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Tuesday, April 19, 2016

CHARITY Act Introduced

On April 6th, Senators John Thune and Rob Wyden, introduced S. 2750, the CHARITY Act, in a signal to lawmakers of the importance of charitable deductions to the tax code.  The bill states that “it is the sense of the Senate that encouraging charitable giving should be a goal of tax reform.” The Act proposes five key amendments:
  • Making it mandatory that all nonprofits file their yearly Form 990 electronically, and that the IRS make all Form 990 data available “in machine-readable format as soon as practicable.” There is the opportunity for the IRS to make allowances for up to two years for small organizations for whom filing electronically would cause “undue burden”
  • Allowing donor-advised funds (DAFs) to be beneficiaries for IRS rollover gifts
  • Decreasing the excise tax rate for foundation investment income to one percent from its current two percent and no longer requiring foundations to calculate payout rates from earlier years
  • Increasing the standard mileage deduction for volunteers to the same allotted for medical and moving purposes
  • Permitting more favorable taxation of business profits, which have been donated to a foundation, and where the business operated independently of the foundation’s donors, and all net operating income has been donated to the foundation.

Prior to the proposal of this bill, a judge had ruled that the IRS must release Form 990s in digital format. The IRS complained that doing so is not within their current capacity, due to a budget that has been reduced repeatedly in recent years. The component of the CHARITY Act which would require all nonprofits to file their Form 990s electronically would help the IRS transition more easily into making all Form 990s available in machine-readable format.  

In its current state, with only one additional cosponsor gained since its proposal and its introduction during an election year, it is unlikely that it will move forward. However, it is an important step in signaling the importance of charitable deductions. It also provides language which could influence or be applied to broader tax reform farther down the line. 

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