donations of cash. It also includes incentives for retirement savings and new business innovation.
With passage in the House, this legislation now advances to the Senate—although the upper chamber has no immediate plans to consider it. The top priority for the Senate right now is to address Judge Brett Kavanaugh’s nomination to the Supreme Court. If and when they resolve that issue, it will become a matter of whether Senate Majority Leader Mitch McConnell (R-KY) feels confident that he has the 60 votes necessary to pass the tax bills—which is highly questionable at this point, especially prior to the midterm elections. The Senate might alternatively decide to take up just the retirement-focused legislation, which is similar to a Senate bill that has bipartisan support from key Senate Finance Committee members.
Last Friday, President Donald Trump signed a spending package that kept the federal government open as the new fiscal year (FY) began on Oct. 1. According to The Hill, “The measure fully funds most parts of the federal government through fiscal 2019, pushing off a deadline for a partial shutdown—and showdown over funding for Trump's proposed border wall—until early December. … Friday's measure included a continuing resolution [CR], or funding extension, for the seven bills that Congress has yet to agree on. Among them is the Department of Homeland Security bill, which contains funding for [President] Trump's proposed border wall.”
Congress will need to pass another spending package for the remaining appropriations bills or pass another CR before Dec. 7 to avoid a partial government shutdown. With the midterm elections next month, the different dynamics of a lame-duck Congress could potentially complicate efforts by members to reach a compromise. According to POLITICO Morning Tax, “Congress exceeded lots of people’s expectations with its recent appropriations performance. But that doesn’t mean that efforts to fund the government after November’s elections will go smoothly for Republicans—especially if they lose the House, the Budget team’s Sarah Ferris reports. … ‘It could be nearly impossible to muscle through the seven outstanding bills for fiscal 2019, at best prompting another stint of stopgaps and at worst stoking a pre-Christmas shutdown with Republicans in charge.’”
Efforts to overhaul the IRS have been a consistent topic this year. With bipartisan support, a package of bills passed the House in April and two bipartisan bills (S. 3246, Taxpayer First Act and S. 3278, Protecting Taxpayers Act) have been introduced in the Senate by Finance Committee members. The House efforts have been spear-headed by Reps. Lynn Jenkins (R-KS) and John Lewis (D-GA), who lead the Ways and Means Oversight Subcommittee. In the Senate, the Taxpayer First Act was introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR), with the Protecting Taxpayers Act led by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD).
As reported by POLITICO Morning Tax, staffers from House and Senate tax-writing committees met last Thursday to try and reach an agreement on how to merge the three separate bills. However, this process seems to have hit a snag with Chairman Hatch and Sen. Portman butting heads about which provisions from each of their bills get included in the negotiations. According to POLITICO Pro, Sen. Portman, whose bill is more broad-sweeping in its outlined reform measures (and subsequently, is more controversial than the Hatch/Wyden bill), would prefer to “ride with [his] bill.” However, a spokesman for Sen. Portman later indicated that the Senator “supports the chairman’s bill, wants to see it pass, and is working with him and Finance staff to include key initiatives in the Portman-Cardin effort as well."
On the House side, Rep. Jenkins believes they are “so close” to reaching an agreement. She further predicted that some final version of an IRS reform bill could pass on a bipartisan basis in the lame-duck session of Congress following the midterms. “This is a legacy opportunity [for Chairman Hatch],” she said, referring to his retirement at the end of this year. She continued, “We're looking to get this reform bill done by the end of the year."
On Monday, Chuck Rettig was sworn in as the 49th IRS commissioner by Treasury Secretary Steven Mnuchin. Commissioner Retting was confirmed last month by the Senate to serve the remainder of a 5-year term expiring in November 2022. Until this Monday, Treasury Department Assistant Secretary for Tax Policy David Kautter had served as the acting IRS commissioner for the past 11 months.
According to The Hill, in an internal communication directed to IRS employees, the new commissioner said, “I am honored, privileged and most humbled by the opportunity to serve with you as Commissioner…The foundation of my becoming Commissioner is a deep appreciation for the IRS, its workforce and our country." Commissioner Rettig also highlighted the importance of providing good customer service to taxpayers despite the challenges presented by the IRS’ outdated technology system.
Among the IRS commissioner’s priorities are the readiness for the upcoming filing season after the 2017 tax overhaul, the improvement of data security and combating tax-related identity theft, and working with Congress to increase the agency’s funding for fiscal year 2019.
In a tweet about the new IRS commissioner, Secretary Mnuchin said, "Chuck’s commitment to fairness and taxpayer service will make a tremendous impact in the lives of millions of Americans.”
