January 13, 2015

But you’ll want to wait before you start celebrating.

The President signed the legislation, titled “Tax Increase Prevention Act of 2014,” on December 19, 2014. The legislation provides for retroactive temporary extension of select laws that impact donors and the charities they support. In addition, it puts the burden of whether or not to make these key pieces of legislation permanent, squarely onto the new Congress.

The key charitable organization and donor impacts are:

  • Distributions from an IRA of up to $100,000 to a public charity. The Individual directing the distribution from their IRA must be aged 70-½ or older.  The distribution counts towards meeting required distributions but is excluded from income of the individual.  Because the individual does not recognize income, they also do not receive a charitable contribution deductions.  However, this is actually beneficial because the deduction is not subject to any of the limitations imposed on charitable contributions.
  • Conservation easements which are contributions of long term capital gain property will be subject to the 50% gross income limitation instead of the 30% limitation ordinarily used for this type of asset contribution to a public charity.
  • Enhanced valuations for contributions of food inventory by corporations.

One of the major impacts of passing tax legislation so late in the year is that it hampers the IRS’s ability to begin the tax filing season.  Although the extenders should not have major impact on the tax forms, another action Congress took before adjourning was to pass the fiscal year 2015 Omnibus Funding Agreement.  The fiscal year 2015 funding for the IRS was $346 million less than the funding level for fiscal year 2014.  This is less than a 1% cut to the overall budget.  The Omnibus Funding agreement comes with specific instructions and reporting requests.  Congress has instructed the IRS to improve its 1-800 helpline and improve response times.  It also directs the IRS to collect data and report on several areas of tax compliance.  Congress is asking the IRS to do more with less.

The budget for enforcement of tax exempt organizations is a small fraction within the overall IRS budget.  The AICPA (American Association of Certified Public Accountants) expressed concern over Congress’s continued cuts to the IRS budget stating, “We believe that proper funding of the IRS’s budget is essential to the IRS’s ability to carry out its mission,” which is enforcement of a tax collection system that is a voluntary system.  What budget cuts mean in practical terms for taxpayers and practitioners is longer wait times and fewer live IRS employees to provide assistance.

What is in store for charities legislatively in 2015? While it is still unclear whether Congress will be able to break through the inertia it has experienced in recent years, we do see several proposals keep reappearing in draft legislation as well as in the President’s budget.  These include:

  • Moving to a single excise tax rate for private foundations. Currently private foundations pay either a 1% or 2% excise tax. The proposals all have a single rate that is between 1% and 2%.
  • Making some or all of the provisions from the extender package passed this month, permanent.
  • Allowing tax payers a charitable contribution deduction for contributions made after the close of the tax year but before the date on which they file the tax return and take the charitable tax deduction.
  • If there is pervasive tax reform, charitable deductions will likely be a part of the package either in the amount of deduction allowed as a percentage of adjusted gross income or the value of the deduction allowed for certain types of property.

As 2015 unfolds we will keep you updated on proposed and actual legislation as it arises.  Have a very happy and prosperous New Year!

© Clark Nuber PS, 2015.  All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.