On November 18, 2005, the Senate passed tax legislation with a number of charitable giving incentives and reforms that would greatly affect the nonprofit sector. The legislation may now head to a House-Senate conference committee to determine which charitable provisions could ultimately be signed into law.
The Tax Relief Act of 2005 (S. 2020) primarily addresses budget reconciliation and expiring tax cuts, but Finance Committee chairman Charles Grassley (R-Iowa) and Senator Rick Santorum (R-Pa.) and others were successful in pushing through a number of changes to the tax law that relate to charities.
Incentives: S. 2020 includes provisions that allow charitable deductions for donors who don't itemize and tax-free distributions from Individual Retirement Accounts (IRAs) directly to charitable organizations after the taxpayer has reached the age of 70½. These provisions would be effective for only two years. Several other incentives, such as expanded deductions for contributions of food and books and a mileage deduction for volunteers, were also included.
Reforms: S. 2020 also includes some of the charitable giving reforms Chairman Grassley has floated since last year. These provisions include penalties for involvement in tax shelter transactions, increased penalties for self-dealing and excess benefit transactions, and new restrictions on credit-counseling organizations. The legislation would also limit deductions for facade easements and donations of clothing and household items (up to an assigned amount) as well as create new standards for appraisals of property donations in addition to other reforms.
The full House is likely to take up its companion bill to S. 2020 this month. The House bill, however, as approved by the Ways and Means Committee last month, doesn't contain charitable giving provisions, and it remains uncertain whether the provisions in the Senate bill will be part of any final legislation sent to the president.
The Vivero Group is a Washington, D.C.-based government relations and communication firm representing GuideStar and other nonprofits on federal public policy issues. For more information, please visit www.viverogroup.com.