Washington Snapshot - December 19, 2014
Congress Extends IRA Rollover for 2014
Wyden: "This tax bill doesn't have the shelf life of a carton of eggs."
The Senate voted on Tuesday night to extend the tax extenders—including the IRA charitable rollover—for 1 year, retroactive for 2014. The chamber voted 76-16 to pass H.R. 5771, the House bill that extended all of the tax extenders for 1 year retroactively, at a cost of approximately $42 billion. The enhanced deductions for conservation easement and food inventory donations were also extended for 1 year.
Interestingly, current Senate Finance Chairman Ron Wyden (D-OR) voted against the bill, citing his desire to extend these provisions for longer than the 2 weeks remaining in 2014. “This tax bill doesn’t have the shelf life of a carton of eggs,” his floor statement said. “The only new effects of this legislation apply to the next two weeks.”
Other Senators expressed similar concerns about the short extension, POLITICO reports. “This is ridiculous because we’re not extending it beyond the tax year and by the time we get back here, it will already be expired for a week or two,” Senator Rob Portman (R-OH) said. Senator Portman also sits on the Senate Finance Committee.
Waiting for the President to Sign
Now that the House and Senate have both passed H.R. 5771 to extend these provisions for 1 year, we are waiting for the President to sign the bill before they can go into effect. While nothing in Washington is certain, it is looking like the bill will be signed by the President this week.
We recognize that time is running short for you to work with donors to plan IRA distribution gifts. We will alert you as soon as the President signs the extenders bill into law.
To prevent another year of uncertainty about the tax status of IRA rollover gifts, we will work with the 114th Congress early in 2015 to advance a bill to make these charitable provisions permanent law.
Just this week, long-time charities advocate John Thune (R-SD) said on the Senate floor that he would plan to reintroduce the Supporting America’s Charities Act, or similar legislation to permanently extend the charitable tax extenders, at some point next year. We will work with Senator Thune and his colleagues to generate Senate support for the charitable provisions, and will alert you of opportunities to engage with your lawmakers on this important legislation.
Other Tax News from the Hill
Incoming Finance Chairman Orrin Hatch Releases Tax Reform Analysis
As we mentioned to you last week, incoming Senate Finance Committee Chairman Orrin Hatch (R-UT) released a 340-page “in-depth” analysis of areas that are ripe for tax reform. The analysis is intended to “continue the conversation on tax reform,” and outlines some basic principles for reform: efficiency and economic growth; fairness; simplicity; revenue neutrality; permanence; competitiveness; and incentives for savings and investment.
Unlike outgoing Ways and Means Chairman Dave Camp (R-MI-4), the incoming Finance Chairman proposes revenue neutrality but not necessarily distributional neutrality. This gives Chairman Hatch some flexibility to raise and lower the relative tax burden for individuals, without the necessity of paying for lower tax burdens by reducing tax incentives like the charitable deduction.
In fact, Hatch signals some level of support for certain tax incentives, explaining that despite the prevailing idea that they disproportionately benefit the rich, “data show that individual tax expenditures tend to skew towards middle-income Americans.” While the report notes that the charitable deduction is claimed by the highest proportion of taxpayers above $200,000 in income, it is also quick to point out that “many of those charitable contributions go to assist very low-income persons.”
While we cannot ultimately predict the details of Chairman Hatch’s vision for tax reform, we are optimistic that his reform principles would not seem to require reducing or eliminating tax incentives. The report gives no indication of how or if he would reform tax-exempt organizations.
News from the Administration
U.S. to License Foundation Travel to Cuba
On Wednesday, the White House released a fact sheet on “Charting a New Course on Cuba.” As part of an effort by the Administration to strengthen relationships with Cuba and empower the Cuban people, Cuba will authorize additional travel opportunities for U.S. citizens to enter Cuba.
