Tax Reform

The Issue
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 charitable giving provisions in the current tax system that both encourage and enable taxpayers to donate to charitable causes.

Latest News
Finance Committee assembles tax reform working groups, seeks public input
On January 15, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) formally announced the formation of five tax reform working groups. In an effort to lay the groundwork for a future rewrite of the tax code, the groups will work with the nonpartisan Joint Committee on Taxation to prepare a comprehensive analysis of the tax areas under their purview by the end of May. The co-chairs and topics of the working groups are as follows: Individual Income Tax: Sens. Chuck Grassley (R-IA,) Mike Enzi (R-WY,) and Debbie Stabenow (D-MI); Business Income Tax: Sens. John Thune (R-SD) and Ben Cardin (D-MD); Savings and Investment: Sens. Mike Crapo (R-ID) and Sherrod Brown (R-OH); International Tax: Sens: Rob Portman (R-OH) and Chuck Schumer (D-NY); and Community Development and Infrastructure: Sens. Dean Heller (R-NV) and Michael Bennet (D-CO). Independent Sector submitted official comments on April 15.

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 Chairman Camp’s proposals would have on various communities in the charitable sector. For more information regarding the impact of 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.

Background
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.

In the House, the Ways and Means Committee created 11 working groups focused on different issue areas, one of which was the role of charitable and exempt organizations under current tax law. In May 2013, the Joint Committee on Taxation produced a nearly 600-page report summarizing current law and proposals in each area and compiling public comments submitted to the working groups in the process, including those from Independent Sector.

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.

Resources

CBO report: eliminating charitable and mortgage interest deductions would not recoup revenue (June 2013)

Independent Sector's submitted comments to the House & JCT Working Group (April 2013)

House & JCT Working Group Report (May 2013)

Senate Tax Reform Options Paper on the Charitable and Exempt Sector (June 2013)

Independent Sector letter to Baucus and Hatch during "Blank Slate" process (July 2013)

33 Senators align to signal support for charitable deduction (January 2013)

Chairman Camp's tax reform discussion draft (February 2014)

View Independent Sector's detailed summary of Chairman Camp's discussion draft (March 2014)

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