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New Non-itemizer Deduction Penalizes Donors Who Itemize

(March 27, 2006) The non-itemizer deduction in the Senate-passed tax reconciliation bill (H.R. 4297) contains an unprecedented floor for charitable contributions that effectively taxes donors who itemize their gifts.

Taxpayers who claim the standard deduction (non-itemizers) could take a deduction only for their total annual cash contributions above the floor ($210 for single filers or $420 for joint filers). The floor shouldn’t have a detrimental effect on non-itemizer giving since part of the standard deduction is considered to reflect charitable contributions. This part of the provision is similar to past non-itemizer proposals in previous years.

However, the proposal in H.R. 4297 would also extend the floor to donors who itemize their contributions. The floor results in a penalty for itemizer, who would no longer be able to count their first $210 of annual cash charitable contributions (or $420 for joint filers) towards the deduction.

“The main reason donors give is wanting to help others and their community, not tax policy, so it’s difficult to estimate the impact of this floor on itemizers, said Paulette Maehara, CFRE, CAE, AFP’s president and CEO. “That said, setting a floor for deductions for itemizers is just bad tax policy and sets a terrible precedent for the charitable sector. The provision essentially taxes one set of donors – itemizers – to allow another set of donors – non-itemizers – a deduction for giving. These are not the sorts of trade-offs the sector should be considering when there are other provisions like the IRA Rollover that need support.”

The non-itemizer provision in the Senate version would last for two years. The House version of the tax reconciliation bill does not contain the non-itemizer provision.

Other Provisions

The Senate version also contains other charitable giving incentives, including tax-free distributions from individual retirement accounts for charitable purposes (the IRA rollover provision) and enhanced charitable deduction for contributions of food inventories. The bill also includes numerous charitable reforms, including restrictions on gifts of clothing and household items.

The House and Senate are currently meeting in a conference committee to iron out their differences on the bill. In the meantime, AFP is working to strip the “floor” language from the non-itemizer provision and eliminate much of the reform language in the bill.

Lobbying Efforts

AFP participated in a Congress Call-In Day on March 14 regarding the charitable language in H.R. 4297, and numerous AFP members made calls and wrote letters to their members of Congress.

“We’ve heard very positive things from House and Senate offices regarding the call-in day, so I think our efforts so far have made an impact,” said Maehara. “I want to thank all of our members and chapters who participated, and even if you haven’t yet, you can still make a contribution.”

Members are still encouraged to write letter and call their both their U.S. Representatives and Senators and urge them to support the charitable giving incentives in the bill and drop the reform ideas from the legislation. A sample letter and contact information is available here on the AFP website.

For more information about H.R. 4297, click here or contact Jason Lee, director, government relations, at jlee@afpnet.org.

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