Independent Sector Policy Update
November 29, 2005
 

Other Policy Issues Federal Bill Tracker Nonprofit State Legislation Tracker (PDF) (IS members only) Past Policy Updates 1. Charitable Giving Incentives and Reforms Included in Tax Bill 2. Federal Budget Update 3. Anti-Terrorism Certification Approved 4. E-Filing Guidance from IRS 5. IRS to Investigate Church Under Political Intervention Project

Charitable Giving Incentives and Reforms Included in Tax Bill
In an important step for the charitable sector, the Senate passed its $59.6 billion tax reconciliation bill (S. 2020), containing a number of significant charitable giving incentives and charitable reforms. The measure was passed in the early hours of November 18 by a 64-33 vote. As modified by a manager’s amendment (PDF), the legislation reflects many of the reforms recommended by the Panel on the Nonprofit Sector to curb abuse within the charitable sector, including penalties for involvement in tax shelter transactions; increased punishment for self-dealing and excess benefit transactions; reform of donor-advised funds and supporting organizations; new restrictions on credit counseling organizations; limits on deductions for façade easements and donations of clothing and household items; and new standards and penalties for appraisals of property donations.

The charitable giving incentives, many of which were also included in the CARE Act, would among other measures, permit taxpayers who do not itemize to deduct charitable contributions totaling $210 or more ($420 for joint filers) and allow taxpayers 70½ and older to make tax-free distributions from IRAs directly to charitable organizations. Read IS’ summary of the charitable provisions (PDF) (IS member password required). Visit the IS website for more information.

Before proceeding to a Senate-House conference, the House of Representatives must pass its $56.1 billion tax reconciliation package (H.R. 4297), which does not include any charitable measures but will extend several tax cuts scheduled to expire in 2005. House members plan to consider the legislation recess during the week of December 5.

Federal Budget Update
On November 3rd, the Senate approved by a vote of 52-47 its spending reconciliation package (S. 1932), which will make $39.1 billion in spending cuts over five years to programs including Medicare, Medicaid, and student lender subsidies. After much debate and modification, the House of Representatives late November 17 passed its $50 billion spending cut package (H.R. 4241) by a slim vote of 217-215. Among other measures, House democrats and several moderate republicans strongly opposed provisions to make significant cuts to mandatory programs including food stamps and Medicaid. The bills will proceed to conference following the Thanksgiving holiday.

As Congress wraps up its appropriations process, both the Senate and House will consider funding of the Internal Revenue Service for fiscal year 2006. The House on November 18 passed its Treasury appropriations bill, which would allocate $10.7 billion to the IRS, a $434 million increase from 2005. Nearly $7 billion would be allocated to enforcement activities, equaling an 8 percent increase.

Anti-Terrorism Certification Approved
On November 7, the Office of Personnel Management issued a final rule (PDF) on compliance certification language for the Combined Federal Campaign, a workplace giving program for federal employees. The new regulation, effective 2006, requires that organizations certify whether they are in compliance with anti-terrorism financing laws, but does not require that they check employees’ names against government watch lists, as previously required by the CFC’s 2004 and 2005 guidance for participating charitable organizations.

OPM’s final rule reflects the efforts of charitable organizations throughout the sector that commented on the CFC’s prior guidance. Independent Sector issued a statement opposing this requirement in December 2004 and filed comments with the CFC in May 2005 urging that the list-checking requirement be dropped and suggesting alternate language regarding noncompliance.

In its latest rule, the Office of Personnel Management also encourages charities to adhere to the U.S. Treasury Department’s Anti-Terrorist Financing Guidelines, issued by the Department in 2002 to help nonprofits and funders comply with anti-terrorism financing requirements. Charities throughout the sector have expressed concern with the Guidelines and have worked closely with the Treasury Department to revise them. During a call last week of the Treasury Guidelines Working Group, Chip Poncy of Treasury’s Office of Terrorism and Financial Intelligence announced that the Department’s revised voluntary guidelines would be released in draft form very soon.

E-Filing Guidance from IRS
The Internal Revenue Service this month issued guidance (PDF) outlining steps tax-exempt organizations can take to seek waivers from electronic filing requirements. According to temporary regulations issued in January, for tax year 2005 tax-exempt organizations with assets totaling $100 million or more or that file 250 or more returns per year are required to electronically file their annual information returns, or Forms 990. For tax years ending on or after December 31, 2006, the requirement will be expanded to include organizations with $10 million or more in total assets and all private foundations and charitable trusts.

According to the IRS’ latest guidance, organizations that cannot meet the electronic filing requirements due to technology constraints or that would suffer from undue financial burden may seek a waiver. Visit the IRS website for more information on e-filing by tax-exempt organizations.

IRS to Investigate Church Under Political Intervention Project
According to representatives of the All Saints Episcopal Church of Pasadena, California, the IRS has initiated an investigation into the church’s tax-exempt status charging that a former pastor’s sermon (PDF) made just days before the 2004 presidential election may have constituted campaign intervention. Although Reverend George Regas, who had retired as a pastor ten years earlier, opened his sermon explaining “I don’t intend to tell you how to vote,” the IRS is investigating whether or some of his antiwar statements implicitly supported Senator John Kerry’s (D-MA) presidential bid.

The IRS offered to drop the investigation if All Saints admitted wrongdoing and agreed not to offer similar sermons in the future. The Church turned down the offer and has instead posted the following on its website: “It is important for everyone to understand that the IRS’s concerns are not supported by the facts. George Regas’s sermon upheld the core values of this church as a Peace Church.”

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