Also on Monday, Senate Finance Committee Ranking Member Ron Wyden (D-OR) sent a letter addressed to Commissioner Rettig asking him to assure the Committee that the IRS will enforce the Johnson Amendment under his leadership. Sen. Wyden’s letter comes after Vice President Mike Pence’s speech at the Values Voter Summit on Sept. 22, where he mentioned that the Administration had “ended enforcement of the Johnson Amendment.”
Last week, Sen. Tim Scott (R-SC) sent a letter to Treasury Secretary Steven Mnuchin asking for regulatory clarification on Opportunity Zones—a provision from the 2017 tax code overhaul that Sen. Scott primarily authored. In the letter, Sen. Scott noted, “Today, public and private stakeholders nationwide are eagerly awaiting regulatory clarity on Opportunity Zones. As the lead sponsor of the Opportunity Zones provision and a Senate conferee for TCJA [Tax Cuts and Jobs Act, P.L. 115-97], I write to underscore key aspects of congressional intent for the provision, and urge you to take these issues into account as the Treasury Department and the Internal Revenue Service (IRS) draft the initial Notice of Proposed Rulemaking for Opportunity Zones investments.”
Sen. Scott specifically requested that, (1) “Treasury…use its authority to establish a regulatory framework that meets reasonable market-based needs for flexibility and scalability for investors organizing to serve both new and existing operating businesses, as well as to invest in real estate projects;” (2) Treasury take care “not to artificially or inadvertently limit the practical ability of Opportunity Funds to raise capital from multiple investors and invest in multiple holdings;” and (3) that “Treasury…provide adequate time for [Opportunity] Funds to reinvest capital that has been returned to the Fund from an underlying portfolio investment.”
It is expected that Treasury will release their regulations on Opportunity Zones in the coming weeks.
On Monday, the National Association of Attorneys General (NAAG)/National Association of State Charity Officials (NASCO) held the Public Day of their “Charities in a World of Change” conference. It was announced that the State Charity Registration Portal (Single Portal) is now live in two states: Connecticut and Georgia. Single Portal expects to have at least five more states join in the second cohort, launching by January 2019.
Additionally, with over 1.4 million nonprofits in the United States, self-regulatory programs were discussed as a valuable tool that allows charities to focus on compliance and best practices, which in turn allows charities to distinguish themselves as credible and accountable to the public, policymakers, and regulators. Christina Gonzalez, the Council’s executive director of National Standards and staff counsel, heard directly from James Sheehan, chief of the New York Attorney General Charities Bureau, that his office works closely with accredited community foundations in New York precisely because they are accredited by National Standards for U.S. Community Foundations.
Exclusive from our colleagues at the National Council of Nonprofits.
While Congress and most state legislatures have adjourned for the year or are on hold during election season, nonprofits and foundations are facing moving targets from the branches of state government. In the executive branch, the Arkansas Department of Finance and Administration confirmed that nonprofits conducting auctions do not need to charge sales taxes when all proceeds benefit the charitable organization. In a separate case, however, the department found that an organization must collect sales tax on event tickets sold through a third-party website based on the reasoning that the charity does not retain the processing fee for purchasing the tickets.
A gubernatorial candidate in Massachusetts pledged to pay for some of his spending promises by imposing a billion-dollar tax on investment returns of certain colleges and universities in the Commonwealth. The Massachusetts Nonprofit Network immediately opposed the proposed tax rate of 1.6 percent, which is slightly more than the new federal tax on large college and university endowments that Massachusetts members of Congress opposed as part of the 2017 federal tax law.
The New Hampshire Supreme Court ruled that a religious organization’s youth summer camp, which offers religious, educational, and recreational services and benefits to the general public, is entitled to be exempt from property taxes. The court overturned a trial court ruling denying the Catholic organization’s exemption. In 2012, the Pennsylvania Supreme Court reached the opposite conclusion in a similar case based on that Commonwealth's constitution.
Finally, in a case of great national interest, the Illinois Supreme Court ruled that the Legislature has the authority to clarify and narrow the property tax exemption of nonprofit hospitals in the state. In response to an earlier ruling that put hospital tax exemption in question, the Legislature worked with nonprofits and local governments to develop a regime for determining whether individual hospitals provide sufficient community benefits to justify the property tax exemption. The recent decision upheld the legislative fix as valid under the state constitution. Nearly three-quarters of the state’s 200 hospitals are nonprofits, according to the Chicago Tribune.