Election 2016 and Federal Tax Exemption/Charitable Contribution Deduction Law

Given the uncertainty regarding the plans of both President-elect Trump and the Republican-controlled Congress, I feel a bit like a sportswriter trying to rank college football teams before the season begins when I try to predict what the results of the 2016 election will be for the federal tax laws governing tax-exempt nonprofit organizations. With that caveat, here are my initial thoughts.

With respect to guidance from Treasury and the IRS, most of what appears in the most recent update of the 2016-2017 Priority Guidance Plan that is relevant to tax-exempt organizations (see especially pages 9-10 and, for section 170 guidance, page 14) appears non-controversial and so likely to eventually see the light of day. The one major exception is proposed regulations under section 501(c) relating to political campaign intervention, which project the Republican-controlled Congress has repeatedly suspended and likely will continue to block until the new administration gets around to killing it altogether. Another possible exception are the final regulations under section 7611 relating to church tax inquiries and examinations, although my guess is that Congress will instead simply focus on modifying or repealing the section 501(c)(3) prohibition on political campaign intervention, consistent with the campaign promises by then candidate Trump.

Speaking of Congress, university endowments likely will see continued congressional scrutiny especially in light of President-elect Trump’s mentions of the issue during his campaign. Whether such scrutiny results in actual legislation remains to be seen, however. What should perhaps be of greater concern to all charitable nonprofit organizations is the possibility that the detailed tax reform plan developed by now-retired Ways and Means Committee Chairman Dave Camp may be looked to for inspiration, especially when seeking revenue-generating provisions that could help offset tax cuts elsewhere. For a detailed overview of the many proposed changes relevant to tax-exempt organizations, see the Joint Committee on Taxation Technical Explanation of those provisions. Also relevant of course are proposed changes to the charitable contribution deduction, which are concentrated in section 1403 of the draft legislation. And of course there will also likely be effects on charitable giving from any general reduction of marginal tax rates or other broad changes, such as modification or repeal of the estate & gift tax.

For consideration of likely ramifications of the election results for nonprofits beyond just changes to federal tax law provisions, here are some early predictions from others: Devin Thorpe, Forbes Contributor (collecting thoughts from various nonprofit leaders); National Council of NonprofitsMark Hrywna at The NonProfit Times.

Lloyd Mayer