U.S. Federal Issues: February 2004 Public Policy Update
Feb. 4, 2004
2005 Federal Budget Proposal
The Bush Administration has unveiled a budget proposal for Fiscal Year 2005 that includes several provisions related to charitable fundraising and increasing accountability within the charitable sector.
Many of the provisions that were included in past budgets were included in the most recent proposal:
- The IRA Rollover;
- The Non-itemizer Deduction;
- Enhanced deduction for gifts of food inventory;
- Reduction to one percent of the tax on private foundations' net investment income;
- Repeal of the $150 million ceiling on qualified 501(c)(3) bonds;
- Renewal of the deduction for corporate deductions of computer technology
The two new major areas related to charitable fundraising address the issues of vehicle donations and gifts of intellectual property.
The Bush budget would crack down on donors who take incorrect deductions for their vehicles and third-party operators that operate car donation programs. In order to receive a deduction for a donation of a vehicle, a contributor must obtain a qualified appraisal of the vehicle.
In the area of gifts of intellectual property, the Bush budget would mandate that the initial deduction a donor may receive for a gift of intellectual property can only be equal to the lesser of (a) the taxpayer's basis in the contributed property, or (b) the fair market value of the property. This proposal also follows up on a recent IRS announcement regarding the overvaluation of deductions of intellectual property.
The Bush Administration is clearly concerned about donors receiving improper and overvalued deductions for certain charitable gifts. The vehicle donation provision follows up on a report last year by the General Accounting Office that purported to find serious abuse in the vehicle donation industry. The intellectual property provision follows up on an announcement by the IRS in January warning donors about taking over-inflated deductions for these types of gifts.
However, the Bush budget proposal goes even further. It would require that all donors get a qualified appraisal if they intend to contribute property to a charity and claim a deduction of more than $5,000. Gifts of publicly traded securities and inventory property would not trigger such a requirement. In addition, if the donor intended to receive a deduction of more than half a million dollars, then a copy of the qualified appraisal must be submitted along with Form 8283.
AFP is concerned about the impact of some of these proposals (especially vehicle donations). The U.S. Government Relations Committee will be examining the Bush Administration's budget proposal for further impact on the fundraising profession and charitable sector.
It is possible that Congress will ignore some of the provisions. However, given that the Senate Finance Committee is working on a similar proposal, it is likely that these provisions will be seen in legislation introduced in 2004 (see CARE Act update below).
The Senate Finance Committee continues to work on a new version of the CARE Act. According to Congressional staff, a bill is likely to be introduced in the spring and perhaps as early as February. Many members of Congress would like to avoid a repeat of last year where the bill passed both the House and Senate but never made it to a conference committee. Staff is hoping that both bodies of Congress will pass the new bill in very similar forms to avoid a conference committee.
Most of the major provisions in the CARE Act should remain, just as the IRA Rollover and the Non-itemizer Deduction. It is highly likely that some type of oversight and abuse provisions related to contributions of vehicles and patents and intellectual property will be included as well. In addition, there is said to be other "charity accountability" proposals, including language related to the five-percent payout by private foundations.
While AFP has yet to see an official version of the final bill, it is probable that AFP will continue to make passage of the CARE Act its highest legislative priority in 2004. AFP will alert members when the bill is introduced and distribute fact sheets, talking points and other information.
For Government Relations Chairs: President Bush's budget proposal sets the table for the legislative year, but it is by no means the last word. Members should know that the CARE Act will be introduced again this year and that AFP will continue to fight for its passage. If members have concerns about the vehicle donations or intellectual property provisions, please have them contact email@example.com. Chairs are encouraged to reprint these articles in their own newsletters.