Philanthropy Tax E-Letter

America Gives More Act of 2014 (H.R. 4719)

For information about Conrad Teitell’s publications and lectures visit: taxwisegiving.com. For information about Cummings & Lockwood visit: cl-law.com.

Passes House 277-130. Most Democrats who voted nay favored the bill's provisions but were opposed because cost offsets weren't provided.

 

1. Tax-free charitable distributions from IRAs—extended permanently

2. Conservation easements—extended permanently

3. Food inventory gifts—extended permanently

4. Ability to make deductible gifts through April 15 (instead of by December 31)—new and permanent

5. Private foundations—lower and simplified excise tax—new and permanent

 

Expected Timetable:

1, 2 and 3 reported out by Senate Finance Committee (SFC) (with two-year extension), but Senate vote not expected until after November election

4 and 5—not in SFC Extenders bill

White House waving veto pen

Eventual legislation will be decided by House-Senate Conference Committee

 

Chances of reenactment of the expired direct tax-free charitable transfers from IRAs are excellent after the November election. Although the extension would be retroactive for 2014, it would be too late for individuals who have already withdrawn their required minimum distributions. Whether the law will be extended for 2014 and 2015 (the SFC version) or permanently (the House-passed version) is unknown. If you were to ask in Las Vegas, I’d bet they’d say probably two or possibly three or four years.

 

All-American Life-Income Charitable IRA Rollover Act

I suggest legislation that would expand the IRA Rollover to include life-income charitable gifts. Millions of additional Americans could make significant charitable gifts. Read on; I’ll get to that.

 

W&M Committee’s Overview of the “America Gives More Act” 

The “[bill] combines five separate bills reported by the . . . Committee that are designed to increase charitable giving for the benefit of individuals in need across the country, while also assisting the vital charities and foundations that serve them in all of our nation’s communities. These bipartisan proposals would make permanent and improve a variety of tax rules governing charitable donations and charitable organizations, encouraging America’s taxpayers to give even more generously and enabling charities to serve those in need even more effectively.”

 

THE HOUSE BILL—EXPLANATION

1. Tax-free Charitable Distributions from IRAs

Current law. A taxpayer may claim an itemized deduction for charitable contributions. The charitable contribution deduction is limited to a percentage of the individual’s adjusted gross income (AGI). A temporary provision that expired at the end of 2013 allowed individuals to exclude from income qualified charitable distributions from IRAs. (Currently, 65 percent of taxpayers are non-itemizers—take the standard deduction. Not being taxed on income is the equivalent of a deduction.) The exclusion was limited to $100,000 per taxpayer per tax year. A qualified charitable distribution was any distribution from an IRA if the IRA owner was at least 70½ years old and made directly by the IRA trustee to public charities (other than donor advised funds and supporting organizations), private operating foundations and conduit (passthrough) private foundations.

 

House-passed provision. Tax-free distributions from IRAs for charitable purposes would be made permanent. The legislation would be effective for distributions in tax years beginning after 2013. According to testimony received by the Ways and Means Committee, in the first two years it was available (2006 and 2007), the IRA charitable distribution option prompted more than $140 million in charitable donations, with the median gift just under $4,500. According to the Joint Committee on Taxation staff (JCT), when analyzed against the current-law baseline, which assumes that long-standing temporary provisions are allowed to expire, the provision would reduce revenues by $8.415 billion over 2014-2024. Note: The JCT didn’t report the transfers from 2008 to 2013.

 

This provision is based on H.R. 4619, bipartisan legislation introduced by Reps. Aaron Schock (R-IL) and Earl Blumenauer (D-OR).

 

2. Conservation Easements Expanded and Made Permanent

Current law. An individual generally may deduct up to 30 percent of AGI for contributions to public charities of long-term appreciated securities and real estate. The donor generally must contribute the entire interest in the property, but may contribute a partial interest for gifts of qualified conservation easements. Conservation purposes include: preservation of land areas for outdoor recreation or educational purposes; protection of natural habitats of fish, wildlife, or plants; preservation of open space for the scenic enjoyment by the public or for governmental conservation policy; and preservation of historically important land areas or certified historic structures.

 

A temporary rule increased the limit from 30 percent to 50 percent of AGI for conservation contributions made before 2014. This number matched the 50 percent limit of cash contributions. Additionally, farmers and ranchers could deduct the value of a qualified conservation easement contribution up to 100 percent of AGI (or 100 percent of taxable income, in the case of a corporate farmer or rancher), provided the property remained available for use in agricultural or livestock production. The carryover was for 15 years, instead of the 5-year carryover period.

