The charitable deduction is tax provision which allows individuals to reduce their taxable income by the total amount of charitable contributions they made in that tax year (with some limitations, depending of the type of gift—i.e. cash, stocks, property—or the type of organization receiving the gift). As a result, taxpayers who claim the charitable deduction are generally not subject to federal income taxes on money they give to charity.
Changes Under 2017 Tax Reform
- Maintains the charitable deduction in its current form with no enactment of a universal charitable deduction;
- Increases the AGI limitation for charitable cash contributions from 50% to 60% with no changes proposed for non-cash gifts (effective for taxableyears beginning after December 31, 2017, and expires for taxable years after December 31, 2025);
- Eliminates the alternative gift substantiation, which—in certain cases allows—the receiving organization to file a separate document with its annual IRS return rather than provide a contemporaneous gift receipt to donors for contributions exceeding $250 (effective for taxable years beginning after December 31, 2016).
Leaving the structure of the charitable deduction unchanged fails to account for changes made elsewhere in the tax code that would have indirect, negative consequences on charitable giving (i.e. nearly-doubling the standard deduction, decreasing the top marginal income tax rates, and doubling the threshold for the estate tax). A number of studies report consistent estimates that enacting such changes to the tax could would decrease charitable giving by anywhere from $13.1 billion to $16 - $24 billion. The congressional Joint Committee on Taxation (JCT) also estimates that number of taxpayers and amount they claim in charitable deductions will decrease by approximately 40% (or, $95 billion) under the House bill.
The Council strongly supports enacting a universal charitable deduction as soon as possible to mitigate unintended negative consequences on the scope and value of this provision.
- Why Enact a Universal Charitable Deduction?
- Tax Policy Center Study on the Impact of Tax Reform on Charitable Giving – November 2017
- Tax Policy and Charitable Giving Study – May 2017
- Charitable Deduction Issue Paper
- Charitable Giving Coalition
A Note on Lobbying by Private Foundations on this Issue
The Council’s legal team has determined that private foundations may engage in lobbying communications with Members of Congress and their staff on the universal charitable deduction.
While private foundations are generally prohibited from conducting direct or grassroots lobbying activity, the “self-defense” exception to that rule, found in the Treasury Regulations at §53.4945-2(d)(3), allows a private foundation to communicate with a legislative body regarding legislation that affects the “existence of the private foundation, its powers and duties, its tax-exempt status or the deductibility of contributions to such foundation” (emphasis added). Legislation that would change the structure of the charitable deduction, making it available to all taxpayers, would likely affect the deductibility of contributions to private foundations as well as other charitable organizations, and would therefore fall under this exception.
If provisions affecting the charitable deduction (such as enacting a universal deduction) are included as part of a more comprehensive tax reform bill, the conservative approach for private foundations would be to limit direct lobbying communications to those portions of the bill which address the charitable deduction and any other provisions that affect the existence of the private foundation, its tax-exempt status or the powers or duties of the private foundation. However, understanding the practical problems this may present, the Council has previously taken the position that private foundations may advocate for the passage of a bill that includes one or more provisions that would qualify for the self-defense exception, even if other portions of the bill do not. For example, when simplification of the private foundation excise tax is included in a bill with other provisions that may not directly affect the existence, powers or duties of a private foundation, it is the Council’s position that the private foundation may still contact legislators urging support for the bill.
It is important to note that the self-defense exception is not available for activities that would constitute grassroots lobbying—such as encouraging grantees or others to contact their legislators.
Finally, the Council respects its members’ own determinations regarding legal issues, and individual policies or practices related to lobbying activity. We encourage members to consult with their own legal counsel regarding any questions.
- Final Tax Bill H.R. 1 – Amendment of 1986 Code
- House Bill H.R. 1 – Tax Reform Act of 2014
- Council Summary of Tax Reform Act of 2014
- President’s Fiscal Year 2016 Budget, with 28 Percent Cap
- JCT Analysis of Tax Reform Act of 2014
- Tax Policy Center Estimates on Charitable Provisions
- Tax Policy Center Description and Analysis of the Camp Tax Reform Plan