In This Week's Edition of Snapshot…
- Government Reopened
- State of the Union Address Rescheduled
- Senate Vote on Attorney General Nominee Delayed
- IRS Released Final Version of Form 8996 for Qualified Opportunity Funds
- States Reimagining Charitable Giving Incentives
- Endowments and Tax Credits Under Review
Last Friday, 35 days into the longest government shutdown in US history, Congress passed H.J. Res. 28 and President Trump signed it to reopen the government. This three-week spending bill fully funds the government through Feb. 15 and guarantees retroactive pay for federal employees. It does not include any funding for President Trump’s border wall, but a bipartisan group comprised of members of the Senate and House Appropriations Committees are working to find a compromise on border security funding. Lawmakers will have to reach a compromise on border security before the deadline in order to avert another government shutdown.
Yesterday, the House passed a bill—that if enacted—would give a 2.6 percent pay raise to civilian federal employees. The vote was 259-161, with more than two dozen Republicans joining Democrats in voting for the measure. Meanwhile, tax filing season officially started on Monday. During the shutdown, the IRS reported that at least 14,000 unpaid employees did not show up to work as ordered, and the average call time in the call centers jumped from 7-10 minutes to 25-40 minutes. The IRS told members of Congress that within the tax processing division, 5,000 employees claimed hardship exemption and 9,000 could not be reached. The IRS has also released its tax return projections for the FY 2018, with the agency projecting that it will issue 105.76 million refunds through May 30th, down from 108.3 million during the same period last year. According to POLITICO PRO, the estimate comes due to the uncertainty of what the returns will look like after the 2017 tax overhaul, and the new withholding tables issued by the Treasury Department.
Overall, the Congressional Budget Office (CBO) reported that the shutdown cost government $3 billion of the projected 2019 GDP. During the shutdown 800,000 federal employees were affected by being furloughed or having to work without pay.
On Monday, President Trump accepted an invitation from Speaker Nancy Pelosi (D-CA) to deliver the State of the Union Address on Feb. 5. The initial date for the speech was set for Jan. 29, but due to the partial government shutdown, the address to a joint session of Congress had to be rescheduled. On Tuesday, the House passed a concurrent resolution that would allow the Chamber to host the joint Congressional session.
On Tuesday, Senate Minority Leader Chuck Schumer (D-NY) announced that Stacey Abrams will give the Democratic response to President Trump State of the Union Address. Ms. Abrams was the Democratic candidate for Georgia’s past gubernatorial election.
The Senate Judiciary Committee has delayed the vote on President Trump’s attorney general nominee William Barr. The committee was supposed to consider 46 nominations including Mr. Barr’s this week, but due to the concerns of Democratic members in the committee about Mr. Barr’s previous public comments on Special Counsel Robert Mueller’s probe, the vote has been rescheduled to Feb. 7.
Executive and Regulatory Affairs
This week, the IRS released instructions and the final version of form 8996 for reporting Qualified Opportunity Funds, following last year’s release of the much-anticipated proposed regulations for Opportunity Zones. Opportunity Zones are areas in low-income census tracks designated by governors where private equity investors can invest capital gains in new development ventures in exchange for tax forgiveness after 10 years.
The philanthropic community has been closely monitoring developments around Opportunity Zones. There is a concern over whether Opportunity Zones will facilitate needed community infrastructure and economic development opportunities for people who are residents and small business owners in these zones. Foundations are trying to determine what their role will be in Opportunity Zones and whether they can use their influence to ensure that this tax incentive will truly generate positive social impact that will benefit these communities and their residents.
According to POLITICO PRO, The IRS has rescheduled a hearing on proposed regulations for Opportunity Zones for Feb. 14. The hearing will be held at 10:00 a.m. in the auditorium of the IRS building at 1111 Constitution Avenue NW, in Washington, DC.
Exclusive from our colleagues at the National Council of Nonprofits.
The federal Tax Cuts and Jobs Act, enacted at the end of 2017, is barely a year old and is generating scores of bills at the state level through which legislators are seeking either to conform state law to the revised federal tax code or to create variances from the federal law. Lawmakers in several states have introduced bills to reduce or limit the expected adverse impact of the federal tax law on charitable giving resulting from the near doubling of the federal standard deduction to $12,000 for individuals and $24,000 for couples. Nationwide, the Tax Cuts and Jobs Act is predicted to cause 28.5 million fewer taxpayers to claim itemized deductions.
Bills in Kansas, New York, and Virginia would permit taxpayers to claim itemized deductions on their state returns, even when they elected the standard deduction on federal returns. A separate Virginia bill would provide a nonrefundable tax credit (capped at $250 individual/$500 couple) to those who do not itemize deductions on their federal tax returns. Going further, legislation in Arizona would establish a non-itemizer charitable deduction, retroactive to 2018. If enacted, these states would join Colorado and Minnesota in providing charitable tax incentives for all taxpayers, regardless of whether they take the standard deduction or itemize.
Bills in other states would create new giving incentives for various charitable organizations. Mississippi legislation would establish a tax credit for private school and home-schooling expenses for the taxpayer’s dependent children. In Iowa, legislators have proposed a state tax credit for charitable contributions to regenerative medicine research and an exemption from taxation of wages received by an individual from a nonprofit for services provided to individuals with disabilities.
Whether in response to the federal tax law or a growing hostility and misunderstanding of the purpose of endowments, the concept of giving to nonprofit endowments is under review in some states this year. While one bill in Montana seeks to extend the Charitable Endowment Tax Credit for another six years (through 2025), separate legislation would go the other way by repealing several of Montana’s tax credits, including the one that promotes giving to nonprofit endowments and university and college foundations. A measure in North Dakota would significantly undermine the state’s endowment tax credit by reducing the cap on the tax credit from $5,000 to $500, while expanding it to apply to donations to qualified nonprofit organizations. Lawmakers in the state are also considering a plan to change several existing state tax credits into deductions, including the endowment and planned gift tax credit. According to the North Dakota Association of Nonprofit Organizations, the current tax credit “builds communities and enriches the lives of North Dakotan's by supporting the work of the state’s charitable nonprofit organizations.” In Missouri, a new bill seeks to target certain nonprofit university endowments by imposing a 1.9 percent tax on the aggregate fair market value of assets, potentially penalizing nonprofits for building reserves to maintain operations into the future.