 

House-passed provision. The temporary deduction for contributions of conservation easements would be made permanent. In addition, Alaska Native Corporations would be eligible to deduct a qualified conservation easement contribution up to 100 percent of taxable income. Both changes would be effective for contributions made after 2013.

 

According to testimony received by the Ways and Means Committee, in the first two years following its original enactment, the temporary rule doubled the number of conservation easement donations in comparison to the two prior years, and increased the acreage conserved by about 32 percent. According to JCT, when analyzed against the current-law baseline, which assumes that long-standing temporary provisions are allowed to expire, the provision would reduce revenues by $1.177 billion over 2014-2024.

 

This provision is based on H.R. 2807, bipartisan legislation introduced by Reps. Jim Gerlach (R-PA) and Mike Thompson (D-CA), along with more than 200 other bipartisan cosponsors.

 

Charities wishing to expand the Charitable IRA to include life-income gifts—take note. The conservation provision has over 200 cosponsors.

 

3. Charitable Deduction for Contributions of Food Inventory

Current law. Under current law, a taxpayer’s charitable deduction for contributions of inventory, generally, is limited to the lesser of the taxpayer’s basis (typically, cost) in the inventory or its fair market value. However, for C corporations, the deduction for certain contributions of food and non-food inventory is enhanced to the lesser of (1) basis plus one-half of the item’s appreciation; or (2) two times basis. A temporary law that expired at the end of 2013 provided the same treatment to charitable contributions made by any taxpayer engaged in a trade or business. 

 

House-passed provision. The enhanced C corporation deduction is extended permanently to any type of business. According to the JCT, when analyzed against the current-law baseline, which assumes that long-standing temporary provisions are allowed to expire, the provision would reduce revenues by $1.915 billion over 2014-2024.

 

This provision is based on H.R. 4719, introduced by Rep. Tom Reed (R-NY), and is similar to bipartisan legislation (H.R. 2945) introduced by Ranking Member Sander Levin (D-MI) and Rep. Jim Gerlach (R-PA). 

 

4. Extend Though April 15 the Ability to Make Tax Deductible Charitable Contributions—New

Current law. A taxpayer may claim an itemized deduction for charitable contributions. To be eligible, a contribution must be made by the last day of the tax year for which a return is filed. Thus, for a calendar year taxpayer, a contribution must be made by December 31 to be included on a tax return for that tax year, which must be filed by April 15 of the following year.

 

House-passed provision. Individual taxpayers would be permitted to deduct charitable contributions made after the close of the tax year but before the due date of the return (April 15 for calendar year taxpayers) for the tax year covered by the return. According to testimony received by the Ways and Means Committee, allowing donors to deduct gifts until the filing of a tax return, or April 15, would result in significantly more charitable giving. According to JCT, the provision would reduce revenues by $2.822 billion over 2014-2024.

 

This provision is based on H.R. 3134, bipartisan legislation introduced by Rep. Mike Kelly (R-PA) and cosponsored by Rep. William Enyart (D-IL).

 

5. Lowered and Simplified Excise Tax on Private Foundations—New

Current law. Private foundations are subject to a 2 percent excise tax on their net investment income. That income generally includes interest, dividends, rents, royalties (and income from similar sources) and capital gains, reduced by expenses incurred to earn the income. However, a private foundation may reduce the excise tax rate to 1 percent if its qualifying distributions (for example, amounts paid to accomplish its exempt purposes) exceed the average historical level of its charitable distributions.

 

House-passed provision. The excise tax rate on net investment income would be reduced to 1 percent. Private foundations told the W&M Committee that the net investment excise tax on private foundations has long been a source of confusion and frustration, especially for smaller foundations, which can have endowments that vary in size significantly from year to year. Private foundations, both large and small, recommended to the Committee’s 2013 Tax Reform Working Group on Charitable/Exempt Organizations that the net investment tax be reduced to a flat 1 percent to ease compliance. According to JCT, the provision would reduce revenues by $1.909 billion over 2014-2024.

 

This provision is based on H.R. 4691, bipartisan legislation introduced by Reps. Erik Paulsen (R-MN) and Danny Davis (D-IL).

 

Overall JCT cost estimate of “America Gives More Act of 2014" (H.R. 4719): When analyzed against the current-law baseline, which assumes that long-standing temporary provisions are allowed to expire, the bill as a whole would reduce revenues by $16.238 billion over 2014-2024.

