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Independent Sector
Policy Update
August 19, 2005
IRS Releases Draft Form 990-EZ and Schedule A
On August 5, the IRS released several draft forms containing changes that reflect recent areas of concern with tax-exempt accountability. The draft version of Schedule A for Form 990 divides a question about compensation of independent contractors into two parts – one section for professional services and a second for “other” services. The draft also includes a new question under Part III about whether the filing organization received a contribution of real property for conservation purposes. Additionally, Part IV now asks supporting organizations to check a box identifying whether it is a Type 1, 2, or 3 supporting organization.
Draft Form 990-EZ includes a new box to check under Part III to indicate whether the organization has made any foreign grants and a new question about whether the organization has an interest in or authority over a financial account in a foreign country or maintains a foreign office. The IRS will accept comments submitted within 30 days of the date of issuance of the forms. The proposed changes for the 2005 forms are incremental reforms. A more comprehensive overhaul of the Form 990 is still ongoing at the IRS.
Draft Schedule A (PDF)
Draft Form 990-EZ (PDF)
Senator Kyl Considering Alternate Strategy for Estate Tax
According to congressional and business sources, Senator Jon Kyl (R-AZ) is strategizing for the possibility that the Senate will reject a motion to invoke cloture (i.e. limit debate) on full repeal of the estate tax. He is preparing a separate cloture motion on a bill to permanently link the estate tax rate to the capital gains tax rate and increase estate exemption levels (most likely by setting the exemption at $10 million). This would result in a significantly lower tax rate for inherited income as compared to other income. Senator Kyl said he will move forward with this plan unless he is able to reach a compromise with Democrats within the first few days after the August recess. During previous negotiations with Democrats, Senator Kyl indicated he would agree to an exemption of $7 million or lower, but insisted on linking the rate to the capital gains tax rate.
IS encourages all public charities to examine their positions on the estate tax and, if possible, to add your voices to the growing number of organizations supporting reasonable reform and opposing full repeal of the estate tax. More on estate tax reform
IS Members Have Been Busy Over the August Break
IS members are using the August recess as an opportunity to meet with Members of Congress and their staff, both in their district offices and on the Hill. We have heard reports of meetings in Michigan, California, Ohio and Illinois.
IS staff and Washington representatives of IS members have also met with about 16 key Hill staffers so far, and have a number of additional meetings to go. The meetings have focused on charitable reform and on IRA rollover legislation.
There is still time left to get in to see your Members of Congress. As we noted at the beginning of the month, the August recess provides a perfect opportunity to talk to elected officials and their staffs about important issues that Congress will address in the fall. For example, Senate Finance Committee Chairman Charles Grassley (R-IA) said that the committee will introduce a bill to reform charitable organizations in September, and as noted above, the Senate will vote on the estate tax when they return. IS has prepared a few fact sheets that can be downloaded from our website to help you prepare for your meetings and letters:
- Fact Sheet on Charitable Reform (PDF), an overview of recommendations of the Panel on the Nonprofit Sector;
- Fact sheet on the Public Good IRA Rollover Act (PDF) (HR 1607/ S1366), and draft letter (PDF) to send to your Senators and Representative to encourage cosponsors; and,
- Fact sheet on the Estate Tax (PDF).
CBO Releases Update on the Budget Outlook
In its August 15th update on the economic outlook, the Congressional Budget Office reported that while this year’s federal budget gap will shrink, the fiscal outlook for the coming decade has not changed significantly. Revenues are expected to be higher than predicted earlier in the year, due primarily to increased individual income tax payments and a large, but mostly temporary, surge in corporate income tax payments. CBO’s predictions of “significant strains on the budget” in coming years have not changed. One source of pressure is mandatory spending - such as Social Security, Medicare, and Medicaid - which is scheduled to rise by about 6 percent per year over the next 10 years. Those three programs will account for half of all federal spending by 2015.
Read CBO’s full report, The Budget and Economic Outlook: An Update (PDF).
Read the Center on Budget and Policy Priorities’ statement on the report.
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