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Independent Sector
Policy Update
June 17, 2005
Senate Finance Committee Holds Hearing on Land Donations
The Senate Finance Committee held a hearing on June 8 on “The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform.” The Committee heard testimony concerning investigations on The Nature Conservancy, and on the Interior Department’s proposed purchase of mineral rights in Florida. (summary of the hearing)
Dean Zerbe and Jonathan Selib, Republican and Democratic Committee tax counsels, testified about the Committee report on The Nature Conservancy, which raises concerns about the size of tax deductions for land donations, enforcement of conservation easement agreements, and insider transactions. The report also makes a number of recommendations, some of which would apply to all tax-exempt organizations. (summary of report recommendations).
In general, the witnesses suggested several changes including: improved reporting to the IRS on the Forms 990 and 8283 (on which donors report property donations of over $500) to provide more specific information about donations of land; mandatory standards for appraising conservation easements, accreditation or continuing education for appraisers, best practices guidance, and establishing a panel of experts on conservation easements similar to the existing IRS Art Advisory Panel.
In closing the hearing, Chairman Grassley (R-IA) said he is hopeful that in the next few weeks, he and Senator Baucus (D-MT) will be able to propose reforms in the area of conservation easements. They will look at issues including: “valuation, especially improving appraisals; adequate monitoring and enforcement of easements; ensuring conservation purposes of easements; proper reporting and limitations on modifications of easements; accreditation of land trusts; and greater transparency and reporting by land trusts.”
House Ways and Means Subcommittee to Hold Hearing on Façade Easements
The House Ways and Means Oversight Subcommittee will hold a hearing on Thursday, June 23, to review tax deductions for historic facade easements. The hearing will take place in Room 1100 of the Longworth House Office Building at 2:00pm. As of this date, witnesses have not yet been posted, although the National Trust for Historic Preservation has confirmed that they will be testifying.
Historic facade easements allow a donor to take a deduction for the value of a donated easement in exchange for promising not to alter the facade without the permission of the donee organization. Representative Jim Ramstad (R-MN), Chairman of the Oversight Subcommittee, said he is holding the hearing to determine whether the tax deduction for facade easements is being abused. The hearing will focus on the valuation of such easements and the potential abuse related to their marketing.
IRS Issues Guidance and Regulations on Vehicle Donations
On June 3, 2005 the IRS released a notice (2005-44) (PDF) explaining new vehicle donation rules that implement changes enacted in October 2004 as part of the American Jobs Creation Act (AJCA). In general, the ACJA limits deductions for vehicle donations of over $500 to the sale price obtained by the charity. In some limited circumstances, however, the donor may claim fair market value. The interim guidance provides clarification on those limited circumstances and explains how to determine fair market value. The notice also includes guidance on acknowledgements that charities must provide to donors, and on penalties imposed on organizations that provide false or inadequate acknowledgments.
The rules provided in the interim guidance will apply until final regulations become effective. The IRS plans to issue separate guidance to address the time and manner of reporting and will issue a new Form 1098-C for charities to report to the IRS the same information they provide to donors in the acknowledgments.
The notice invites public comment and suggestions for future guidance. Specific comments are requested on which markets are appropriate for measuring the fair market value of vehicles. Comments are due by September 1, 2005. Summary of the interim guidance
Senate May Vote on Estate Tax in July
Senator Jon Kyl (R-AZ) is predicting that estate tax legislation will be brought to the Senate floor before the end of July. It is believed that Senate Republicans do not have the 60 votes needed for full repeal, and are therefore focusing on a possible compromise such as an increase in the exemption amount and a cut in the tax rate to 15%. Senator Kyl said that if a compromise is reached with Democrats, the measure will move by itself. Otherwise it may be attached to other legislation.
Tax Exempt Advisory Committee Recommends Revised Filing Standards
The IRS Tax Exempt and Government Entities Advisory Committee presented a report on June 8 and discussed, among other issues, steps that can be taken to develop good compliance habits in new charities. The committee’s report recommends ways to increase the quantity and quality of contacts between charities and the Exempt Organizations division of the IRS (EO). For example, the report advises increased electronic filing of Forms 1023 and 990 and requiring charities to provide more contact information on these forms to facilitate follow-up contacts from the IRS. Another suggestion is to lower the threshold for filing annual returns with the IRS from the current $25,000 in annual gross receipts. The committee recommends requiring charities with gross receipts between $5,000 and $25,000 be required to submit a modified version of the Form 990EZ. Additionally, the committee report recommends that the IRS suspend exemption under 501(c)(3) for organizations that fail to file a Form 990 for three consecutive years. The report cites similar recommendations made by the Panel on the Nonprofit Sector on the issues of lower filing thresholds and suspension for non-filing.