 

AMERICA GIVES MORE ACT—THREATENED PRESIDENTIAL VETO

 

STATEMENT OF ADMINISTRATION POLICY 

H.R. 4719 - America Gives More Act of 2014 

 

The Administration supports measures that enhance non-profits, philanthropic organizations, and faith-based and other community organizations in their many roles, including as a safety net for those most in need, an economic engine for job creation, a tool for environmental conservation that encourages land protections for current and future generations, and an incubator of innovation to foster solutions to some of the Nation’s toughest challenges. The President's Budget includes a number of proposals that would enhance and simplify charitable giving incentives for many individuals. 

 

However, the Administration strongly opposes House passage of H.R. 4719, which would permanently extend three current provisions that offer enhanced tax breaks for certain donations and add another two similar provisions without offsetting the cost. If this same, unprecedented approach of making certain traditional tax extenders permanent without offsets were followed for the other traditional tax extenders, it would add $500 billion or more to deficits over the next ten years, wiping out most of the deficit reduction achieved through the American Taxpayer Relief Act of 2013. Just two months ago, House Republicans themselves passed a budget resolution that required offsetting any tax extenders that were made permanent with other revenue measures. 

 

As with other similar proposals, Republicans are imposing a double standard by adding to the deficit to continue and create tax breaks that primarily benefit higher-income individuals, while insisting on offsetting the proposed extension of emergency unemployment benefits and the discretionary funding increases for defense and non-defense priorities such as research and development in the Bipartisan Budget Act of 2013. House Republicans also are making clear their priorities by rushing to make these tax cuts permanent without offsets even as the House Republican budget resolution calls for raising taxes on 26 million working families and students by letting important improvements to the Earned Income Tax Credit, Child Tax Credit, and education tax credits expire. 

 

The Administration wants to work with Congress to make progress on measures that strengthen America’s social sector. However, H.R. 4719 represents the wrong approach. 

 

If the President were presented with H.R. 4719, his senior advisors would recommend that he veto the bill.

 

ALL-AMERICAN LIFE-INCOME CHARITABLE IRA ROLLOVER ACT—PROPOSED LEGISLATION

 

Once again, a life-income Charitable IRA Rollover wasn’t on the menu for Congressional consideration. Here’s the case, strategy and legislation that I suggest to get this provision enacted:

 

The All-American Life-Income Charitable IRA Rollover Act 

Without decreasing government tax revenues or increasing anyone’s taxes, IRA rollovers to charitable life-income plans would pay taxable income to donors for life—just as if the payments were made to them by the IRA administrators. The IRAs would benefit qualified charities at the donor’s death. The charities would be the same ones specified in the House-passed bill and the bill reported out by the Senate Finance Committee. The donors would have to be 59½ or older and the annual ceiling would be $500,000. The fully taxable income received by the donors would be equal to or greater than the required minimum annual distributions. Those required distributions don’t start until age 70½. Under this proposed legislation, the government could start taxing the income distributions earlier. This arrangement would provide additional revenue for the government and the income would stimulate the economy (instead of being tied up in the IRA until age 70½).

 

Why would IRA owners not just give outright to charity (a direct gift) from an IRA as provided under not-yet-enacted extensions of the expired law? Many IRA owners want to make charitable gifts but also need retirement income. The Life-Income Charitable IRA Rollover would be an excellent way for donors of average resources to combine a charitable gift with retirement income. Many charities have donors who are “standing by” and want to make life-income charitable gifts from their IRAs.

 

The All-American Life-Income Charitable IRA Rollover would allow all charitable Americans with IRAs who meet the age requirement—not just wealthy taxpayers—to benefit charities. And, because it would encourage non-itemizers (over 65 percent of taxpayers) as well as itemizers, it's truly All-American.

 

How can the All-American Life-Income Charitable IRA Rollover be enacted when time is short and Congress is deadlocked?

 

The Act should be introduced with bipartisan House Ways and Means and Senate Finance Committee sponsors. Although passage of this stand-alone bill in both houses would be difficult to achieve in the upcoming Lame Duck Session, it could be on the menu in a House-Senate Conference Committee. The conferees could announce that they have provided a way for millions of additional Americans to support worthy causes and stimulate the economy—at no cost to the government.

 

Here is suggested language for the All-American Act. The life-income provision is added to and coordinated with the language of the direct tax-free Charitable IRA provision. It has no expiration date.

