5 Ways CHARITY Act Hopes to Encourage Charitable Giving
Two senators introduced a bill they claim would empower nonprofits by providing more ways to give to charity through tax reforms.
"It is the sense of the Senate that encouraging charitable giving should be a goal of tax reform, and Congress should ensure that the value and scope of the deduction for charitable contributions is not diminished during a comprehensive rewrite of the tax code," according to Senate Bill 2750.
U.S. Sens. John Thune, R-S.D., and Ron Wyden, D-Ore., introduced Senate Bill 2750, aka Charities Helping Americans Regularly Throughout the Year (CHARITY) Act, April 6, according to a press release.
"Charitable giving is core to our society and benefits millions of Americans each year," Wyden said in a statement. "This bipartisan bill improves the tax code making it easier for families to support their favorite charities and ensures that charitable organizations are best equipped to accomplish their missions."
The bipartisan bill contains five components:
- Donor-Advised Funds. While someone age 70-and-a-half or older can exclude up to $100,000 from gross income per year in Individual Retirement Arrangement (IRA) distributions and direct them to public charities based on the Protecting Americans from Tax Hikes (PATH) Act that Congress passed in December, this bill also would make donor-advised funds eligible charities.
- Foundation Excise Tax. This tax would be simplified from the current 2 percent on investment income to 1 percent in a year where distributions exceed the foundation's average level over the past five years.
- Electronic Form 990. The bill would promote transparency and require all tax-exempt organizations to file the Form 990 electronically, whereas only the smallest and largest are required to do so currently. A delay in effective date may be put in place for organizations with gross receipts of less than $200,000 per taxable year and aggregate gross assets of less than $500,000.
- Standard Mileage Tax Deduction Rate. Since the IRS does not have the authority to regulate mileage rates for charitable activities, this bill would seek to authorize the Department of the Treasury to align the standard mileage tax deduction rate for personal vehicle use for volunteer charitable services with the rate for medical and moving purposes, which the IRS currently does regulate.
- Excess Business Holding Tax. The final portion of the bill would create a limited exception to the excess business holding tax rules that would permit certain philanthropic enterprises to donate 100 percent of after-tax profits to charity without receiving a tax penalty.
"Americans are some of the most generous people in the world, with more than two-thirds of households contributing to charitable causes each year,” said Thune in a statement. "As families from across the country open their hearts and wallets to help less-fortunate members of their community, Congress should make it as easy as possible for charities to fulfill their purpose. There’s more we can do in Washington to encourage Americans to participate in charitable activities, and that starts with ensuring our tax code doesn’t hamstring those who wish to give."
If passed, the new provisions would be effective starting in tax year 2017. The Senate has referred the bill to the Committee on Finance.