21 July 2020

Washington Roundup: Universal Charitable Deduction, Payout Requirements and DAF Legislation

The ACR newsletter tracks with the end of congressional sessions to highlight the most important developments here in Washington. The timing will vary, based on the congressional calendar, but you can expect a newsletter from us about once a month. In the meantime, we’ll be sharing significant developments through our email News Alerts and in real time on our Twitter feed (@ACReform) through our #HillScoop and #SectorScoop updates.

>> Congress: Negotiations Begin for Next Round of COVID Relief
>> Congress: Proposal to Expand the Universal Charitable Deduction
>> Sector: Payouts on Private Foundations and Donor-Advised Funds
>> State: California DAF Legislation on the Move in the Senate
>> National: Top Reads

Congress: Negotiations Begin for Next Round of COVID Relief

Congress returned from recess this week, and lawmakers are expected to begin working on the next and potentially final COVID relief package. Senate Majority Leader Mitch McConnell (R-KY) plans to release a draft of the bill as early as today, which could include liability protections, a payroll tax cut, additional stimulus checks geared toward lower-income earners, incentives for schools to reopen safely, and a new version of the Paycheck Protection Program for small businesses and nonprofits.

There are two issues ACR is following in the upcoming negotiations. First, the proposed expansion of the temporary $300 universal charitable deduction that passed in March has bipartisan support in both chambers and is led by members of the Senate Finance Committee, which has jurisdiction over charitable issues. And second, there are growing calls from critics of philanthropy that lawmakers increase the payout on private foundations and mandate a payout on donor-advised funds to drive more resources to charities during the health and economic crises. The next two sections will cover these topics and their likelihood for passage in further detail.

Our Take: The expanded UCD and payout mandates are less than likely to be included in the next relief package (details on that prediction below). We do believe, however, that the next bill will eventually find its way to the president’s desk. We anticipate the relief package will be completed by early August, and you can keep an eye out for another newsletter from us then. In the meantime, please follow us on Twitter @ACReform for the latest #HillScoop as the negotiations progress.

Congress: Proposal to Expand the Universal Charitable Deduction

As you may recall, last month a bipartisan group of senators and House members introduced the Universal Giving Pandemic Response Act, a bill that would expand the temporary $300 universal charitable deduction to one-third of the standard deduction (about $4,000 for individuals and $8,000 for married couples) for all taxpayers, not just those who itemize their deductions. The bill would also make the deduction available on both 2019 and 2020 tax returns, though that could be amended because the 2019 filing deadline has now passed.

The group of senators sponsoring the bill includes Senate Finance Committee Members James Lankford (R-OK) and Tim Scott (R-SC), who are joining with their colleagues to urge Chairman Chuck Grassley (R-IA) to include the expansion in the next COVID relief package.

Our Take: Incentivizing all taxpayers to give to charity, not just those who itemize their taxes, democratizes charitable giving and will encourage more Americans to donate when charities need it most. You may recall the House-passed HEROES Act was silent on the charitable deduction, and the temporary UCD included in the CARES Act was a senate push as well. So, whether this provision gets included in the next relief bill hinges on senate champions making a final push with leadership and the sector coming together on concessions to limit waste, fraud and abuse. It’s less than likely to be included as of now, but the sector still has three weeks to make the case to lawmakers.

Sector: Payouts on Private Foundations and Donor-Advised Funds

In the wake of the current health crisis, there have been re-energized calls for donors to do more and for Congress to take action to mandate it. One specific proposal is for Congress to increase in the mandatory private foundation payout to 10 percent and impose the same payout requirement on donor-advised funds, both for the next three years. Critics point to philanthropic resources as sources of money that are going unused, ignoring the effective grantmaking being done voluntarily.

In response to these calls, ACR joined a group of national organizations in a letter to Capitol Hill opposing proposals to increase payouts on private foundations and create new requirements for donor-advised funds. You can find the letter here. You can also read our latest blog post on DAF mandates here, and an op-ed on private foundation payout from Joanne Florino in the Chronicle of Philanthropy can be found here.

Our Take: Mandates like this are counterproductive and distracting from the natural innovation and creativity of philanthropy, and if enacted they could deplete philanthropic resources that could be needed in future crises. We’ve been told that although lawmakers and staff may be aware of these calls to action, they are not resonating, and payout mandates are unlikely to be included in the next relief bill. However, that does not mean we should stand down in principle. We support the philanthropic freedom of every American to voluntarily decide to grant out more charitable dollars, especially in times of crises, but we’ll continue to push back on calls for mandates and encourage our colleague organizations to do the same.

State: California DAF Legislation on the Move in the Senate

As you may recall, the California Assembly passed a bill in June that would create a new classification of donor-advised funds and sponsoring organizations and allow the Attorney General to engage in rulemaking to implement reporting requirements on DAFs. On July 1, the bill (A.B. 2936) was referred to the Senate Judiciary Committee to be calendared for a hearing when the Senate returns from recess.

The Senate was expected to return to session earlier this month, but recent spikes in COVID cases in the state have caused the legislature to delay their return until July 27, which pushes back the timeline for action on the DAF bill until the last week of July at the earliest. The delay in returning to session also means a shortened timeframe for the senate to consider the hundreds of bills the assembly sent over. Because of this, senate committee chairs have been granted authority to determine which bills they will prioritize in their committees.

Our Take: In its current form, A.B. 2936 lacks necessary donor privacy protections, and it will likely drive charitable giving down and out of California. Though the date of consideration remains unknown, there is still a good chance the Senate Judiciary Committee hears and passes the bill, so we’re continuing to work with our allies on this issue in the state, including the League of California Community Foundations and Southern California Grantmakers, to prevent bad policy that threatens donor privacy from being enacted.

Top Reads