 

All-American Life-Income Charitable IRA Rollover Act Draft Bill

 

To amend the Internal Revenue Code of 1986 to expand tax-free distributions from individual retirement accounts to include rollovers for charitable life-income plans for charitable purposes.

 

Be it enacted by the House of Representatives and the Senate of the United States of America in Congress assembled,

 

SECTION 1. SHORT TITLE.

 

This Act may be cited as the “All-American Life-Income Charitable IRA Rollover Act of 2014.”

 

SEC. 2. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES.

 

(a) In General -- Paragraph (8) of section 408(d) of the Internal Revenue Code of 1986 (relating to tax treatment of distributions) is amended to read as follows:

 

(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES

 

(A) IN GENERAL

 

For purposes of this paragraph, so much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year -

 

(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and does not exceed $100,000, shall not be includable in gross income of such taxpayer for such taxable year, or

 

(ii) which is made directly by the trustee to a qualified split-interest entity for the benefit of an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and does not exceed $500,000, shall not be includable in gross income of such taxpayer for such taxable year.

 

(B) QUALIFIED CHARITABLE DISTRIBUTION

 

For purposes of this paragraph, the term "qualified charitable distribution" means any distribution from an individual retirement plan (other than a plan described in subsection (k) or (p)) -

 

(i) which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 70½, or

 

(ii) which is made directly by the trustee to a qualified split-interest entity for the benefit of one or more organizations described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 59½. 

 

A distribution shall be treated as a qualified charitable distribution only to the extent that the distribution would be includable in gross income without regard to subparagraph (A).

 

(C) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE

 

For purposes of this paragraph -

 

(i) a distribution to an organization described in subparagraph (B)(i) shall be treated as a qualified charitable distribution only if a deduction for the entire distribution would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph), or

 

(ii) a distribution to a split-interest entity described in subparagraph (B)(ii) shall be treated as a qualified charitable distribution only if a deduction for the entire value of the interest in the distribution for the benefit of an organization described in subparagraph (B)(ii) would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).

 

(D) APPLICATION OF SECTION 72

 

Notwithstanding section 72, in determining the extent to which a distribution is a qualified charitable distribution, the entire amount of the distribution shall be treated as includable in gross income without regard to subparagraph (A) to the extent that such amount does not exceed the aggregate amount which would have been so includable if all amounts in all individual retirement plans of the individual were distributed during such taxable year and all such plans were treated as one contract for purposes of determining under section 72 the aggregate amount which would have been so includable. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years. 

 

(E) SPLIT-INTEREST ENTITY DEFINED

 

For purposes of this paragraph, the term “split-interest entity” shall include -

 

(i) a charitable remainder annuity trust as defined in section 664(d)(1) which must be funded exclusively by a qualified charitable distribution, or

 

(ii) a charitable remainder unitrust as defined in section 664(d)(2) which must be funded exclusively by one or more qualified charitable distributions, or

 

(iii) a charitable gift annuity as defined in section 501(m)(5) which must be funded exclusively by a qualified charitable distribution, and shall commence fixed payments of 5% or greater not later than one year from date of funding. 

 

(iv) No person may hold an income interest in a charitable remainder annuity trust, a charitable remainder unitrust or a charitable gift annuity funded by a qualified charitable distribution other than one or both of the following: the individual for whose benefit the individual retirement plan is maintained and the spouse of such individual. 

 

Income interests in split-interest entities funded by qualified charitable distributions shall not be assignable.

 

(F) SPLIT-INTEREST ENTITY DISTRIBUTIONS

 

For purposes of this paragraph -

 

(i) notwithstanding section 664(b), distributions made from a trust described in subparagraph (E)(i) or subparagraph (E)(ii) shall be treated as ordinary income in the hands of the beneficiary to whom is paid the annuity described in section 664(d)(1)(A) or the payment described in section 664(d)(2)(A), and

 

(ii) qualified charitable distributions made for the purpose of funding a charitable gift annuity shall not be treated as an investment in the contract under section 72(c).

 

(G) DETERMINING DEDUCTION UNDER SECTION 170

 

Qualified charitable distributions shall not be taken into account in determining the deduction under section 170.

 

 

 

 

© Conrad Teitell 2014. This is not intended as legal, tax, financial or other advice. So, check with your adviser on how the rules apply to you.

 

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Conrad Teitell

Conrad Teitell, A.B., LL.B., LL.M., 98.6. Chairman, National Charitable Planning Group, Cummings & Lockwood, Stamford Conn. cl-law.com. For information about Conrad Teitell's publications...
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