With under one month to go before a historic midterm election, Democrats could take control of the House in 2019 and may even stand an outside chance of gaining power in the Senate. But, as Republicans in Congress prepare for this potential “blue wave” on November 6th, they have pressed ahead in September on a vast array of matters, making some significant progress on a number of issues following their annual summer break.
The House now stands in recess for all of October, as is tradition in an election year, whereas Senators will stick around DC for votes throughout the month. After the election, attention will turn to the “lame duck” session, set to begin the week of Veteran’s Day and continue after Thanksgiving and into the first two weeks of December. During this time, a flurry of legislative activity can be expected including a possible year-end tax bill that could carry a number of relevant provisions to charitable gift planners.
CGP is monitoring and engaged on a number of such provisions, both legislative and regulatory in nature, as we move into the final weeks of the 115th Congress, some of which are listed below.
Late last month, the House passed Tax Reform 2.0, a package of three separate bills, Protecting Family and Small Business Tax Cuts Act, Family Savings Act, and American Innovation Act. Of particular note, section 123 of HR 6760 would make permanent the 60 percent Adjusted Gross Income (AGI) limit on charitable deductions for cash gifts (which was increased from 50 percent in HR 1) and would also fix the drafting error in HR 1 that causes that limit to decrease if non-cash gifts are claimed in addition to cash gifts. Although the package of bills passed the House with a modest amount of bipartisan support, they will not receive consideration in the Senate this year. However, several provisions in the bills could be included in a year-end tax bill.
This bill, pending in both the House and Senate, would amend the Internal Revenue Code to allow a deduction from gross income (an above-the-line deduction) for charitable contributions that under current law are allowed only as an itemized deduction. This new above-the-line deduction, however, may not exceed one-third of the value of the standard deduction (i.e., $4,000 for individuals, $8,000 for joint filers). HR 3988 enjoys the support of 25 cosponsors in the House and many national nonprofit organizations.
Charitable Giving Tax Deduction Act (HR 5771):
This bill would amend the Internal Revenue Code to allow an above-the-line deduction for charitable contributions that under current law are allowed only as an itemized deduction.
Everyday Philanthropist Act (HR 6616):
This bill would implement a “Flexible Giving Account,” allowing employees to contribute up to $5,000 via a pre-tax payroll deduction, which would then be distributed to qualifying charities.
Legacy IRA Act (HR 1337):
This bill would expand the current-law IRA Charitable Rollover to allow for life-income gifts, including charitable gift annuities and charitable remainder trusts.
In July, the House voted to partially repeal the Johnson Amendment, a provision in current law that bans all 501(c)(3) organizations from endorsing or opposing political candidates for elected office, by including a rider in a spending bill (HR 6147, Division B, Title I, Section 112). Specifically, the bill would ban the IRS from rescinding the tax-exempt status of politically active churches without the approval of the IRS commissioner. The Senate has passed companion spending legislation, which does not include the Johnson Amendment rider, so the issue will need to be reconciled in conference committee.
Required Minimum Distributions:
Both Congress and the Administration are considering adjustments to the required minimum distributions (RMD) for IRAs, which would have a significant effect on the decision of individuals to utilize the IRA Charitable Rollover. For example, HR 6757 (one of the Tax Reform 2.0 bills discussed above), section 109, would exempt RMD for accounts with $50,000 or less. Also, President Trump issued Executive Order 13847, “Strengthening Retirement Security in America,” which orders Treasury to “examine the life expectancy and distribution period tables in the regulations on required minimum distributions from retirement plans and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis,” resulting potentially in a lowering of RMDs so that individuals can keep more money invested for a longer time.
In December, IRS issued Notice 2017-73 which was “intended to provide interim guidance” on special issues related to DAFs and “to solicit additional comments in anticipation of the issuance of further guidance.” The guidance covers charity events and membership fees, donor pledges, and public support limitations. The notice also asked for comments on how private foundations use DAFs in support of their purposes, and whether a transfer of funds by a private foundation to a DAF should be treated as a “qualifying distribution” for purposes of the five percent payout requirement if the DAF sponsoring organization agrees to distribute the funds within a certain time frame.
HR 1 imposed a $10,000 cap on the tax deduction for state and local tax (SALT) payments. As a results, several high-tax states have enacted new programs that allow state and local governments to accept property taxes in the form of charitable contributions, thus enabling the taxpayer to take a federal charitable deduction for paying state and local taxes and circumventing the $10,000 cap. The IRS responded by issuing a notice of proposed rulemaking which rejects these recent SALT workarounds by requiring a taxpayer to reduce the amount claimed as a federal charitable deduction by the amount received in state-issued tax credits. The concern, however, is these new IRS regulations would apply to existing and long-standing state tax credit programs that support certain charitable causes such as scholarship programs and contributions for land conservation.