The Council strongly supports maintaining the full value of the charitable deduction. As nonprofits know well, the charitable deduction encourages charitable giving by individuals to the benefit of communities across the country. Under the current law, a donor who itemizes their tax deductions can take a deduction on his or her charitable gift at the same percentage as his or her tax rate.
As part of comprehensive tax reform, Congress is considering imposing a cap or limit on the value of the charitable tax deduction as part of an overall effort to either raise additional federal revenue or “simplify” the tax code. The Obama Administration has also proposed a cap on the charitable deduction as part of its President’s Budget each year.
The Council strongly believes that reducing the charitable deduction is not the solution to federal budget concerns. Many communities will deal with residual effects of the recession for years to come, and millions of individuals rely on nonprofit services that are funded by the generosity of individual donors. The nonprofit sector is part of the solution to address both urgent and ongoing needs in communities across the country. Many nonprofits that provide these critical services generate much of their revenue through gifts that the deduction makes possible. We caution lawmakers to consider the consequences for the charitable sector when debating proposals to limit the deduction.
- 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
Council Issue Paper:
Studies on the Impact of Caps or Floors:
- 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
Charitable Giving Coalition:
- The Council actively participates in the work of the Charitable Giving Coalition, a group of national charities, foundations, and member associations dedicated to preserving a century-old American tradition that provides a tax deduction for taxpayers who give to charities. The coalition’s members represent a unified voice to raise awareness among lawmakers in Washington, D.C. about the value of the charitable deduction and its impact throughout America in providing essential community services.
It has come to the Council's attention that the question of whether or not private foundations can engage in advocacy around the charitable deduction within tax reform is under discussion within the sector. Good news, the answer is a clear yes.
Generally, private foundations are not permitted to use foundation assets to carry on propaganda or to attempt to influence legislation through communications with legislators or any government official or employee who may participate in the formulation of legislation, or by attempting to affect the opinion of the general public or any segment thereof. Such direct and grassroots lobbying activities will subject the foundation, and in some cases individual foundation managers, to a penalty tax under Section 4945 of the Internal Revenue Code. There is however, an exception to this prohibition found in the Treasury Regulations at §53.4945-2(d)(3) and commonly referred to as the “self-defense exception.” Specifically, this exception 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.”
As part of comprehensive tax reform, it is expected that legislative proposals will address the charitable deduction, as well as other tax provisions that are important to tax-exempt organizations. Because “the deductibility of contributions” to a private foundation is expressly mentioned as one of the basis for the self-defense exception, the Council is confident that private foundations may engage in direct lobbying activities to protect the charitable deduction. This means that private foundations could engage in communications with legislators and staffers on this subject.
If provisions affecting the charitable 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 that 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.