PUBLIC POLICY UPDATE - WINTER 2010
The White House Again Proposes Caps on Charitable Deductions
In the FY2011 Budget, President Obama has once again proposed a cap on itemized deductions (including charitable deductions) for individuals earning more than $200,000 and couples/families earning more than $250,000. Currently, this tax bracket can take up to a 35% deduction. The President's proposal would cap that at 28%.
None at this time.
This proposal is identical to what the President proposed last year as a means of paying for healthcare reforms. AFP opposed this approach and, in response, formed a coalition with groups such as ASAE, CASE, AHP, the DMA Nonprofit Federation and many others.
Through direct lobbying and grassroots efforts, AFP and its fellow coalition members appear to have staved off the proposed cap in the healthcare reform bills. Neither the House nor the Senate versions of the bill contain the proposed cap.
The caveat is that, due to the GOP victory in the Massachusetts Senate election, the healthcare reform bills could be totally rewritten, and the proposed cap on deductions could sneak its way into the redrafted bills.
AFP thanks those of you who contacted your Members of Congress in opposition to the proposed cap last year.
The rationale for opposing the cap is based upon a number of reasons.
1. First, the proposal would, for the first time in history, decouple the deduction from the tax rate. Although a difference of 7% might seem small on paper, it represents a significant amount of revenue to the federal government. By limiting all deductions, including charitable deductions, to 28%, the White House estimated that it would raise approximately $291 billion for the federal government through the years 2011-2020.
2. Second, once the federal government reduces the deduction the first time, there is nothing to prevent the government from going back and reducing it even further in the future to pay for other initiatives. Once the deduction and the tax rate are separated, a slippery slope is created where the government could forever chip away at the deduction as a means of raising revenue.
3. On the specific subject of heathcare reforms, AFP was neutral on the reform issue itself, but we argued that it was unfair to place the burden of funding those reforms on the backs of charities-instead, AFP contended that the heathcare system itself needed to bear the funding burden.
4. Finally, in these times of economic challenges, it is simply the wrong time to take money away from charities when they are filling the gaps (mostly created by cutbacks in federal and state governments) and providing even more of their altruistic services to America's communities while facing declines in fundraising/charitable giving.
We will keep you apprised of this issue.
IRA Rollover Provision Extension Soon to be Enacted
The IRA Rollover provision expired on December 31, 2009. On Wednesday, March 10, 2010, the Senate passed a bill (H.R. 4213) that extends several expiring tax provisions through the end of 2010, including the IRA Rollover provision. Late last year, the House passed its version of the bill. The House and Senate now need to reconcile the differences contained in their two versions of the bill. Then the bill will go the President for his signature.
None at this time.
It is AFP's hope that this bill will be enacted into law very shortly and that the IRA Rollover provision will be reinstated.
The IRA Rollover provision allows donors age 70½ or older to exclude from taxable income any funds withdrawn from an IRA (up to $100,000) and transferred directly to a charity. AFP has been advocating to remove the gift limit, allow planned gifts and make the provision permanent.
It is worth noting that AFP will lose a key champion of this provision when Senator Byron Dorgan (D-ND) retires at the end of the year. Over the past few years, Senator Dorgan continued to introduce a bill that sought to make the IRA Rollover provision permanent while also enhancing the scope of the provision (e.g., allowing planned gifts, lowering the age threshold and eliminating the current $100,000 cap on IRA gifts).
New Consumer Financial Protection Agency Could Affect Certain Nonprofits
AFP has been keeping an eye on legislation that would create a new Consumer Financial Protection Agency (CFPA). Some in the charitable sector are concerned that the proposed legislation is overly broad and could give the new agency jurisdiction over 501(c) organizations that provide financial education services (e.g., credit counseling, debt management classes, training for the homeless, etc.). There currently is an effort to create an explicit exemption for "charitable giving advice" from the new agency's purview.
None at this time.
In the current draft of the legislation, nonprofit organizations that provide financial literacy services would be potentially covered under the CFPA simply by seeking charitable gifts to support their missions, or by working to promote financial literacy as part of those missions. This is because the definition of "financial activity" in the current draft is very broad and has the potential to bring nonprofits under CFPA regulation if they explain to/train donors how to make bequests or other charitable gifts through financial education/services.
It would appear that very few of AFP's members would be affected by this legislation. Nevertheless, AFP has lent its voice to a coalition, including the DMA Nonprofit Federation and others, urging Congress to more clearly exempt nonprofit organizations from the proposed regulations.
Congress May Review Charitable Mileage Deduction
The federal Congressional Research Service (CRS) recently completed a report to Congress regarding tax provisions for people who use their cars, trucks and other vehicles as part of their volunteer work.
Over the past few years, members of the charitable sector, as well as Members of Congress, have sought to increase the standard mileage rate for charitable activities.
Under federal law, volunteers who drive their cars for charitable purposes may deduct 14 cents a mile for their car costs or be reimbursed by a charity at that rate without the payments being subject to federal income tax.
The charitable mileage rate requires congressional approval for changes. In comparison, mileage rates for business, medical and moving expenses are continually adjusted by the Internal Revenue Service since no such approval is necessary for changes to these mileage rates.
A copy of the CRS report is available here.
Massachusetts Introduces New Privacy Law Affecting NonprofitsA new Massachusetts privacy law will take effect March 1, 2010 and require all nonprofits, in addition to all businesses, to take steps to protect personal information they collect.
