We’re now halfway through the first quarter, and 2015 has already seen a slew of legislative proposals that could considerably impact exempt organizations. From the president’s FY 2016 budget proposal, to last year’s Tax Reform Act of 2014 (TRA 2014), to a new proposal requiring that the IRS give exempt organizations notice before their exempt status is revoked for non-filing, nonprofits are in the midst of a legislative landscape potentially poised for reform. As we look to the weeks and months ahead, here are a few major pieces of legislation that nonprofits should be monitoring:
Reduction of the excise tax on the investment income of private foundations
A private foundation is generally subject to a 2 percent excise tax on its net investment income, and this rate is reduced to 1 percent in any year in which a foundation exceeds the average historical level of its charitable distributions. TRA 2014 had a provision to reduce the excise tax on the investment income of private foundations from 2 percent to 1 percent. This provision found its way into the America Gives More Act of 2014, as well as other tax provisions that were passed by the House of Representatives, but ultimately did not become law last year.
Still, this provision has since resurfaced in the House, and after being sent to the floor by the Ways & Means Committee, is now expected to be voted on very soon. Meanwhile, the president’s budget contains a proposal to reduce the two percent tax to 1.35 percent across the board. Many in the nonprofit community are opposed to the president’s proposal because it could actually result in a tax increase for organizations that are able to reduce the tax to 1 percent under the current law formula.
Make the IRA rollover to charity and enhanced deductions for conservation and food inventory permanent
These provisions aren’t permanent, but they keep getting renewed every year. Legislation in 2014 would have made permanent the tax-free distributions from individual retirement accounts (IRAs) for charitable purposes, an enhanced deduction for contributions of food inventory, and also the tax deduction for charitable contributions by individuals and corporations of real property interests for conservation purposes. The Ways and Means Committee has now approved making these provisions permanent, and the full House will likely vote on them soon.
Charitable contribution extensions and simplified rules
TRA 2014 had a number of provisions that would have impacted charitable giving, including one that would allow taxpayers to treat charitable contributions made up until April 15 as deductible in the previous year’s taxes. Although this provision surfaced again in 2014, we have not seen it yet this year.
Meanwhile, the president’s proposals aim to simplify the rules regarding limitations on the maximum amount of charitable contribution deductions for a single year, regardless of whether contributions are made to public charities or private foundations, whether they are cash or property, and whether they are for the use of the organization. The proposal would also increase the carryforward period for an unused charitable deduction that is in excess of the limits from five years to 15 years.
College and professional sports under scrutiny
Both TRA 2014 and the president’s FY 2016 budget proposals have placed sports on the radar in a number of capacities. Under present law, those who donate to colleges and universities and receive in exchange the right to purchase tickets for seating at an athletic event may deduct 80 percent of their contribution. This is in contrast to the usual rule that only the contribution in excess of the fair market value received in return can be deducted. Both TRA 2014 and the president’s budget proposals aim to eliminate this deduction.
There are also two other tax proposals aimed at sporting events. TRA 2014 would have eliminated the ability of professional sports organizations such as the NFL, NHL and others to be exempt under IRC 501(c)(6). Additionally, although the president’s proposals would expand the use of tax-exempt financing for infrastructure and research, it would repeal exempt financing of professional sports facilities on the basis that it transfers the benefits of exempt financing to private professional sports teams, rather than the general public.
New tax bills introduced in the Senate
Three new tax bills were also introduced in the Senate and will be vetted in a hearing of the Senate Finance Committee. They include a bill to require the IRS to give an exempt organization 65 days of notice before it has its exempt status revoked for failing to file information returns (Form 990 series); a bill to make certain agricultural research organizations public charities; and a bill to provide an exception to the private foundation excess business holding rules for certain philanthropic business holdings.