Congress Passes Legislation on Charitable Giving, Tax-Law Abuse

By Grant Williams

Congress has passed legislation that contains a series of provisions designed to stimulate charitable giving and to cut down on abuses of charity tax laws by donors and nonprofit organizations.

The measure will now be sent to President Bush, who is expected to sign it into law. The Senate passed the legislation last night, and the House of Representatives approved it last week.

Meanwhile, Senate Democrats blocked an effort by Republican members to pass separate legislation that would reduce the estate tax. Many charity officials worry that a reduction or repeal of the estate tax would eliminate a powerful incentive for wealthy donors to make charitable bequests.

Among the charity provisions in the legislation that Congress approved: Donors age 70 ½ and older would be allowed to withdraw up to $100,000 from their individual retirement accounts tax-free if they gave the money directly to a charity. The tax break, which would be available for two years under the legislation, has long been a priority for charitable groups.

They say that making it easier for people to donate their retirement funds to charities could cause a significant amount of money to flow to charity.

The legislation does not include a charitable-giving provision long sought by many nonprofit organizations: allowing people who do not itemize deductions on their returns to write off a portion of their charitable donations.

In an effort to crack down on abuses, the legislation would impose new penalties on donors who try to inflate the value of their charitable gifts, and small charities would be required to provide the Internal Revenue Service with additional information about their finances. The measure also would allow the IRS to share with state regulatory officials more information about actions taken against nonprofit organizations in an attempt to improve enforcement of charity laws.

Over all, said Brian A. Gallagher, president of United Way of America, "these reforms and new tax incentives will strengthen the nation's charities. They are an important step forward."

A detailed explanation of the legislation's charity provisions has been prepared by staff members of the Congressional Joint Committee on Taxation. The legislation that contains the charity provisions focuses mostly on tightening rules for the country's private pension system.