The new law-201 CMR 17.00 Standards for the Protection of Personal Information of Residents of the Commonwealth-is designed to protect each resident's personal information from potential identity theft. The new privacy law requires that nonprofits restrict access to any document-either paper or electronic-that contains personal information only to people who have a need to see the information.
For more information, please go here.
Rhode Island Introduces Legislation Requiring Professional Fundraisers to Register with the Department of Business Regulation
On Jan. 27, 2010, Rep. Peter F. Kilmartin (D-Dist. 61, Pawtucket) introduced a bill affecting professional fundraisers.
Under the legislation (2010-H 7255), any business that sells for profit an item that benefits a charity would be classified as a commercial co-venturer, meaning professional fundraisers must register with the Department of Business Regulation (DBR), file financial documents outlining the program and post a $10,000 bond.
None at this time.
This proposal would require all professional fundraisers who solicit donations from Rhode Islanders to file an annual financial report with DBR stating for each contract or agreement with a charity:
- the name of the charitable organization
- the gross receipts collected on the contract
- the amounts paid to the organization that will be used exclusively for charitable purposes
- the amounts paid to the professional fundraiser, fundraising counsel, commercial co-venturer or professional solicitor
- all additional expenses otherwise stated
The bill was sent to the House Finance Committee for consideration, and our understanding is that it was recently tabled. The text of the bill is available here.
New York Reintroduces Ethics Education Legislation
The New York legislature has reintroduced a bill that would create an ethics education program for fundraisers. The program is voluntary, but the legislation implements a certification process and requires the attorney general to issue a report that, among other things, would make recommendations regarding the feasibility of making the course mandatory for fundraisers.
New York members are urged to touch base with their chapters about this issue. Talking points are available at AFP IHQ by contacting Jason Lee, Director, Government Relations at firstname.lastname@example.org.
When the legislature introduced a similar bill a few years ago that made the education program mandatory, AFP met with key Assemblymembers and Senators and urged that the program be made voluntary. AFP cited the burden that would be placed on all organizations, particularly very small ones. In addition, AFP argued that it seemed unfair to require out-of-state organizations to comply with a mandatory ethics education regime.
The sponsors of the legislation accepted many of AFP's recommendations and made the ethics training voluntary. However, the Governor vetoed the bill.
Although the current version of the bill still makes the course voluntary, the certification element and the clear effort to eventually make the course mandatory in the future raises some concerns.
Canada's Recognition of National Philanthropy Day®
Last fall, the Minister of Canadian Heritage officially declared Nov. 15, 2009, as National Philanthropy Day® in Canada.
None at this time.
Canada is the first country to officially recognize National Philanthropy Day since its creation in 1986. The Minister's declaration continues in perpetuity, so the recognition will continue each year unless a Minister were to revoke the declaration.
National Philanthropy Day is celebrated around the world as a day to recognize the work of charities and remember the extraordinary achievements that philanthropy-giving, volunteering and social engagement-has made in all aspects of life.
On Thursday, March 4, 2010, Senator Terry M. Mercer, CFRE (Liberal, Nova Scotia-Northend Halifax) introduced Bill S-203 that would permanently recognize National Philanthropy Day every November 15th.
Canada's Federal Government Eliminates the Disbursement Quota
The Canadian federal government included in its 2010 proposed budget a provision to eliminate the disbursement quota for charitable organizations, a decision supported by AFPand charities across the country.
The disbursement quota was intended to help ensure that charities spent a significant amount of their budget on their mission and services. However, as the budget noted, in practice, the quota disproportionately burdened smaller and rural charities, while larger charities with a wide range of revenue streams had a much easier time meeting the requirement.
None at this time.
Budget 2010 proposes to reform the disbursement quota for fiscal years that end on or after March 4, 2010. Specifically, Budget 2010 proposes to:
- repeal the charitable expenditure rule;
- modify the capital accumulation rule; and
- strengthen related anti-avoidance rules for charities.
In its discussion of the disbursement quota, the government also noted that it will monitor the effectiveness of the Canada Revenue Agency's guidance on "Fundraising by Registered Charities," and take action if needed to ensure its stated objectives are achieved.
AFP, along with Imagine Canada and other fundraising and charity organizations, have supported the elimination of the disbursement quota for several years. AFP's comments and position regarding the disbursement quota can be found in its brief to the Standing Committee on Finance's Pre-Budget Consultations, available here.
In its brief, AFP also supported the creation of a stretch tax credit for charitable giving and the elimination of the capital gains tax on gifts of land and real estate, which were not included in the budget. The proposed stretch credit would be based on an individual tax payer's best previous year of giving using 2008 as a baseline. It would provide a stretch tax credit of 39 percent on these new donations - 10 percentage points higher than the current level of tax credit on donations above $200. To continue benefitting from the stretch tax credit in subsequent years, tax payers would need to continue to increase their levels of giving over their 2008 and previous year's baselines.
The elimination of the capital gains tax on gifts of land and real estate was proposed because these contributions are currently stymied by a tax system that makes such giving too burdensome and not attractive to most donors. Eliminating the capital gains tax would remove a huge barrier to these types of gifts and make it far more likely and appealing for donors to give land and real estate to charity.
AFP applauds the government for eliminating the disbursement quota. We look forward to continuing to collaborate with the government on this issue and others. AFP also will continue to work to educate Members of Parliament about the importance of the stretch tax credit and the elimination of the capital gains tax on gifts of land and real estate.