Independent Sector Policy Update
September 16, 2005
 

Charitable Giving Incentives Passed in Hurricane Relief Packages Senate Finance Subcommittee Holds Hearing on Charities IRS Proposes Guidance on Excess Benefit Transactions Budget Reconciliation Delayed IRS Approves Leave Donation Programs for Hurricane Relief

Other Policy Issues Federal Bill Tracker Nonprofit State Legislation Tracker (PDF) (IS members only) Past Policy Updates

Charitable Giving Incentives Passed in Hurricane Relief Packages
On September 15th, by unanimous consent, the Senate passed a substitute version of the House-passed Katrina Relief tax package (H.R. 3768). The substitute is less comprehensive than the original Senate bill (S. 1696) passed earlier in the day, but still differs in significant ways from the House bill. The measure has now gone back to the House for reconsideration. It is not clear at the moment how the Senate substitute will be received in the House, but early indications indicate concern at Ways and Means about some of its provisions.

Given the pressure for Congress to act quickly, there is likely to be a strong push to reach a consensus package that can be passed early next week. Of particular concern to the charitable community are the following provisions:

• Limits on the amounts individuals can deduct for cash contributions to any charitable organization are lifted through December 31, 2005.
• Limits on the amounts corporations can deduct for charitable contributions for Katrina relief are lifted through December 31, 2005.
• Businesses would receive an enhanced deduction for donations of food inventory and book inventory to any charitable organization through December 31, 2005; and,
• The mileage rate for deductions claimed by individuals for use of vehicles for charitable purposes is raised from the current 14 cents/mile to 70 percent of the business rate, if the vehicles were used to provide relief related to Hurricane Katrina.

Independent Sector organized a briefing for all Senate tax staff on the Senate’s Hurricane Katrina relief bill on September 14th and may do a similar briefing for House staff. Several IS member organizations participated.

More on hurricane relief tax measures.

Senate Finance Subcommittee Holds Hearing on Charities
The Senate Finance Subcommittee on Social Security and Family Policy held a hearing on September 13th focusing on how charities meet the needs of their communities. Witnesses included representatives from three charities whose testimony included accounts of their recent hurricane relief efforts, and two tax analysts who discussed incentives for charitable giving. In his opening statement (PDF), Subcommittee Chairman Rick Santorum (R-PA) stressed the importance of ensuring that charities have the resources they need to meet the immediate and long-term needs of recent hurricane victims as well as the ongoing needs throughout the country. Senator Santorum urged Congress to pass the CARE Act, which he introduced, so that charities have the means to meet the needs of their communities.

Senator Santorum also expressed his concern that reform proposals currently under consideration by the Finance Committee would unnecessarily burden charities. He urged the Committee not to pass reform legislation until it is shown that enforcement of existing laws has failed. Representatives from the Brother’s Brother Foundation, the Salvation Army, and the Southern Baptist Convention also voiced support for the charitable giving incentives in the CARE Act and echoed Senator Santorum’s reservations about charitable reform legislation.

In contrast to the other witnesses, Eugene Steuerle of the Urban Institute urged Congress to pass both charitable incentives and a “clean-up” of the charitable sector in a combined legislative package. Steuerle said that both efforts share a common goal of maximizing the good achieved by charitable donations and that combining them would increase giving while improving compliance. William Gale of the Brookings Institution testified about the negative effect that repealing the estate tax or reducing the top estate tax rate would have on charitable giving.

See the witness testimony posted on the Senate Finance Committee website.

IRS Proposes Guidance on Excess Benefit Transactions
IRS has released proposed regulations (PDF) to provide guidance on factors that it will consider in determining whether a 501(c)(3) organization that engages in excess benefit transactions (under section 4958) will lose its tax-exempt status. The new guidance provides examples illustrating the existing requirement that a 501(c)(3) organization serve a public rather than a private interest. If the proposed guidance is adopted, the examples will be made a part of the regulations. IRS notes that the examples reflect current law.

The new guidance also lists facts and circumstances that the IRS will consider when determining whether revocation of tax-exempt status is appropriate in addition to excess benefit transaction excise taxes. These factors had been listed in the preamble of the final rule when it was published in 2002, but IRS is now proposing to incorporate them into the regulations themselves along with examples to illustrate the facts and circumstances. The relevant factors include: the size and scope of the organization’s regular activities exempt purpose activities compared to the size and scoped of the excess benefit transactions; whether the organization has engaged in repeated excess benefit transactions; whether the organization has safeguards in pace to prevent future violations; and whether the excess benefit transaction has been corrected.

Comments on the proposed regulations and requests for a hearing are due December 9, 2005.

Budget Reconciliation Delayed
Budget reconciliation legislation, originally slated to be taken up in September, will be delayed until late October as Congress reorders its priorities in the wake of Hurricane Katrina. Action on the reconciliation measures for both tax cuts and spending cuts in entitlement programs has been put on hold while legislators from both parties question whether it is wise to proceed with certain tax cuts and cuts to Medicaid, food stamps, and other programs that serve low-income families at this time.

IRS Approves Leave Donation Programs for Hurricane Relief
Among other relief measures, the IRS announced a plan to encourage leave donation programs. Under these programs, employees can forgo vacation, sick or personal leave in exchange for their employer making a cash donation to a charity for relief of Hurricane Katrina victims. The employee will not have to treat the donated time as wages subject to income tax, and the employer may deduct the donation either as a business expense or as a charitable contribution. The employee would not, however, be able to claim a charitable deduction for the donated leave.

Read the IRS notice
Other IRS hurricane relief initiatives

-Top of Page-