Article Archives >> Lead Stories >> November 16-30, 2005

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Senate Approves Limits on Charities,
Incentives for Charitable Giving
Measures must be approved by the House
before they can become effective

The tug of war between Sen. Charles Grassley (R-IA), chair of the Senate Finance Committee who has been looking to curb perceived abuses by charities, and Sen. Rick Santorum (R-PA), a Committee member who has favored the charitable incentive provisions of the CARE Act, has been resolved, at least temporarily, by including many of the provisions urged by each Senator in the Senate’s version of The Tax Relief Act of 2005 (S. 2020).

If a similar tax bill gets passed by the House, which was unable to act before the Thanksgiving recess, the issues will have to be worked out in a Conference Committee.

Grassley was able to get approval for limitations on donor advised funds and Type III supporting organizations, reforms for contributions of historic easements, taxidermy items, and clothing and household items, and new sanctions for over-valuation on appraisals. The Senate Bill would require the Secretary of Treasury to prepare and publish an itemized list of values for clothing and household items to be used to calculate deductions.

Santorum was able to get a two year break allowing all taxpayers to deduct chartable contributions in excess of $210 ($420 for a married couple) even without itemizing their deductions, and tax-free withdrawals from individual retirement accounts for contributions directly to charity or to split-interest planned giving vehicles after the taxpayer has reached 70 1/2 years of age.

The Bill would also require charities that file a Form 990-T to report unrelated business income to make its return public and would require a charity with gross revenues or assets of more than $10 million to include a certification by an independent auditor that its return accurately reflects the unrelated business income tax liability of the organization. (For details of many of the Bill’s provisions, see Ready Reference Page, Senate Proposes Two Year Contribution Breaks, Permanent Limits on Deductions, DAFs and SOs.)

YOU NEED TO KNOW

The “reforms” included in the bill could have been a whole lot worse but some of the provisions for controlling perceived abuses in deductions for gifts of property seem to have taken a particularly unrealistic turn, especially in requiring a national list of the values for used neckties, couches, and other clothing and household items. That is not where the nation’s “tax gap” lies. Requiring a more complete description of the gifts would deal with most of the problem without arbitrary national values.

With annual budget deficits running more than $300 billion, the tax savings from reforms for easement, taxidermy and personal property deductions would save about $45 million a year, according to Senate estimates. Obviously a major dent in our shortfall.

The requirement that charities make their unrelated business income tax returns public would put them on a different level from all other taxpayers. If Congress really wanted to improve compliance with the Tax Code, it should start by requiring business organizations, at least those that are publicly traded, to make their tax returns public. If the public and the press could compare a company’s reporting to Wall Street and its reporting to the IRS, we have no doubt that a whole lot more tax would be paid.

Article Archives >> Lead Stories >> November 16-30, 2005