This is relevant for our readers because among the expanded categories of travel licenses are “support for the Cuban people,” “humanitarian projects,” and “activities of private foundations or research or educational institutes.”
In addition, the White House is working to facilitate financial transactions between the U.S. and Cuba. The measures they will take will “improve the speed, efficiency, and oversight of authorized payments between the United States and Cuba,” which could make it easier to transmit charitable dollars between the two countries.
GAO Calls for Better Tax-Exempt Oversight
In a report issued on Wednesday, the Government Accountability Office (GAO), a nonpartisan congressional watchdog organization, explained that the IRS lacks adequate resources to oversee tax-exempt organizations.
Retiring Senator Tom Coburn (R-OK) requested this investigation. To conduct the investigation, GAO reviewed and analyzed IRS data, strategic planning and performance documents, and agency improvement efforts. They also interviewed IRS and Department of Justice officials, state charity regulators, and subject matter experts.
GAO recommended that the IRS do the following to improve its oversight of the tax-exempt sector: 1) develop compliance goals and additional performance measures that can be used to assess the impact of enforcement activities on compliance and 2) clearly communicate with state charity regulators how they are allowed to use IRS information related to examinations of charitable organizations.
GAO also urged Congress to consider making e-filing of Form 990s mandatory to allow for better data analytics and lower labor costs. The IRS agreed with GAO’s recommendations.
Trending in Legal Affairs
Bifurcating Gifts
A community foundation member recently asked our Legal Affairs team whether donor advisors are permitted to grant tax-deductible portions of a gift from donor advised funds, and then pay the non-tax deductible portion separately.
There isn’t direct, plain language in the Code or Treasury Regulations explicitly prohibiting split payments (bifurcation). However, the Council’s Legal Affairs team has determined that it is not likely that the IRS would favor bifurcation, and has advised our members who ask not to bifurcate the charitable portion from the non-charitable portion.
In interpreting the self-dealing rules for private foundations specifically (which also prohibit all but incidental benefits), the IRS has stated that splitting payments is not permitted. While it is unclear whether this same interpretation would apply to distributions from donor advised funds, the nature and extent of the penalties are such that it is better to err on the side of caution. To be safe, the Council advises donor advisors to follow these private foundation bifurcation rules, and continue to ask the IRS to clarify this in new, long-awaited DAF regulations.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at legal@cof.org.
Philanthropy News and Op-Eds
"Cromnibus" Provisions Impact Nonprofits
In a thorough analysis of the “cromnibus,” or government spending bill passed by Congress last week, Nonprofit Quarterly’s Rick Cohen points out many provisions that will affect nonprofit organizations, either directly or by impacting other programs they care about. While the article delves into many provisions that nonprofits will care about, here are a few that we found especially interesting or alarming:
- The bill cuts an addition $345.6 million from the IRS, which has suffered budget cuts the past two years. There is also language in the bill prohibiting the targeting of citizens “for exercising any right guaranteed under the First Amendment” and the targeting of other groups “for regulatory scrutiny based on their ideological beliefs.” This new cut will further weaken the IRS’s oversight capabilities, which will impact how it processes applications, responds to taxpayer inquiries, and issues new regulations.
- The cromnibus makes a few important funding changes in the education world. First, it cuts federal Pell grants by $300 million. Second, it defunds the Race to the Top program, which at one time had significant philanthropic support.
- The bill significantly increases the maximum amount an individual donor can give to a national political party. Donors will now be able to give up to $324,000 annually to national political parties, whereas the current limitation is $32,400 per year. This will likely further change the dynamic among political funding vehicles, including PACs and 501(c)(4)s.
- The Environmental Protection Agency (EPA) budget is cut by $60 million, which amounts to about a one-fifth budget cut in the agency’s overall funding since 2010. There are also policy riders in the bill that prevent U.S. contributions to the Green Climate Fund, which helps impoverished nations combat climate change, and prohibit federal funds from being used to regulate lead use in fishing and ammunition.
