Major Tax Reform Legislation Introduced in House

Posted by National Association of Charitable Gift Planners on Nov 2, 2017 12:00:00 PM

WASHINGTON, DC – Earlier today Republican leaders in the House introduced the Tax Cuts and Jobs Act (HR 1), a 429-page mark of sweeping tax reform legislation that has taken key lawmakers months to draft.  Text of the legislation can be found here.  A section-by-section analysis can be found here

The much-anticipated bill would dramatically restructure the tax code for individuals and corporations and will both directly and indirectly affect tax incentives for charitable giving.  The legislation also contains a number of provisions aimed at raising revenue for the federal government, and several of these provisions are aimed squarely at the nonprofit sector.  Please see initial notes below.  As discussed over the past several months, CGP is gravely concerned that because this legislation would push most Americans to no longer itemize their taxes, the current value and scope of the charitable deduction will be significantly lower. 

Early next week, the Ways & Means Committee will meet to “mark-up” the legislation.   CGP understands the hearing may take several days and the committee will consider a number of significant amendments to the bill as introduced, including a Chairman’s “substitute amendment,” before ultimately advancing it to the House floor the week of November 13th.  Additional amendments are possible on the House floor.  CGP will work in the coming days and weeks to add language in the bill creating a universal charitable deduction and requesting other changes. 

The Joint Committee on Taxation revenue estimate of the tax bill may be released later today but lawmakers expect the static score (as opposed to the forth-coming dynamic score, which will attempt to account for economic growth resulting from the changes in the bill) to show the bill would lose $1.51 trillion over the next decade, which if true, would comply with the reconciliation instructions in the budget resolution. 

House leaders continue to indicate they want to send a bill to the Senate by Thanksgiving.  While the House considers this bill, Senate tax-writers are pursuing their own tax reform legislation and could release text as early as next week.

Given all that is developing on Capitol Hill, join CGP on Monday, November 6th at 3:30 pm for a conference call that provides the latest on the House tax reform bill, how it will affect charitable giving and the nonprofit sector, and how CGP members can engage with their elected representatives to shape the bill.      

 

Key Provisions for Charitable and Nonprofit Sector

Individual:

  • Creates four tax brackets: 12%, 25%, and 35% and maintains 39.6% for high-income taxpayers.
  • Nearly doubles the standard deduction.
  • Maintains the current-law charitable deduction.
  • Raises the 50% AGI limitation for cash contributions to public charities and certain private foundations to 60% percent. The provision would retain the 5- year carryover period to the extent that the contribution amount exceeds 60 percent of the donor’s AGI.
  • Phases in a full repeal of the estate tax in six years but immediately doubles the exemption. 

 

Corporate:

  • Lowers corporate rate to 20%.
  • Creates a 25 percent rate for “pass through” businesses, which includes a “guard rail” provision that allows these entities to either claim only 30 percent of income as pass-through income or classify a high percentage of income as business income.  
     

Certain provisions directly related to exempt organizations:

  • Imposes a 1.4 excise tax on the net investment income from private colleges and universities.  The provision would only apply to private colleges and universities that have at least 500 students and assets (other than those used directly in carrying out the institution’s educational purposes) valued at the close of the preceding tax year of at least $100,000 per full-time student.  State colleges and universities would not be subject to the provision. The provision would be effective for tax years beginning after 2017.
  • Repeals the Johnson Amendment as it pertains to certain churches, assuming the speech is in the ordinary course of the organization’s business and its expenses are de minimus. This provision would be effective for tax years ending after date of enactment.
  • Donor Advised Funds would be required to disclose annually their policies on inactive donor advised funds as well as the average amount of grants made from their donor advised funds.
  • Streamlines the excise tax rate on net investment income to a single rate of 1.4 percent. Additionally, the rules providing for a reduction in the excise tax rate from 2 percent to 1 percent would be repealed.  The provision would be effective for tax years beginning after 2017.
  • Private foundations would be exempt from excess business-holdings tax if they own a for-profit business under these conditions: (1) the foundation owns all of the for-profit business’ voting stock, (2) the private foundation acquired all of its interests in the for-profit business other than by purchasing it, (3) the for-profit business distributes all of its net operating income for any given tax year to the private foundation within 120 days of the close of that tax year, and (4) the for-profit business’ directors and executives are not substantial contributors to the private foundation nor make up a majority of the private foundation’s board of directors. This provision would be effective for tax years beginning after 2017.
  • Extends UBIT rules to all 501(a) entities. The provision would be effective for tax years beginning after 2017
  • Art museums claiming the status of a private operating foundation would not be recognized as such unless it is open to the public for at least 1,000 hours per year. The provision would be effective for tax years beginning after 2017.
  • Repeals the special rule that provides a charitable deduction of 80 percent for college athletic event seating rights. 
  • Charitable mileage rate will be adjusted for inflation. 
  • Repeals exception that relieves a taxpayer from providing a contemporaneous written acknowledgment by the donee organization for contributions of $250 or more when the donee organization files a return with the required information.

