In This Week's Edition of Snapshot...
- Impending Shake-Up on Ways and Means Committee
- Senate Turns to Other Business Now that Kavanaugh is Confirmed
- TIGTA Releases Audit of Impermissible Political Activity by 501(c)(4) Organizations
- Groups Seek to Preserve State Tax Credits as Charitable Deductions
- States Adjust Income Taxes in Light of Federal Tax Law Changes
No matter which party prevails in the upcoming election this November, with some members facing tight reelection races, running for different political offices, or retiring, there will be new faces on the House Ways and Means Committee, POLITICO Morning Tax reported.
At least two Democrats will not return after the end of this Congress: Representatives Sandy Levin (D-MI)—who will retire—and Joe Crowley (D-NY)—who lost his primary election to Alexandria Ocasio-Cortez. Morning Tax went on to note that George Callas, a former tax aide for Speaker Paul Ryan (R-WI), doesn’t believe that there will be any shortages of representatives vying for a seat on the Ways and Means Committee.
On the Republican side of the aisle, four Committee members will not be here in the 116th Congress: Reps. Diane Black (R-TN) and Kristi Noem (R-SD) are running for governor in their respective states and Reps. Sam Johnson (R-TX) and Lynn Jenkins (R-KS) are retiring.
If the Democrats take back the House in November, current Ranking Member Richard Neal (D-MA) would become chairman of the Committee. Should that happen, political analysts expect that Democrats will try to roll back several elements from the 2017 tax overhaul. If Republicans maintain control of the House, Chairman Kevin Brady (R-TX) will continue to push legislation like the “tax cuts 2.0” package that cleared the House last month.
Last Saturday, the Senate voted 50-48 to confirm Judge Brett Kavanaugh as the 114th justice of the Supreme Court. Justice Kavanaugh steps into his new role following a bitterly partisan battle that was sparked by accusations of sexual assault.
At his swearing-in ceremony on Monday, Justice Kavanaugh asserted, “The Supreme Court is an institution of law. It is not a partisan or political institution. The justices do not sit on opposite sides of an aisle. We do not caucus in separate rooms. The Supreme Court is a team of nine, and I will always be a team player on the team of nine." Justice Kavanaugh took the bench on Tuesday to hear his first arguments as a member of the Supreme Court.
With the top order of business behind them, the Senate can now turn to other matters—although with the spending fight delayed until Dec. 7, the likelihood of the upper chamber taking up any major issues before the midterm elections is slim.
Last week, the Treasury Inspector General for Tax Administration (TIGTA) released a report on the “Review of the Processing of Referrals Alleging Impermissible Political Activity by Tax-Exempt Organizations.” According to The Hill, “A Treasury Department watchdog in a new report said that it found some issues with the IRS's processing of complaints alleging that tax-exempt groups engaged in impermissible political activity. ... Under federal tax law, charities cannot endorse or oppose political candidates but other types of tax-exempt groups, such as social-welfare organizations, labor unions, and business leagues can intervene in political campaigns in limited ways. In July 2015, the IRS created a committee tasked with reviewing referrals that contain allegations of impermissible political activity by tax-exempt groups and determining if the agency should audit the groups named in the referrals. TIGTA found that between July 2015 and August 2016, the committee was sent and reviewed 19 ‘high-profile’ referrals and recommended audits in 10 cases, more than half of which involved social-welfare organizations. As of January 2018, the IRS hasn't issued any negative findings due to the audits. But the watchdog said that the IRS was not sending most of the allegations of impermissible political activity or lobbying to the committee.”
According to The Wall Street Journal, “In response, the IRS said the inspector general's estimates are incorrect extrapolations. The IRS said it reviewed all the cases the inspector general said should have gone to the committee and determined that the allegations were 'incomplete or inapplicable' and that the decisions on those cases were correct.” The committee was created in 2015 to review these cases in response to a 2013 internal audit that demonstrated some conservative-leaning 501(c)(4) organizations received extra scrutiny due to their names. The Journal article also notes that, “Subsequent analyses showed that progressive groups also got some scrutiny.”
Exclusive from our colleagues at the National Council of Nonprofits.
Nonprofit organizations are responding to proposed regulations from the U.S. Treasury and the Internal Revenue Service that would change how donations that generate state tax credits are treated when claimed as charitable donations on federal tax forms. The proposal reportedly targets new state tax laws seeking to convert some state and local tax (SALT) payments, capped at $10,000 under the 2017 federal tax law, into uncapped charitable deductions. As written, however, the draft regulations appear also to apply to many of the more than 100 programs in the 33 states and the District of Columbia that provide a state or local tax credit when a taxpayer makes a donation to certain nonprofits, such as school choice scholarship funds. Comments are due today, Oct. 11.
One type of state program of particular interest to philanthropy is endowment tax credits. Five states (Iowa, Kentucky, Maryland, Montana, and North Dakota) incentivize charitable donations via tax credits to generate increased donations to endowments. The North Dakota Association of Nonprofit Organizations (NDANO) has submitted comments to Treasury and the IRS in support of the state’s 40 percent state tax credit for contributions to qualified endowments. Citing its low ranking of in-state foundation assets, the state association of nonprofits argues the tax credit “has strengthened North Dakota by encouraging charitable giving to support nonprofits’ work to improve [their] qualify of life” by keeping money in the state. NDANO asks that the proposed regulations be withdrawn or “modified to prevent long-standing beneficial state tax credits... from being stripped of their ability to incentives giving to nonprofits...”
The Montana Nonprofit Association (MNA), also referencing low in-state philanthropy dollars, is asking for alternative solutions from the IRS. The Montana Endowment Tax Credit provides a state tax credit for planned gifts and outright gifts to permanent endowments, and the MNA notes that donors typically are not high net worth individuals. Alternatives suggested include creating an exception to the proposed rule for endowment tax credits, grandfathering in pre-existing tax credit programs, and/or raising the de minimis exception in the proposed rule from 15 percent to 50 percent.
Despite the uncertainty created by the proposed regulation, Michigan has introduced a new bill that would offer a 50 percent tax credit, with caps, for individual and corporate donations to community foundations meeting certain requirements.
States continue to grapple with the effects of the 2017 federal tax law on their income tax systems and are responding in multiple ways to conform their laws and, in most cases, avoid automatic tax hikes. Some, like South Carolina, are enacting legislation to conform to or decouple from the federal tax law. Others are looking to state agencies for implementation. A proposed rule by the Florida Department of Revenue would eliminate the state’s alternative minimum tax for corporations. Moving expenses in Arkansas will continue to be excluded from gross income under state law until legislative fixes can be enacted despite the federal tax law changes, the state Department of Finance and Administration determined. Finally, the Oklahoma Tax Commission will now limit itemized deductions to $17,000, but charitable contributions and medical expenses are exempted from the cap, under a new rule awaiting approval from the Governor. Nonprofit experts predict that the state 2019 legislative sessions will be the most active and challenging in a generation as legislatures open their tax laws to conform to the federal law and make other long-sought reforms that could benefit or undermine the work of nonprofits and foundations.