Talk of tax reform, accompanied by the “Jaws” theme, has crept closer and closer to nonprofits for more than a year now. This week, a group of U.S. senators introduced legislation intended to provide a bigger (life) boat.
Senators John Thune (R-SD), Bob Casey (D-PA), Ron Wyden (D-OR), and Pat Roberts (R-KS) introduced S-1343, the Charities Helping Americans Regularly Throughout the Year Act of 2017 (CHARITY Act). The bill’s provisions include permitting tax-free distributions from individual retirement accounts (IRAs) to donor-advised funds (DAFs), modifying and simplifying the excise tax on private foundation’s investment income to a flat 1 percent, and mandating that all organizations required to file a tax return do so electronically.
“It is the sense of the Senate that encouraging charitable giving should be a goal of tax reform,” the bill reads. “Congress should ensure that the value and scope of the deduction for charitable contributions is not diminished during a comprehensive reform of the tax code.”
Hadar Susskind, senior vice president of government relations for the Council on Foundations, described the above quote, accompanied in the legislation by statistics highlighting the importance and prominence of the charitable sector, as “encouraging.” Tax proposals coming from the White House and House of Representatives have, to date, featured elements such as increasing the standard deduction that would have unintended, negative effects on giving, Susskind said.
This is the CHARITY Act’s second go-around, having been introduced last spring. While the council would have been happy to see last year’s introduction passed into law, the goal was primarily to use the act as a vehicle to advocate and educate fellow legislators around issues facing the charitable sector.
“My best guess is that this bill won’t get an independent floor vote and get signed into law as is,” Susskind said, adding that the provisions in the act also exist independently in House of Representatives legislation. “As it builds co-sponsorship and gets more senators on board, the hope is that the provisions of this bill will be included in whatever comprehensive tax bill does get put into law.”
The million-dollar question is when such a tax bill will take shape. The council has been preparing for tax reform for about two years, including working with senators since last year on the CHARITY Act. Over the past 18 months, the council has increased capacity and focused its work on Capitol Hill, members of the council there on a daily basis.
It has long been clear that tax reform would be easier to work on — from both a financial and political perspective — once healthcare reform was settled, Susskind said. Now that the Republican healthcare plan has hit a number of snags and the debt ceiling looms, the timeline initially envisioned by Speaker of the House Paul Ryan and House Ways and Means Committee Chair Kevin Brady has been pushed back. Conventional wisdom says that if tax reform isn’t made this year, it won’t happen in 2018 due to the midterm election. That might be so, but Susskind pointed out that the last time comprehensive tax reform was undertaken, everything was signed off in October of 1986, mere weeks before the midterm election.
Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA), believes that the legislation, which closely mirrors last year’s bill, will be to the liking of most nonprofit leaders. The mandate to file tax forms electronically would be burdensome to few, he said, as even individuals have taken to filing electronically at an increasing rate.
Other elements, such as the ability to roll over IRAs to DAFs and language prioritizing the preservation of charitable giving, will likely be seen by most as beneficial and encouraging given concern within the sector of upcoming tax reform.
“I think that it would be a positive,” Busby said of the IRA rollovers, pointing out the growth of DAFs such as Fidelity Charitable in recent years. “If a taxpayer is already making many of their charitable gifts through a donor-advised fund, being able to roll the money out of IRAs is a plus. I think that’s nothing but positive.”
The bill has also garnered support from the Alliance for Charitable Reform (ACR). The legislation, if adopted, would protect and expand charitable giving, according to an organization statement.
“This legislation includes provisions with strong bipartisan support that will expand charitable giving,” said Sandra Swirski, executive director of the ACR. “Expanding the current IRA charitable rollover to include transfers to DAFs and streamlining the private foundation excise tax will allow local charities to benefit greatly.”