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Financial Planning > Tax Planning > Tax Reform

Bipartisan Charity Bill Would Make DAFs Eligible for Rollovers

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Legislators on Capitol Hill are at loggerheads about many things — to the enormous frustration of most Americans — but they appear to agree on the importance of preserving the tax deduction for charitable contributions.

Last week, Sen. Ron Wyden, D-Ore., and his Republican colleague, John Thune of South Dakota, introduced legislation with several charity provisions, affecting foundations, donor-advised funds and nonprofits.

The proposals also include a nonbinding sense of the Senate that says “encouraging charitable giving should be a goal of tax reform.”

Moreover, it says, “Congress should ensure that the value and scope of the deduction for charitable contributions is not diminished during a comprehensive rewrite of the tax code.”

At the end of last year, President Barack Obama signed into law tax provisions that made several charitable tax incentives permanent.

The Charities Helping Americans Regularly Throughout The Year Act (S. 2750) would go beyond those provisions.

The Wyden-Thune legislation proposes the following:

Donor Advised Funds IRA Rollover Eligibility and Transparency: This would make DAFs eligible for IRA rollovers, whereby those aged 70-1/2 years and older can exclude from their gross income up to $100,000 a year in distributions made directly from the IRA to certain public charities.

Also, DAF sponsors would be required to disclose whether they have an official policy on inactive or dormant funds, and if they do, describe it or include a copy with the return.

Sponsors would also have to calculate and disclose the average percentage granted or distributed from all DAF accounts collectively during the current taxable year, along with the average payout over the most recent three-year period.

Foundation Excise Tax Simplification: This proposal would impose a 1% excise tax on investment income, down from the current 2%, without requiring foundations to calculate the payout rates of previous years as the current law does.

Require Nonprofits to File Form 990 Electronically: This proposal would require any tax-exempt organization currently required to file Form 990 to do so in electronic form. At present, only the biggest and smallest nonprofits have to file electronically.

The proposal would also require the Internal Revenue Service to make the information on Forms 990 available to the public in a machine-readable format as soon as practicable, with the intent of increasing transparency and accuracy.

Standard Mileage Rate: This would authorize the Treasury Department to adopt regulations, aligning the simplified standard mileage tax deduction rate for personal vehicle use for volunteer charitable services with that for medical and moving purposes.

Philanthropic Enterprise Act: This proposal would create a limited exception to the excess business holding tax rules as a way to encourage certain businesses to give 100% of their after-tax profits to charity without incurring a tax penalty.

Some or all of these provisions could be included in tax legislation later this year, although comprehensive tax reform is unlikely to emerge from the current Congress.

Still, “it is good to get the legislative language out there to let the vetting process begin,” David Thompson, vice president of public policy at the National Council of Nonprofits, said in a statement to The NonProfit Times.

“It lays down the marker that these issues are nonpartisan and solid policy, and dares anyone who disagrees to come forward. And it gives nonprofits and foundations the opportunity to point to positive policy solutions rather than anticipate and/or challenge bad ideas.”


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