PND - Legislative Round-Up

Posted on December 30, 2005

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Legislative Round-Up

PND Special Issue: 2005: Year in Review - Legislative Round-Up

When it came to nonprofit legislation, 2005 was a busy, if ulitmately unsatisfying, year, as congressional com- mittees continued to voice concerns about accountability in the sector, tried to revive bills designed to spur charitable giving, and passed very little legislation affecting the sector.

In a letter submitted to the Senate Finance Committee in April, Internal Revenue Service commissioner Mark W. Everson called attention to problems in virtually every type of tax-exempt organization. "We can see that tax abuse is increasingly present in the sector," Everson wrote. Unless the government takes effective steps to curb it, he added, such organizations risk "the loss of the faith and support that the public has always given to this sector."

Concerns that wealthy individuals were using so-called supporting organizations more for tax planning than for charitable purposes caused regulators and lawmakers to push for tighter rules on such organizations in April. Specific practices cited by lawmakers included donations of assets held in offshore tax havens that find their way back into donors' pockets and the challenge of determin- ing the validity of appraised values attached to unconventional gifts.

In June it was the turn of donor-advised funds, an increasingly popular giving vehicle, with lawmakers from both parties questioning whether such funds — which have operated largely free of the sorts of regulations that govern private charitable foundations — are too often used to benefit donors rather than for legitimate charitable purposes. Without answering that question, Senate Finance Committee chairman Charles Grassley (R-IA) unveiled legislation during the summer that, if passed, would require such funds to pay out a certain percentage of their assets to charity each year and would prohibit individuals from using them to cover personal expenses. And while the Panel on the Nonprofit Sector helped forestall further legislation, there is still interest within Congress in governance reforms.

In October, the Charity, Recovery, and Empowerment (CARE) Act was reintroduced in both houses of Congress. The act would allow non-itemizers to deduct a portion of their charitable contributions, permit tax-free contributions to charity from IRAs, raise the cap on corporate contributions from 10 percent to 20 percent, and allow low-income workers to build assets through matched savings accounts. "In the 108th Congress, more than 1,600 organizations endorsed the CARE Act and twenty-three senators from both sides of the aisle were co-sponsors of the bill," said Sen. Rick Santorum (R-PA). "At a time when we are asking so much of our community-based organizations, we should be proactive in finding ways to more fully engage the American public in charitable giving."

Responding to the disastrous aftermath of Hurricane Katrina, Congress also passed an emergency tax relief package at the end of October that contained a provision designed to aid survivors of the storm and encourage giving to other charities that might be affected by "donor fatigue" in the storm's wake. Although some experts questioned the likelihood of such a scenario, the provision — which allows donors who make cash gifts to almost any charity by the end of the calendar year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes — double the normal limit — was expected to generate billions in additional revenue for nonprofit organizations.

Finally, charities stand to lose approximately $10 billion a year if Congress permanently repeals the estate tax. A measure calling for full repeal passed the House in April, but stalled in the Senate. House Democrats led by Rep. Earl Pomeroy (D-ND) have proposed raising the amount not subject to the tax to $3.5 million, enough to exempt 99.7 percent of all estates. But in a letter to the Senate, Americans for a Fair Estate Tax, a coalition representing twenty thousand organizations with roughly twenty million members nationwide, urged senators to reject any compromise that would sacrifice crucial revenues and the charitable-giving incentives the tax provides. In its letter, the coalition estimated the costs of full repeal at as much as $1 trillion in lost federal revenue over ten years, and $25 billion per year in lost donations to charities and nonprofits.

As Donations to Fight Poverty Lag, Congress Questions Definition of Charity (11/15/05)

Federal Government Drops Watch List Requirement (11/11/05)

Tax Reform Panel Recommends Incentives for Charitable Giving (11/03/05)

Enthusiasm for Nonprofit Governance Reform Waning in House (11/02/05)

Katrina Tax Provision Could Provide Windfall for Charities (10/28/05)

CARE Act Reintroduced in Congress, But Likely Headed Nowhere (10/19/05)

Charitable Giving Legislation Reintroduced in Congress (10/03/05)

Proposed Federal Cuts Would Leave Nonprofits Scrambling, Study Suggests (9/16/05)

Coalition Urges Senate to Reject 'Compromise' on Estate Tax (8/04/05)

Senate Poised to Vote on Estate Tax Repeal (7/26/05)

IRS Lacks Staff to Review Most 990s (7/20/05)

Congress, IRS Aim to Regulate Popular Donor-Advised Funds (6/23/05)