Bill Promoting Charitable Giving Introduced in Senate
The CHARITY Act was introduced to amend and revise the Internal Revenue Code to extend and modify certain charitable tax provisions. Senators Thune and Wyden were noted as stating that they envision that this will help stimulate charitable giving and assist foundations and tax-exempt organizations to grow, making it easier for these organizations to conduct their charitable missions.
Background
The CHARITY Act contains seven sections, of which the first two sections are the title and the noted related findings. The remaining five sections of the CHARITY Act focus on the following five areas of the tax code.
Donor Advised Funds
The current law allows an Individual Retirement Arrangement (‘IRA”) owner who is age 70-1/2 or older generally to exclude from gross income up to $100,000 per year in distributions made directly from an IRA to certain public charities. The CHARITY Act would make donor-advised funds eligible charities excludable from gross income up to $100,000 per year.
Foundation Excise Tax
Private foundations are generally subject to a two percent excise tax on their investment income. The two percent excise tax would be reduced to one percent in the year in which the private foundation’s charitable distributions exceed the foundation’s average level over the past five years.
Require Non-Profits to File Form 990 Electronically
In order to help promote transparency, the CHARITY Act would require all tax-exempt organization to file the Form 990 electronically.
Currently, those tax-exempt organizations with $10 million or more in total assets may be required to electronically file if the organization files at least 250 returns in a calendar year, including income, excise, employment tax and information returns. In addition, at present, tax-exempt organizations whose annual gross receipts are $50,000 or less are able to satisfy their annual reporting requirement by electronically submitting Form 990-N.
It is noted that there may be a delay in this proposed provision for two years for small tax-exempt organizations with gross receipts of $200,000 per taxable year and aggregate gross assets of less than $500,000.
Standard Mileage Rate
The Internal Revenue Service has the authority to regulate the mileage rate for business and medical/moving purposes but not for charitable activities. As proposed, the CHARITY Act would authorize the Department of Treasury to align the standard mileage tax deduction for personal vehicle use for volunteer charitable services with the rate for medical and moving purposes; no longer having the charitable rate set by statute.
Philanthropic Enterprise Act
The CHARITY Act would allow certain philanthropic enterprises to donate 100 percent of their net operating income to charity without receiving a tax penalty under the excess business holding tax rules. In order to qualify for the proposed limited exception to the excess business holding tax rules a foundation would need to meet the following three requirements 1) an exclusion ownership requirement; 2) an “all profits to charity requirement; and 3) an independent operation requirement.
Conclusion
Senators Thune and Wyden envision that the CHARITY Act will encourage more Americans to participate in charitable giving and activities. The CHARITY Act was created to provide support for foundations and other tax-exempt organizations. If passed, the amendments of the CHARITY Act shall apply to taxable years beginning after December 31, 2016.
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