News and analysis
December 21, 2015

Congress Extends Some Charitable Tax Provisions Permanently

This article was updated on December 21 to reflect action by the Senate and the president.

The Senate voted Friday to clear legislation that makes several charitable tax incentives permanent. The president signed the bill into law later that day.

The bill was negotiated as part of a far-reaching budget deal that also reduces spending on the Social Innovation Fund from $70 million to $50 million. The fund, a project of the Corporation for National and Community Service, supports grantees that take new approaches to solving social issues and rely heavily on data collection and analysis. Earlier this year, House Republicans voted to eliminate the fund.

The legislation, which was passed by the House Thursday, was the product of negotiations with the Obama administration on a broad array of must-pass budget provisions.

The charitable tax items include provisions designed to encourage gifts of food, donations from retirement accounts, and land conservation. But other provisions were left out, including one that would have lowered the foundation excise tax and another that would have allowed donors to make contributions from individual retirement accounts directly into donor-advised funds without treating the donation as taxable income.

The charitable tax provisions were part of a slate of several dozen tax incentives known as extenders. Every year or two, Congress votes to extend them for a period of time. Nonprofit advocacy groups have pushed for years to make them permanent.

The tax incentives will cost the U.S. Treasury $2.4 billion in lost revenue over 10 years, according to Congress’s Joint Committee on Taxation.

The provisions in the bill will, among other things:

  • Allow people who are 70 1/2 or older to donate up to $100,000 to a charity directly from their Individual Retirement Accounts without treating the distribution as taxable income
  • Expand the types of corporate entities that qualify for a tax deduction when they donate food for charity. The provision also will make accounting changes to make the tax treatment of gifts of food more generous.
  • Allow landowners to reduce their taxable income by giving up development rights on their property, increase the amount that can be deducted, and extend the "carry forward" period in which deductions in the current tax year can be claimed.

Cheering a Victory

Many nonprofit advocates cheered the legislation. The Alliance for Charitable Reform — a project of the Philanthropy Roundtable — the Council on Foundations, and Independent Sector each pushed vigorously to make charity-related tax breaks permanent.

Candy Hill, Independent Sector’s interim co-CEO, said removing the need to extend the incentives each year will end uncertainty for charities and improve their ability to secure donations.

The Council on Foundations says it spurred approximately 1.2 million Twitter impressions — tweets that produce some sort of response — from its #Act4Good campaign, which pushed for the charitable extenders.

"We’ve made significant headway with Congress, and we should not go silent now," the council urged its members in an email on Wednesday.

The council, however, lamented the fact that the lower foundation excise tax was not included. Others also had hoped for more.

"Our work is not finished," said Joanne Florino, senior vice president for public policy at the Philanthropy Roundtable. "We would have liked to have seen an expansion of the rollover to include distributions to donor-advised funds, but a permanent IRA rollover is certainly a win for philanthropy."

Ray Madoff, director of the Boston College Law School Forum on Philanthropy and the Public Good and a proponent of requiring foundations to pay out more of their assets into charitable work, expressed relief that the foundation excise-tax measure wasn’t included.

The measure would have taken the current two-tiered tax, in which foundations pay 1 percent or 2 percent of their investment gains based on their historical payout rates, and replaced it with a single 1 percent tax rate.

A simpler excise tax is needed, Ms. Madoff said, but it should reward foundations that pay out more of their assets — something she says the provision failed to do.

Ms. Madoff also is pushing for mandatory payout requirements for donor-advised funds. Such a requirement was included in draft legislation last year, but it is not clear if Congress will take further action.

"Until the payout issue is resolved, it’s not surprising they didn’t include it in the bill," she said.

Send an email to Alex Daniels.