News and analysis
December 03, 2014

New Deadline for Tax-Free Giving Stalls in Congress, but Supporters Fight On

Idit Knaan for The Chronicle

The time-honored practice of sneaking charitable donations in under the wire during the waning days of December is safe for another year.

Despite the efforts of some nonprofit leadership organizations, Congress is unlikely to pass a measure before it adjourns that would extend the deadline for claiming a charitable deduction until tax day, April 15.

For now, lawmakers are working on legislation that would extend for a year several existing tax provisions that have expired or will soon expire. Many of those provisions are designed to encourage charitable giving, including favorable tax treatment of donations made from Individual Retirement Accounts, land-conservation donations, and gifts to food banks.

The House is likely to vote on those items, known as "tax extenders," as early as the end of the week. But new additions to the tax code, like the April 15 deadline for charitable deductions, likely will have to wait until next year.

Lawmakers have only a few workdays remaining during the busy "lame duck" session after the November midterm elections, and Republicans are deferring action on many items until they control both chambers of Congress next year.

Broader Tax Effort

In June, the House voted to make the extenders permanent in a bill called the "America Gives More Act." That legislation also contained several new provisions, including the April 15 deadline for claiming the charitable deduction.

The effort to move the deadline for charitable deductions has been hindered by a lack of support among nonprofits, says Sandra Swirski, executive director of the Alliance for Charitable Reform, a coalition of nonprofits that have pressed for the change.

That lack of support has hurt the measure’s chances this year as much as the short congressional calendar and politics.

"The case hasn’t been made soundly enough," she says. "They’re looking for items in a lame duck with limited controversy."

The proposed April deadline for charitable contributions has divided nonprofits. Large organizations, like the United Way, declined to stake out a position on the matter. The Salvation Army, a Christmas mainstay with its thousands of red-kettle solicitors at year's end, supports it but did not actively push for it.

Eugene Steuerle, a senior fellow at the Urban Institute, first drafted policy papers in support of the change nearly two decades ago. He argues it might yield more in donations as tax preparers and tax-return software effectively market the deduction to people as they calculate what they owe.

"That’s a lot of free publicity," he says.

Also, he says, people may be inclined to give more after knowing their annual income and tax liability—-information they don’t have in late December, when many families currently decide how much to give. Many people underestimate their income, he says, and give less as a result.

Mr. Steuerle and other supporters of an April 15 deadline point to a survey conducted by Jacob Goldin and Yair Listokin, of Yale Law School and Princeton University that suggests nearly half of taxpayers eligible for the charitable deduction are unaware it's available, and the majority underestimate the incentive to give provided by the deduction.

Supporters of the change add that many high-income donors, including Wall Street’s elite, might chip in more right after bonus season, which typically is in February.

"Capturing some of that for charity would be a good thing," says Ms. Swirski, of the Alliance for Charitable Reform. "Charities would get a second bite of the apple during the first quarter."

Highlighting the deduction at tax time could increase gifts by "billions" of dollars each year, Mr. Steuerle says. According to calculations by the Joint Committee on Taxation, changing the date would lower tax revenue by more than $2.8-billion over a 10-year period.

Critics Weigh In

However, others say those estimates aren’t reliable and worry that any increases would taper out in successive years as people got used to the new date.

Hedy Milgrom, vice president for development at the Jewish Federation of Cleveland, says changing the date would cause people to withhold gifts. As a result, organizations that rely on the federation for support would have to wait longer, and they might not receive as much help if donors decided near tax day that other financial priorities were more pressing.

It’s possible that such a shift would cause only a one-time recalibration of gift-giving, she says, and that charities would suffer from that one-time delay in donations, adding that that could still deal a serious blow.

"Cash flow is critical for our organizations," she says.

If such a change were made, Ms. Milgrom notes, it’s likely the federation would encourage donors to put more money into their donor-advised funds. That way they could immediately get a tax deduction, whether the deadline is at the end of the year or at tax time. But the funds they donate could be parceled out to beneficiaries throughout the year, so charities wouldn't have to be kept waiting.

Holiday Letdown Feared

An April 15 deadline would put an end to major year-end campaigns and sap the vitality of holiday giving, predicts Robert Sharpe, a Memphis fundraising consultant. Many charities depend on year-end donations for a huge share of their annual revenue. Without the combination of the tax deadline and the increased generosity associated with Christmas, many nonprofits would lose an opportunity to tap into donor enthusiasm, he says.

"I don’t know that it’s going to cause all hell to break loose, but I can see why it is a concern for people," he says. "It’s a big experiment coming out of the recession," when individual giving has yet to fully rebound.

Extending the deadline for only large gifts, say above $10,000, would limit fraud, Mr. Sharpe says, because it would reduce the likelihood that people would claim the same charitable gifts in two years. (Two gifts of the same size claimed in successive years would raise an audit flag "the size of Texas," he says.) A minimum requirement would encourage larger gifts from wealthier individuals at tax time and would still encourage year-end donations from middle-income donors, who may not be in a position to reduce their tax liability by making a donation in April, according to Mr. Sharpe.

Reducing the Bulge

Despite those concerns, many nonprofit organizations are eager to extend the deadline and plan to support a change next year when Congress is likely to debate the issue. An April deadline, they argue, would reduce the bulge of donations coming in at the end of the year, making annual budgeting a smoother, more predictable process.

"We would be thrilled," says Ellie Hollander, president of the Meals on Wheels Association of America.

Like other charity officials, Ms. Hollander believes an April deadline would encourage more donations. It would be up to charities to "pivot" and sustain their year-end efforts through the first three months of the year.

Joy Shigaki, senior director of advancement at Episcopal Relief and Development, agrees. She says year-end fundraising accounts for about a fourth of her group’s revenue. The organization’s first-quarter results, which include donations that come in response to a January direct-mail appeal, account for only about 15 percent of what the organization receives at year end.

The January mailer "could be used as a great leverage point" to remind people of the April 15 deadline and eventually change the rhythm by which people donate over the course of the year, Ms. Shigaki says.

Charities with a "meaningful relationship" with their donors can sometimes predict when they are likely to be more generous as a result of a profitable quarter or a hot streak in the markets, says David Wills, president of the National Christian Foundation. Those groups are likely to gain the most from an April deadline, he says.

Wills says his gut tells him that donors would give more if they had until April 15 to make a charitable gift. But the holiday season could still be a time of extreme generosity, he says, even without the looming December 31 deadline.

"There’s some mystery to this," he says. "We’re not 100 percent certain how this would play out."

Send an e-mail to Alex Daniels.