During the 113th Congress, the House and Senate tax-writing committees undertook a robust process of reviewing the tax code.
Comprehensive tax reform has the potential to impact charitable organizations, which must adhere to the regulations in the U.S. tax code in order to qualify for tax-exempt status. In proposals for tax reform legislation, lawmakers suggested changes to in the current tax system that both encourage and enable taxpayers to donate to charitable causes.
Senate tax reform working group reports released
Senate Finance Committee leaders on July 9 published the reports submitted by its five bipartisan working groups, created in January 2015 to examine broad areas of the tax code. Few, if any, new ideas emerged from the process, with lawmakers drawing primarily from existing proposals, as well as concepts developed during the House Ways and Means Committee’s own working group process in 2013. The groups largely declined to endorse any specific proposals and instead offered options for the committee’s consideration. Absent from any of the reports were options to limit the charitable tax deduction for individuals or to modify the rules for the commercial activity of exempt organizations. The groups identified among possible tax-code changes the permanent reinstatement and expansion of three expired tax incentives for charitable giving, a simplified excise tax for private foundations' investments, mandatory e-filing of the Form 990, and the expanded availability of court judgments for all groups seeking tax exemption under Section 501(c). Read Independent Sector's submitted comments.
Retiring Chairman Camp formally introduces tax reform legislation
House Ways and Means Committee Chairman Dave Camp (R-MI) formally introduced the Tax Reform Act of 2014 (H.R. 1) on December 11, 2014, submitting a bill identical to the text of a discussion draft he released in February. While Mr. Camp is retiring at the end of this year, he said he hopes the move “will help spur further action on this critical issue in the 114th Congress.”
IS Position and Action
Given the potential for tax reform proposals to shape the opinions and decisions of policymakers for years to come, Independent Sector continues to engage with IS members and key stakeholders to determine the impact tax reform proposals would have on various communities in the charitable sector. For more information regarding the impact of former Chairman Camp’s proposal on issues such as UBIT, donor-advised funds, intellectual property valuation, political activity, executive compensation, and the excise tax, please view Independent Sector’s detailed summary.
In 2013, House Ways and Means Committee Chairman Dave Camp (R-MI) and then-chairman of the Senate Finance Committee Max Baucus (D-MT) traveled the country in a so-called Tax Reform Tour to talk with individuals, families, and business about tax reform. They also launched a website, www.TaxReform.gov, and a Twitter account (@simplertaxes) to generate public input in the process. Both leaders expected to step down from their posts in 2014 and made tax reform a high priority during the 113th Congress.
This process informed a discussion draft of a comprehensive tax reform plan and economic analyses
that Chairman Camp released on February 26, 2014 and later introduced as formal legislation. The plan would bring major changes for both individual and
corporate taxpayers. It stipulates two tax brackets for individuals at 10
and 25 percent, with a 10 percent surtax for certain income over
$400,000, and places the maximum corporate tax rate at 25 percent.
According to Chairman Camp, the proposed system would allow 95 percent
of taxpayers to avoid itemizing, and instead claim a larger standard
deduction. Taxpayers would no longer be able to reduce their tax
liabilities by claiming state and local income taxes, and the maximum
allowable deduction for mortgage interest deductions would be lowered to
$500,000 over four phases.
Within the plan are several provisions that would impact charitable giving, such as a two percent floor for claiming the charitable deduction and an extended deadline through April 15 for making deductible donations. Beyond charitable giving, the plan proposes changes to the tax code that would alter the administration, reporting, and monitoring of exempt organizations. Included were measures derived from recommendations by the committee's working groups, such as mandatory e-filing of the Form 990 information return for exempt organizations and the permanent reinstatement of certain land conservation easements.
In the Senate, the Finance Committee held a series of ten closed-door meetings in 2013 that focused on select
issue areas, one of which was the charitable and exempt sector. At the
conclusion of each meeting, committee staff released a tax reform options paper,
outlining current law and legislative options discussed in their
closed-door sessions. In July, then-Chairman Baucus and Ranking
Member Orrin Hatch (R-UT) sent a letter
to each senator that proposed pursuing tax reform first with a "blank slate." They asked their colleagues to justify adding any deductions, credits, and preferences back into the tax code, as well as to
submit any other ideas they may have regarding a tax code overhaul. In response to this process, Independent Sector was joined by 1,245 nonprofit and charitable organizations in urging Senators to
preserve the charitable deduction and other giving incentives during tax reform. Committee members Sens. Ron Wyden (D-OR) and John Thune (R-SD) had circulated a letter earlier in the year in support of protecting the full scope of the charitable deduction in tax reform.
In November 2013, Baucus released a series of discussion drafts for tax reform, one of which would require most nonprofits to file their Form 990 information returns electronically. In February 2014, Baucus left the Committee earlier than expected to become a U.S. foreign ambassador, and Senator Wyden assumed the chairmanship for the remainder of the 113th Congress.
House & JCT Working Group Report (May 2013)
33 Senators align to signal support for charitable deduction (January 2013)
Chairman Camp's tax reform discussion draft (February 2014)