15 June 2018

ACR News 6.15.18 – Action at Treasury, Giving USA Annual Report, Foundation Transparency

>> Federal: Washington Roundup
>> Federal: Action at Treasury
>> Federal: Expanding the Charitable Deduction
>> Federal: Giving USA’s Annual Report
>> Federal: Caught Our Eye
>> Consider This: Charitable Giving Grows, Number of Givers Shrinks
>> Top Reads: The Disappearing Donor

Washington Roundup

Both Ways and Means Chairman Kevin Brady (R-TX) and a White House official recently said they hope to have a new tax bill introduced by the end of the summer. Just this week, Chairman Brady said he expects to have an outline of “Tax Reform 2.0” ready before House lawmakers depart for their August recess. The proposal is expected to make permanent the individual tax rates that are set to expire in 2025, and other provisions likely to be included have yet to be named. When considering what charitable issues could be included in a 2.0 package, smaller priorities, such as the streamlined private foundation excise tax, come to mind as realistic gets for the sector.

Passing the 2.0 bill could give House Republicans a much-needed boost heading into the November elections, but prospects in the Senate are dim given that the Republicans would need 60 votes to avert a certain filibuster by Democrats. There’s a pathway to get to 60 votes, but it would require picking up a large handful of Democrats and there are only a few facing voters in red states this fall – West Virginia and North Dakota quickly come to mind. It gets much tougher after that.

Tax writers and staff are also in the process of identifying drafting errors – known as “technical corrections” – in last year’s tax law that will need to be fixed. Chairman Brady said last week that some of these glitches could be fixed this year, but he didn’t offer any further details. Again, the House has a far easier time passing bills. Depending on the outcome of the election, Senators may be in a mood to work together to clear the deck of some obvious glitches in a “you get something, I get something” negotiation that leads to 60 votes, and top on Democrats’ list is easing the $10,000 cap on the state and local tax deduction (known as SALT).

A drafting error that could be a good fit for a technical corrections package is the charitable deduction AGI glitch. As you may recall, the tax reform bill increased AGI limits on charitable contributions of cash from 50 percent to 60 percent. However, it appears that limit is automatically reduced back to 50 percent if even $1 of a non-cash gift is claimed. A leaked draft list of technical corrections contained a provision that fixed this glitch, which is a good sign but not a done deal. We’ll continue to push to see this enacted this year.

Action at Treasury

Now that the tax bill is passed, the regulatory phase begins at the Treasury Department and IRS, and there are a few provisions that affect the charitable sector that are begging for guidance.

The first is the unrelated business income tax (UBIT) on employee benefits. The Tax Cuts and Jobs Act expanded UBIT to include a number of fringe benefits offered to employees, including transportation benefits and parking. This change could lead many nonprofits to pay UBIT for the first time and several problems, including valuing these benefits, are raising big concerns.

The second provision getting attention at Treasury is the siloing of UBIT activities. The Tax Cuts and Jobs Act disallows netting of gains and losses for purposes of UBIT.  Rather, nonprofits will have to allocate their income and losses among different “activities.” But “activity” is not defined, so Treasury is left to figure out where to draw the line to separate activities.

We’re keeping our eye on potential guidance and regulations relating to these provisions.

Expanding the Charitable Deduction

As you may recall, two pieces of legislation have been introduced this Congress that would expand the charitable deduction by allowing all taxpayers a charitable deduction for their gifts.

The Universal Charitable Giving Act, which would create an above-the-line charitable deduction that would be capped at one-third of the standard deduction, is sponsored by Rep. Mark Walker (R-NC) in the House and Sen. James Lankford (R-OK) in the Senate. The House bill currently has 21 bipartisan cosponsors.

The Charitable Giving Tax Deduction Act, which would create an above-the-line charitable deduction with no additional caps, is led by Reps. Chris Smith (R-NJ) and Henry Cuellar (D-TX) in the House. The legislation currently has two additional cosponsors.

Giving USA’s Annual Report

Giving USA, an initiative of the Giving Institute, released its annual report this week, which shows that Americans gave a record breaking $410 billion to charity last year, a 5.2 percent increase from the estimated $389 billion given in 2016. The report indicates that the increase in giving in 2017 was a result of a booming stock market, strong economy and a charged political environment.

Despite the record breaking total, giving rates for lower- and middle-income families has declined significantly in the recent years. See Consider This.

Caught our Eye

Robert Reid, executive director of the JF Maddox Foundation in New Mexico, recently authored an article on foundation transparency. We thought you might find it interesting.

A summary is below and you can find the full publication here.

The perception that private foundations lack accountability has led to calls for greater transparency. The literature, however, suggests that transparency is neither a panacea nor achieved without cost, and that its positive influence on the conduct of philanthropy may be less than straightforward.

This article seeks to examine transparent and opaque practice in private philanthropy, studying the literature as well as findings from interviews with foundation staff, trustees, and grantees that sought answers to two relevant questions: Does opacity exist in private philanthropy? Have foundations and grantees developed strategies for overcoming challenges related to opacity?

Foundations have historically been able to decide for themselves how transparent to be. Before abandoning such discretion, it might be productive for private foundations to explore how transparent practices (or not) impact their reputation and inhibit or support their activities.

Consider This – Charitable Giving Grows, Number of Givers Shrinks

The top-line numbers that came out from Giving USA this week are impressive: more than $410 billion was given to charity in 2017, and more than $286 billion of that was given by individuals. That’s a big chunk of money.

But that’s not the whole story. While the dollar amount given to charity may be at a record high, the number of Americans who give to charity has seen a sharp decline over the past 17 years. Data in the Giving USA report even show the number of households giving to charity has dropped 10 percentage points since 2000.

The 2017 numbers from Giving USA highlight a trend we’ve been concerned about for a while: while large gifts from wealthy donors get bigger, smaller donors continue to drop off as the culture of giving in America fades. Even after the economic recovery, many Americans who stopped giving during the recession do not appear to have restarted.

Some folks in the sector think they might have found a solution: encourage all Americans to give to charity through a “universal charitable deduction.” The charitable deduction is a proven mechanism to increase giving, so why not let everyone take it? Especially given the alarming drop in givers.

As fewer Americans are making charitable donations, it’s as important as ever that Congress finds a way to encourage more Americans to give to charity, and a universal charitable deduction may just work.

Top Reads

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