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Public Policy
Independent Sector Policy Update
November 7, 2005
CARE Day November 8
Independent Sector will be participating in an event on November 8 to encourage passage of the CARE Act (S. 1780), a bill that includes charitable giving incentives such as the IRA rollover and nonitemizer deduction, as well as $1.3 billion of additional funding for the Social Services Block Grant. The day-long event includes group briefings as well as meetings in key Congressional offices. Participating groups include AdvanceUSA, American Association of Museums, United Way of America, American Association of Christian Schools, Independent Sector, Association of Fundraising Professionals, Young America’s Foundation, Association of Small Foundations, Americans for the Arts, Heritage Foundation, Center for Lobbying in the Public Interest, Lutheran Services in America, and the Alliance for Charitable Reform.
More on the CARE Act
Senate Budget Measure May Contain Charitable Reforms
Senator Charles Grassley (R-IA), Chairman of the Senate Finance Committee, told attendees at the Independent Sector annual conference that he will introduce charitable reform legislation in phases rather than in a comprehensive package, as had been previously anticipated. Some key provisions may be added to either a budget reconciliation bill or a second hurricane relief bill, both of which are expected to move through the Senate Finance Committee in the next few weeks. Senator Grassley listed supporting organizations, donor-advised funds, and credit counseling as the areas the Committee will look at first. He also mentioned façade easements, life insurance and tax shelters as areas of concern. The measure may also contain charitable tax incentives such as the IRA rollover and a nonitemizer deduction. IS will be closely watching all legislation moving through the Finance Committee and the House Ways and Means Committee for any provisions that would affect the charitable sector.
Advocacy Rights Threatened in Affordable Housing Legislation
The House passed a housing bill (H.R. 1461) last week that includes a provision that prohibits charitable organizations that engage in nonpartisan election-related activities from applying for grants under a new Affordable Housing Fund. The advocacy restrictions are so broad that groups would be ineligible to apply for the grants if, for example, they assist with nonpartisan voter registration efforts, provide transportation to the polls for the elderly and disabled, help shut-ins apply for absentee ballots from applying for these grants, or “maintain any affiliation” with any organization that provides any of those services. While currently limited to this housing bill, these anti-First Amendment provisions would set a dangerous precedent that could have a chilling effect on other nonprofits engaged in such activities, since they could be included in other legislation.
Independent Sector, along with 38 other organizations, sent a letter to the leadership of the House of Representatives and the Financial Services Committee stressing our strong opposition to the proposed anti-advocacy provisions. The Senate version of this bill (S. 190) does not include an affordable housing fund, nor does it include the advocacy restrictions. IS will continue to work with both the House and the Senate to prevent these restrictions from being included in any final legislation. More on this issue
Federal Budget Update
In a highly unusual maneuver, Congress is in the process of considering two separate budget and tax measures that together form the budget reconciliation process this fall. One measure contains cuts in spending and the other contains cuts in taxes. On Thursday the 10th, the Senate passed a spending package that cut funding by around $35 billion over the next five years.
The House of Representatives is also working this week on legislation to reduce mandatory spending by almost $54 billion over the next five years. The package includes spending cuts in child support programs, foster care and adoption assistance, Supplemental Security Income (SSI) installment payments, and food stamps. Both the Senate and the House are expected to turn next to bills that would cut taxes by at least $60 billion over five years, in large part by extending current tax provisions that are scheduled to expire in 2005.
President's Tax Reform Panel Recommends Changes in Charitable Contributions
The President's Advisory Panel on Federal Tax Reform released its final report on November 1, which includes several recommendations regarding charitable donations and charities. The report endorses two alternative simplified income tax plans that would both, among other changes, allow all taxpayers to claim a deduction for charitable contributions that exceed one percent of their income. The Panel also recommended allowing taxpayers over age 65 to make donations from IRAs directly to charities without negative tax consequences. This is similar to IRA rollover legislation that has been introduced in the House and Senate.
In addition to these incentives for charitable giving, the Advisory Panel recommends increased reporting by charities for large donations in order to “improve the accuracy of charitable contributions claimed as deductions.” To address uncertainty in valuing charitable gifts of property, the Panel recommends allowing taxpayers to sell property without realizing a capital gain if the entire sales proceeds are donated to charity within 60 days of the sale. It also suggests the following changes for appraisals of donated property: (1) new rules requiring clearer standards for appraisals; (2) information reporting by appraisers to the IRS, the donor, and the charity of the appraised value of property; and (3) new penalties for appraisers who misstate the value of property. Additionally, the Panel suggests that deductions for gifts of clothing and household items be allowed only when the taxpayer receives a price list and an itemized receipt from the charity.
Finally, the Advisory Panel suggests that Congress review the types of organizations that qualify for tax-exempt status and the standards for maintaining that status. While it does not make any specific recommendations in this area, the Panel urges “greater oversight and better governance” of exempt organizations. The recommendations were transmitted to Treasury Secretary Snow who said he hopes to “refine” the suggestions and then present them to President Bush by the end of the year.
Read the report (See Chapter Five for recommendations on charitable donations.)
Read a summary of the report
IRS Releases Work Plan for 2006
The IRS exempt organizations division also recently released its work plan for 2006 (PDF), and it will again have a strong emphasis on enforcement, including initiatives in the areas of easements, charitable trusts, charities facilitating abusive transactions, and hospital compensation and community benefit standards. New guidance in 2006 will include further explanation of donee reporting of vehicle donations, with more specificity on determining market value. Ongoing enforcement project areas include abusive donor-advised funds and Type III supporting organizations, anti-terrorism efforts, excessive compensation examinations, and credit counseling. Final regulations on revocations standards for organizations involved in excess benefit transactions are also expected next year. A proposed rule was released in September.
More on excess benefit proposed rule
Colorado Suspends TABOR
A referendum to suspend Colorado’s Taxpayer Bill of Rights (TABOR) passed on November 1st by a margin of 52 percent to 48 percent. The suspension allows the state to keep $3.7 billion over the next five years that would have been refunded to taxpayers. TABOR, a constitutional amendment adopted in Colorado in 1992, places a strict cap on the growth of state revenues and thus on its spending. Many have blamed it for severe budget cuts to K-12 education, higher education, and public health. Californians will vote on state spending limits on November 8, and Kansas, Ohio, Maine, Nevada, Oklahoma, and Arizona are considering similar measures.
Postal Rate Increases Expected in January
The Postal Rate Commission has submitted recommended rate increases that will likely go into effect some time in January 2006. An across-the-board rate increase of 5.4% was approved for most mail; however, the standard nonprofit rate will increase by only 3%. The Commission also recommended that the discount rate for nonprofit in the future adhere to the established 40% less than regular class mail. An additional increase is expected in 2007.
Hurricane Wilma Tax Relief
House Ways and Means Committee Members Clay Shaw (R-FL) and Mark Foley (R-FL) announced on October 31 that they will introduce two pieces of legislation to provide tax relief to victims of Hurricane Wilma. The legislation will expand to individuals and businesses affected by the hurricane tax relief measures included in the already passed Katrina Emergency Tax Relief Act of 2005 and pending business relief bill. Among other measures, the bills will encourage charitable donations by individuals and corporations.
IRS Launches Tax Shelter Settlement Program
The IRS announced that it will reduce penalties for certain tax shelters for participating taxpayers who come forward and pay the taxes owed by January 23, 2006. Among the specific types of tax shelters included in the initiative are charitable donations of conservation easements and patents and other intellectual property.
Read more about the IRS initiative
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