Nonprofits are closely watching tax reform — both GOP blueprints could cause billion-dollar dents to the sector’s bottom line.
As you are probably aware, the new Republican majority Congress plans to have legislation on multiple fronts well underway, even before the inauguration, and major tax reform is one of the areas where fast action is targeted. Kevin Brady, chairman of the House Ways and Means Committee has promised a House Bill by April of 2017. The tax writers plan to revive Dave Camp’s Tax Reform Bill from 2014 that was never voted on, and tweak it with concepts from the Blueprint the House Ways and Means Republicans laid out in June of 2016. Some provisions may have a chilling effect upon charitable giving. Brady has invited comments on the Blueprint. Conrad Teitell, a nationally well-known attorney in the charitable planning area, has prepared the following materials as suggestions for charities to use when giving feedback, and has graciously consented to use of these materials. You and your colleagues may wish to review these suggestions and use some or all of them in your organizaton’s response to Congress by cutting and pasting from the document to tailor it to your organization.
Ways and Means Blueprint: Suggested Points for Charities to Make
Prepared by Conrad Teitell
Cummings & Lockwood LLC
- Briefly identify your charity and tell how it serves American citizens.
- We agree with and thank you for your goal to make the tax laws fairer and simpler. But simplicity by itself shouldn’t be the enemy of the good that American charities do in serving its citizens—often providing services that would otherwise have to be provided by federal, state and local governments.
- The decrease in charitable gifts that would result from the major curtailing of the income tax incentive for charitable giving and the elimination of the estate tax that would result in reduced charitable bequests, would be a double whammy for American charities. The House of Representatives surely wants to benefit—and not harm—charities and those they serve.
- We understand that the Ways & Means bill now being drafted follows the Blueprint and is guided by then W&M chairman Dave Camp’s Tax Reform Act of 2014. (That bill was introduced but not voted on.) The two together would severely limit income tax incentives for charitable contributions.
- Only 5 percent of taxpayers—compared to the current 35 percent—would be itemizers.
- For the remaining 5 percent, a 2 percent floor would apply to the charitable deduction.
- The current fair market value deduction wouldn’t be allowable for gifts of appreciated real estate and gifts of non-publicly traded stock—such as stock in small businesses.
- Request for opportunity to comment on the bill now being drafted. The Blueprint invites public comments. Our following comments address the specific and many general concepts of the Blueprint and Mr. Camp’s bill. However, we ask that the public be given an opportunity to comment on the specific bill, now being drafted, when it is made final. We are suggesting a short comment period. Changes of the magnitude being considered shouldn’t be voted on by the House before the public has time to review and comment on the bill.
Based on the information that we now have, here are our comments:
- If the percentage of donors who itemize is reduced to 5 percent (or a percentage significantly lower than the current 35 percent) charitable deductions should be deductible from gross instead of adjusted gross income (above the line).
- The 2 percent floor of the Tax Reform Act of 2014—and with only 5 percent of taxpayers itemizing—would decimate tax incentives to charitable giving.
- Retain the current law that authorizes charitable remainder unitrusts, charitable remainder annuity trusts, charitable gift annuities, charitable lead annuity trusts, charitable lead unitrusts and charitable remainder interests in personal residences and farms.
- Retain the current law allowing individuals age 70½ or older to make direct (outright) transfers—not deductible as charitable contributions—from an IRA of up to $100,000 per year without having to report the IRA distributions as taxable income on their federal income tax returns. This law encourages all taxpayers (whether they itemize or not) to make charitable gifts.
- Expand the direct charitable IRA transfer (above) to allow IRA rollovers for gifts that benefit charities and provide taxable retirement income— charitable life-income plans—for the donors. At the donor’s death, the assets in the plan are owned outright by the qualified charity. Charitable deductions aren’t allowable for amounts transferred to the life-income plans (charitable remainder trusts and charitable gift annuities). The Legacy IRA Act (H.R. 5171) would accomplish the foregoing. It was introduced on May 6, 2016 with Ways and Means Committee cosponsors: Peter Roskam R-IL); Earl Blumenauer (D-OR); Patrick Tiberi R-OH); Erik Paulsen R-MN); Mike Kelly (R-PA); Kristi Noem R-SD); Adrian Smith (R-NE); and Devin Nunes R-CA). Rep. Kevin Cramer (R-ND), a long-time advocate of the legislation, is also a cosponsor.
- The Blueprint calls for repeal of the estate tax. Although we take no position on the issue, repeal of the estate tax will result in decreased major bequests by wealthy taxpayers.
- The Blueprint states that its changes in the tax laws will spur the economy and this will redound to the benefit of charitable organizations and the Americans they serve. We, of course, hope that the economy will expand. However, all recognize that this won’t happen overnight. In the meantime, charities will still be called upon to feed and shelter the homeless, fight drug addiction, educate youngsters and provide all their other services for the public good.
Conclusion. In the Blueprint’s own words, the charitable deduction helps accomplish the goal of strengthening civil society. However, many of the Blueprint’s provisions that directly and indirectly affect American taxpayers would thwart that goal.
How to communicate your views—
To comment to the House Ways & Means Committee:
Go to: https://waysandmeans.house.gov/taxreform/ and click on “Click Here to Give Your Feedback.”
Also, give your views to the individual members of the tax writing committees.
Also send your comments to the House member in your District who isn’t on the W&M Committee. Personal visits by groups of charities in the Congressperson’s home office are the best.
Good idea to give your Senators (on and not on the Senate Finance Committee) a heads-up on your concerns about the House Blueprint proposals.