updated June 19, 2002

• Why Nonprofits Should Support the CARE Act—a letter to the Chronicle of Philanthropy by IS President Sara E. Meléndez...5/30/02

The CARE Act of 2002 (S. 1924) was introduced by Senator Joseph Lieberman (D-CT) and Senator Rick Santorum (R-PA) to “better harness the enormous potential of charitable organizations to help the federal government solve pressing social problems, by leveraging more public and private support for these groups and making it easier for smaller social service providers to qualify for Federal aid.” There are five primary components of the bill:

• Tax incentives to encourage greater charitable giving

• Expansion of the Individual Development Account (IDA) program for low-income families

• Provisions for equal treatment of nongovernmental service providers (including faith-based providers) that apply for federal grant funds

• Technical assistance for smaller social service organizations to improve their management and service delivery

• Additional federal funding for the Social Services Block Grant program and for Maternity Group Homes

The bill has not been officially “scored” by the Joint Committee on Taxation, but it is expected to cost between $11 and $13 billion. The charitable giving tax incentives account for the largest percentage of the cost, even though most of those provisions would expire after two years. The bill is drafted to take effect on January 1, 2002, but the effective date will likely be adjusted if the bill is passed by Congress.

Title I – Charitable Giving Incentives Package
This section includes eight targeted tax incentives to encourage charitable giving. All provisions would expire after two years except for the modification of excise tax changes for charitable remainder trusts and adjustments in the basis rules for charitable contributions of appreciated property. The tax incentives include:

• Charitable Deduction for Nonitemizers: Donors, filing as individuals, will be able to claim a maximum deduction of $400 to a qualified charitable organization while married donors, filing jointly, will be able to deduct a maximum of $800. The provision covers only cash contributions; deductions for in-kind contributions would presumably not be permitted.

• IRA Charitable Rollover: Donors who are at least age 67 will be able to give directly from a traditional or Roth IRA to a qualified charitable organization and exclude the distribution from their gross income. Indirect donations through charitable remainder trusts, pooled income funds, or the purchase of charitable gift annuities would also qualify for tax-free treatment.

• Corporate Charitable Deduction: The limit on the charitable deduction allowed for corporations would be raised from 10 percent to 13 percent in 2002. In 2003, the limit is raised again to 15 percent but in 2004, and thereafter, the limit on the charitable deduction allowed for corporations will return to 10 percent.

• Contributions of Food and Book Inventories, and Bonds: Eligibility for the enhanced tax deduction for food donations that currently applies only to C corporations would be expanded to all businesses, including farmers and restaurants. The deduction would be the lesser of fair market value or two times basis. A donor who contributes book inventory for educational purposes to a qualified charity (that is also an organization that makes books available to the public for free or in order to operate a literacy program) would also be eligible for the enhanced deduction for their donation. Contributions of certain bonds will receive the same treatment for determining appreciated value as is currently used for contributions of stock.

• Private Foundation Excise Tax Reduction: The excise tax that private foundations pay on net investment income would be lowered to a single rate of one percent. 

• Modify Tax Treatment of Charitable Remainder Trusts: Charitable remainder annuity trusts and charitable remainder unitrusts would be subject to an excise tax on unrelated business income equal to the unrelated business income. They would not, however, lose their tax-exempt status. Under current law, a charitable remainder trust that has unrelated business income loses its tax-exempt status for a year. This provision does not have an expiration date. 

• Charity Contribution Deduction For Scientific Property Used For Research And For Computer Technology And Equipment Used For Educational Purposes: Expands the donation of scientific property or computer technology and equipment to include “assembled” donations. The donation must be to an educational organization, another entity that is organized primarily for purposes of supporting elementary and secondary education, or a public library.

• Modify Basis Rules for Gifts of S Corporation Stock: The rules for adjusting the basis of S Corporation stock would be modified to preserve the benefit of providing a charitable contribution deduction for appreciated property. There is no expiration date for this provision.

Title II – Individual Development Accounts
This section would provide a dollar-for-dollar tax credit to banks or community organizations to offset matching contributions up to $500 per individual development account (IDA). IDAs are matched savings accounts for low-income families for the purpose of buying a home, starting or expanding a small business, or paying for post-secondary education. The tax credits would apply to tax years 2003 through 2009.

Title III – Equal Treatment For Nongovernmental Providers
All nongovernmental social service providers (including religious social service providers) are to be treated equally in competition for federal contracts, grants, or participation in cooperative programs. Such groups will not be required to: 1) remove religious art or symbols, 2) alter or remove religious provisions in their charters that are otherwise in accordance with law, or 3) alter or remove religious qualifications for members of their governing boards. Organizations will be not disadvantaged for not having previous grant experience with an agency. The bill sponsors have stated that “these provisions do not relieve any applicant from meeting all other grant criteria or address the issues of preemption of civil rights laws.”

This section also provides for intermediate grantors to award and administer contracts or subgrants. The recipient of the subgrant or contract would have the same rights and responsibilities of the intermediate grantor, except for administrative responsibilities.

Title IV – EZ Pass Recognition Of Section 501(C)(3) Status 
This provision would require the IRS to accelerate consideration of applications for 501(c)(3) status from smaller organizations interested in applying for federal grants to deliver social service programs. It also requires the IRS to waive application fees for groups whose annual gross receipts will not exceed $50,000 in the first four years after application. It does not affect the requirements for obtaining tax-exempt status, nor does it affect the reporting and other requirements of organizations that are granted 501(c)(3) status. (No expiration date.)

Title V – Compassion Capital Fund
The bill would provide $154 million in FY 2003 for Compassion Capital Funds in the Corporation for National Service and the Departments of Health and Human Services, Justice, and Housing and Urban Development. The Funds would be used to provide grants and cooperative agreements with nongovernmental organizations to help community-based organizations acquire the skills to engage in best practices of social service organizations. This assistance includes but is not limited to: grant writing and grant management assistance, legal assistance (with incorporation and obtaining tax-exempt status), referrals for accounting services, and information regarding capacity building. It also provides for the Secretary of Health and Human Services to award grants and to enter into cooperative agreements with States to provide seed money to establish State and local offices of faith-based and community initiatives. The fund is authorized from 2004 through 2007 but at levels that have yet to be determined.

Title VI – Social Services Block Grant
The bill allows States to transfer up to 10 percent of TANF funds to their Social Services Block Grant, beginning with FY 2003, and seeks to restore SSBG funds to their 1996 authorized levels. It would increase funding to $1.975 billion for the SSBG for FY 2003 and $2.8 billion for FY 2004 and each year thereafter. This reflects an increase of $275 million for 2003 and more than $800 million for 2004.

Title VII – Maternity Group Homes
The bill authorizes $33 million in additional funds and creates a separate funding stream for community-based group homes for teen-age mothers and their children to provide them with the skills for long-term economic independence. This provision is designed to supplement a 1996 welfare reform law requirement that minors live at home under adult supervision or in a maternity group home to receive benefits. 

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