527 Reform Legislation Clears House Committee
The House Administration Committee approved a bill (H.R. 1316) sponsored by Representatives Mike Pence (R-IN) and Albert Wynn (D-MD) that would raise the aggregate limits on campaign contributions from individuals to federal campaign committees and parties in an effort to help political parties more easily compete with 527 groups. It would also repeal the restrictions on some nonprofit use of “electioneering communications” that were enacted in the 2002 Bipartisan Campaign Reform Act (501(c)(3) organizations were exempted). The measure was amended during committee consideration to include provisions requiring 527 groups to report to the Federal Election Commission as well as the IRS, and to file more frequent reports. The amended version also includes an exemption for Internet communications from FEC regulations. Some supporters of campaign finance reform - including Reps. Christopher Shays (R-CT) and Marty Meehan (D-MA) and Senators John McCain (R-AZ) and Russ Feingold (D-WI) - are trying to stop H.R. 1316, and instead favor legislation that further restricts 527 groups. The bill could be brought to the floor before the July 4th recess.
President Extends Deadline for Tax Advisory Panel
The President’s Tax Advisory Panel will now have until September 30, 2005 to deliver its report on options to reform the tax code. The extension makes it very unlikely that the Administration will be proposing tax overhaul bill by the end of the year. There is some speculation that the deadline was pushed back to allow the Administration to continue its push for Social Security reform.
Postal Reform Legislation May Move Before July 4th Recess
The Senate Homeland Security and Governmental Affairs Committee is scheduled to mark-up a postal reform bill (S. 662) on Wednesday, June 22. The “Postal Accountability and Enhancement Act of 2005” would, among other things, permit the U.S. Postal Service to use escrowed funds to pre-fund postal retiree health benefits, pay down outstanding debt to the Treasury, and delay postal rate increases. There is also a possibility that the House will consider its postal reform bill (H.R. 22) next week before the July 4th recess, but a vote has not yet been scheduled.
The USPS is currently seeking approval to raise prices 5.4 percent for almost all categories of mail, including nonprofit rates. If approved, the request would most likely go into effect early in 2006. The Postal Service said that the sole reason for the increase is related to its contributions to the Civil Service Retirement System. The postal reform legislation (H.R. 22/S. 662) would allow the USPS to use escrowed funds to delay rate increases.
Fax Bill May Move Soon
Senator Gordon Smith (R-OR) is hopeful that his bill (S. 714) to restore the established business relationship exception for faxed communications will be brought to the Senate floor before the July 4th recess. The bill would allow businesses, associations and charities to continue to send faxed advertisements to their customers and members without receiving prior written permission, as long as they give them the chance to opt out of receiving future documents.
If S.714 or similar legislation is not enacted, a proposed Federal Communications Commission (FCC) rule will go into effect that would eliminate the established business relationship exception and require prior written permission from fax recipients for faxes that contain advertisements. Nonprofits that send faxes promoting conferences, publications, or membership solicitations, for example, would need to first get the recipient’s written permission.
The FCC rule is scheduled to go into effect July 1, 2005; however, a petition to delay the effective date has been filed and is expected to be granted before July 1. More on this issue
Art Capital Gains Bill Introduced
Representatives Tom Reynolds (R-NY) and Mike Thompson (D-CA) in the House and Senators Schumer (D-NY) and Domenici (R-NM) in the Senate introduced a bill last week that would lower the tax rate for art investments and give broader charitable deductions for artists for donations of their work. The legislation (H.R. 2786/ S.1186) would lower the tax rate for arts and collectibles from the current 28 percent to 15 percent (which is the top capital gains tax rate for stocks and bonds). It would also allow artists to receive a tax deduction of fair market value for donations of their work, subject to the work being created at least 18 months prior to the donation and a professional appraisal. Currently, artists are only allowed to deduct the cost of their materials. Senator Domenici had introduced the bill during the last two sessions of Congress.
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