The House Ways & Means Committee recently marked up and approved five tax bills aiming to help increase funds for charitable activities. While the full House will need to vote on and pass these bills before they can move forward, this initial bipartisan effort to push them through is a promising sign that Congress is taking action in support of the charitable community.
Three of the bills are extensions of soon-to-expire provisions that have been on the books for many years. Historically, these provisions have expired almost every year, and have needed legislation with retroactive effect to keep them in the Tax Code:
- The IRA rollover to charity provision: Under this rule, an individual who is age 70 and ½ can roll over up to $100,000 from an individual retirement account directly to a charity without including the money in their taxable income. This eliminates the potential tax liability that would occur if an individual first took a distribution from their IRA, counting all of it as ordinary income and taking a charitable deduction, since as with any itemized deduction, the charitable contribution deduction may be reduced, and other limitations may apply.
- Qualified conservation contribution deductions would become permanent: This provision would allow charitable contribution deductions for property used for conservation and certain other purposes.
- Contributions of food inventory: Under current law, certain taxpayers are allowed an enhanced charitable deduction for certain gifts of food inventory. In order to calculate the amount, one must determine the fair market value of the inventory, which has historically resulted in disputes between taxpayers and the IRS. This provision had an expiration date of December 31, 2013. The marked up provision would reinstate and make permanent the deduction for food inventory, while also providing safe harbor valuation methods.
The remaining two bills introduce new provisions to promote charitable giving:
- An extension of time to make deductible charitable contributions: This provision, which was included in the draft Tax Reform Act of 2014, would allow individuals to make donations to charities up until the due date of the person’s tax return. In turn, individuals could deduct these donations on the previous calendar year’s tax return. In effect, as individuals begin to file, this additional time could boost giving through prompting taxpayers to reconsider gifts as a way of reducing their liability in the run-up to the filing deadline. Still, regardless of the provision’s impact on total giving amounts, charities will receive the money earlier in the year, rather than waiting until the holiday season when most individuals focus their giving.
- Simplification of the excise tax on private foundations: Under current law, private foundations are subject to a 2 percent tax on their net investment income, which can be reduced to 1 percent based on a complex set of rules that take into account an historical average of how much money is used for charitable purposes. The new bill would reduce this tax to 1 percent across the board, potentially increasing the funds that are available to organizations for charitable purposes.
As these bills continue to move through the legislative process, stay tuned for further updates in the weeks and months ahead.
- Laura Kalick, JD, LLM; BDO USA, LLP
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Summer 2014). Copyright © 2014 BDO USA, LLP. All rights reserved. www.bdo.com
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