    WASHINGTON, DC – Earlier today Republican leaders in the House introduced the Tax Cuts and Jobs Act (HR 1), a 429-page mark of sweeping tax reform legislation that has taken key lawmakers months to draft.  Text of the legislation can be found here.  A section-by-section analysis can be found here

    The much-anticipated bill would dramatically restructure the tax code for individuals and corporations and will both directly and indirectly affect tax incentives for charitable giving.  The legislation also contains a number of provisions aimed at raising revenue for the federal government, and several of these provisions are aimed squarely at the nonprofit sector.  Please see initial notes below.  As discussed over the past several months, CGP is gravely concerned that because this legislation would push most Americans to no longer itemize their taxes, the current value and scope of the charitable deduction will be significantly lower. 

    Early next week, the Ways & Means Committee will meet to “mark-up” the legislation.   CGP understands the hearing may take several days and the committee will consider a number of significant amendments to the bill as introduced, including a Chairman’s “substitute amendment,” before ultimately advancing it to the House floor the week of November 13th.  Additional amendments are possible on the House floor.  CGP will work in the coming days and weeks to add language in the bill creating a universal charitable deduction and requesting other changes. 

    The Joint Committee on Taxation revenue estimate of the tax bill may be released later today but lawmakers expect the static score (as opposed to the forth-coming dynamic score, which will attempt to account for economic growth resulting from the changes in the bill) to show the bill would lose $1.51 trillion over the next decade, which if true, would comply with the reconciliation instructions in the budget resolution. 

    House leaders continue to indicate they want to send a bill to the Senate by Thanksgiving.  While the House considers this bill, Senate tax-writers are pursuing their own tax reform legislation and could release text as early as next week.

    Given all that is developing on Capitol Hill, join CGP on Monday, November 6th at 3:30 pm for a conference call that provides the latest on the House tax reform bill, how it will affect charitable giving and the nonprofit sector, and how CGP members can engage with their elected representatives to shape the bill.      

     

    Key Provisions for Charitable and Nonprofit Sector

    Individual:

    • Creates four tax brackets: 12%, 25%, and 35% and maintains 39.6% for high-income taxpayers.
    • Nearly doubles the standard deduction.
    • Maintains the current-law charitable deduction.
    • Raises the 50% AGI limitation for cash contributions to public charities and certain private foundations to 60% percent. The provision would retain the 5- year carryover period to the extent that the contribution amount exceeds 60 percent of the donor’s AGI.
    • Phases in a full repeal of the estate tax in six years but immediately doubles the exemption. 

     

    Corporate:

    • Lowers corporate rate to 20%.
    • Creates a 25 percent rate for “pass through” businesses, which includes a “guard rail” provision that allows these entities to either claim only 30 percent of income as pass-through income or classify a high percentage of income as business income.  
       

    Certain provisions directly related to exempt organizations:

    • Imposes a 1.4 excise tax on the net investment income from private colleges and universities.  The provision would only apply to private colleges and universities that have at least 500 students and assets (other than those used directly in carrying out the institution’s educational purposes) valued at the close of the preceding tax year of at least $100,000 per full-time student.  State colleges and universities would not be subject to the provision. The provision would be effective for tax years beginning after 2017.
    • Repeals the Johnson Amendment as it pertains to certain churches, assuming the speech is in the ordinary course of the organization’s business and its expenses are de minimus. This provision would be effective for tax years ending after date of enactment.
    • Donor Advised Funds would be required to disclose annually their policies on inactive donor advised funds as well as the average amount of grants made from their donor advised funds.
    • Streamlines the excise tax rate on net investment income to a single rate of 1.4 percent. Additionally, the rules providing for a reduction in the excise tax rate from 2 percent to 1 percent would be repealed.  The provision would be effective for tax years beginning after 2017.
    • Private foundations would be exempt from excess business-holdings tax if they own a for-profit business under these conditions: (1) the foundation owns all of the for-profit business’ voting stock, (2) the private foundation acquired all of its interests in the for-profit business other than by purchasing it, (3) the for-profit business distributes all of its net operating income for any given tax year to the private foundation within 120 days of the close of that tax year, and (4) the for-profit business’ directors and executives are not substantial contributors to the private foundation nor make up a majority of the private foundation’s board of directors. This provision would be effective for tax years beginning after 2017.
    • Extends UBIT rules to all 501(a) entities. The provision would be effective for tax years beginning after 2017
    • Art museums claiming the status of a private operating foundation would not be recognized as such unless it is open to the public for at least 1,000 hours per year. The provision would be effective for tax years beginning after 2017.
    • Repeals the special rule that provides a charitable deduction of 80 percent for college athletic event seating rights. 
    • Charitable mileage rate will be adjusted for inflation. 
    • Repeals exception that relieves a taxpayer from providing a contemporaneous written acknowledgment by the donee organization for contributions of $250 or more when the donee organization files a return with the required information.

     

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Topics: Advocacy, Tax Reform, Legislation