Tax Reform & Exempt Organizations

In addition to the 501(c)(4) exemption application bombshell, attendees at this month’s ABA Tax Section meeting also learned about the serious bipartisan tax reform effort being led by House Ways & Means Committee Chairman Dave Camp (R-Michigan) and Senate Finance Committee Chairman Max Baucus (D-Montana).  Because Representive Camp is approaching his term-limit as Ways and Means Chairman at the end of 2014 and Senator Baucus has already announced his retirement as of 2014, these two experienced members of Congress are somewhat insulated from the normal political pressures that might derail such an initiative.  Their effort has already generated a series of “option papers” that are actually what they say they are – a discussion of possible tax reform options in a variety of areas without endorsement of or partisan sniping regarding any particular set of possible changes.  It also has been the subject of 20 separate Ways and Means Committee hearings, as described on the Committee’s Comprehensive Tax Reform website.

Tax reform has also been the focus of eleven Ways and Means Committee working groups, including one relating to Charitable/Exempt Organizations.  For a detailed summary of both the present law in this area and the suggestions and comments received by this working group and the other working groups, see the Joint Committee on Taxation report issued earlier this month.  The exempt organization sections can be found on pages 19-57 (present law) and 491-497 (suggestions and comments received).  Here are the headings for the latter section, which covered the whole gamut of possible options:

1.    The Charitable Deduction

General support for preservation of the charitable deduction or opposition to changes to
the charitable deduction

General support for reform of the charitable deduction

Charitable contributions of property

Other comments relating to the charitable deduction

2.    Tax-Exempt Status

In general

Public charity status and private foundation operating rules

Unrelated business income tax (“UBIT”)

Specific types of tax-exempt organizations

3.    Reporting, Disclosure, or Tax Administration

4.    Exclusion from Gross Income for Qualified Charitable Distributions fron an Individual Retireement         Arrangement (“IRA”)

5.    Miscellaneous Comments Submitted by Indiana Tribal Governments

Having reviewed these materials and talked with some of the staffers at the ABA meeting, I actually am cautiously optimistic that tax reform is a possibility.  What effect any reform will have on exempt organizations is impossible to predict at this point, but certainly significant changes to both the charitable contribution deduction and the requirements for tax exemption are on the table.

LHM