Charitable Incentives and Safeguards in the Pension Protection Act of 2006

The Pension Protection Act (Pub. Law 109-280), including a package of charitable giving incentives and safeguard measures, was enacted on August 17, 2006.

While the new law did not include all of the charitable incentives Independent Sector has supported, the bill’s giving incentives should attract needed resources to our sector. It also contains a series of reforms designed to deter individuals who would use charitable organizations for personal benefit and to ensure that donations are used for charitable purposes. They incorporate many of the changes that IS sought in working with Congressional staff. See IS's detailed summary (PDF) of the giving incentives and reforms.

IS submitted a letter (PDF) to Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) on August 7, 2007 in response to a request for written comments on provisions in the Pension Protection Act relating to tax-exempt organizations.

IRS Issues Guidance on Pension Protection Act
The IRS has issued guidance in a number of areas to assist charities, foundations, and donors in complying with provisions in the Pension Protection Act.

• Revocation of status for failure to file Form 990
  The IRS is reminding nonprofit organizations that their tax-exempt status could be revoked if they have not filed the required Form 990 or Form 990-N information return in the last three years. This requirement has been in effect since 2007.
  
  
• Type III Supporting Organization Rules
  The IRS released proposed rules for Type III supporting organizations that outline annual reporting requirements and criteria for determining whether they are “functionally integrated” with their supported organizations. For organizations that do not meet those criteria, the proposed rule would establish a five percent annual payout requirement. Comments were due by December 23, 2009.
  
  
• Donor Advised Fund Guidance
  IRS guidance identifies key areas that can determine whether a sponsoring organization of a donor advised fund qualifies for tax-exemption. A new guide sheet asks a series of questions about the sponsoring organization’s control over its accounts and funds; whether it can ensure the funds will be used for charitable purposes; whether it requires a minimum yearly distribution from the funds and if not, whether it has explained how it will fulfill its tax-exempt purpose. Another series of questions addresses concerns about prohibited private benefits.  An accompanying explanation provides background on rules affecting donor advised funds, answers what the IRS is looking for in response to guide sheet questions, and responses that might result in denial of exemption.

Charitable Giving Incentives
Among the charitable tax incentives included in the pension reform act is an IRA rollover provision that allows individuals age 70½ and older to make charitable donations up to $100,000 from an IRA without having to count the donation as taxable income. This provision would be in effect for two years, allowing the charitable community to demonstrate its value as an incentive for increased giving that could be expanded in the future.

The act also provided expanded tax deductions for contributions of book and food inventory and qualified conservation contributions. It did not include a charitable deduction for taxpayers who do not itemize their deductions, despite the efforts of IS and a number of our member organizations.

Background on Charitable Incentives and Reforms -- read more about the legislative history of this legislation and earlier efforts of Independent Sector in support of charitable incentives and reforms.

Members with additional specific concerns are urged to contact the IS Public Policy staff at: publicpolicy@independentsector.org

Last Updated: February 5 , 2010

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