Summary of Charitable Provisions in the Tax Relief Act of 2005

As passed by the Senate in February 2006, the Tax Relief Act of 2005 (PDF) (originally S. 2020) reflected many of the reforms recommended by the Panel on the Nonprofit Sector to correct abuses by taxpayers in claiming excessive tax deductions and by individuals who have used charitable organizations for their personal gain. This tax reconciliation legislation also included a significant package of incentives for charitable giving that are also in the CARE Act. On May 11, 2006 Congress passed the tax reconciliation bill (H.R. 4297) without including a number of key tax provisions or the package of charitable giving reforms and incentives included in the Senate version of this bill.

The Senate's version included provisions that would:

• Permit taxpayers who do not itemize deductions on their income taxes to take a deduction for their total cash contributions over $210 for single filers and over $420 for joint filers. Taxpayers who itemize deductions will be permitted to deduct the total of both cash and non-cash contributions over $210 ($420 for joint filers). New substantiation rules apply for non-cash gifts valued at $250 or more.
  
• Permit taxpayers over age 70½ to make tax-free distributions from their IRAs directly to charitable organizations or make such contributions to split-interest trusts beginning at age 59½.
  
• Grant enhanced deductions to corporations for contributions of food and book inventory.
  
• Encourage the contribution of capital gain real property for conservation purposes.
  
• Provide an enhanced deduction for gifts of literary, musical, artistic and scholarly compositions.
  
• Strengthen the rules for appraisals required to claim tax deductions for contributions of property, impose new rules on tax-deductible gifts of façade easements and taxidermy, and add new rules to ensure that contributions of partial interest in gifts of property are used for charitable purposes.
  
• Increase fines and penalties for self-dealing and certain other violations by private foundations, and excess benefit transactions by public charities.
  
• Establish a definition of donor-advised funds that gives the Secretary of the Treasury broad authority to delineate appropriate exceptions; impose aggregate payout requirements for donor-advised funds that would include reasonable and necessary expenditures by the sponsoring organization to administer the fund; and impose minimum payout requirements on individual funds that hold over 10% of their assets in property or other illiquid assets, which could be satisfied by transferring full control of partial interest in those illiquid assets to the sponsoring organization. Sponsoring organizations would be required to report annually the total number of and aggregate assets and contributions made by donor-advised funds they hold. To claim a tax deduction for funds or assets given to a donor-advised fund, donors would be required to have written substantiation that those assets are under the exclusive legal control of the sponsoring organization.
  
• Prohibit donors from taking a tax deduction for contributions to a donor-advised fund held by a Type III supporting organization.
  
• Prohibit both donor-advised funds and supporting organizations from making payments and distributions to donors and related parties (other than public charities), although fair and reasonable compensation may be provided to investment advisors.
  
• Require minimum aggregate distributions by Type III supporting organizations of 85% of investment income or 3% of the fair market value of assets (other than assets used or held for the use of the supported organization), rising to 5% of assets in the third taxable year after enactment, and impose new rules on Type III supporting organizations that limit the number of organizations that may be supported and that require documentation of the approval of arrangements by the supported organizations. Reasonable and necessary administrative expenses would count towards qualifying distributions of a supporting organization.
  
• Require organizations that do not otherwise have to file an annual information return to notify the IRS each year.
  
• Permit the IRS to disclose to state officials information related to proposed actions related to tax-exempt organizations.
  
• Expand the base of tax on private foundation net investment income.
  

IS detailed summary of the charitable provisions, revised 11/28/05 (PDF) (IS member password required)



Last Updated: May 17, 2006

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