Last week the U.S. Senate Finance Committee issued recommendations that the Senate may consider regarding reforming the tax system as it relates to tax-exempt organizations and charitable giving.
While it is clear that we have a long way to go before we achieve fundamental reform of this system, the recent IRS scandal has focused a great deal of attention on this area. As a result, we would not be surprised if Congress soon embarks on a comprehensive overhaul.
Later this year, the Sustainable Law Group will open an office in Washington, DC. Our DC office will provide representation to nonprofit organizations, hybrid entities and small businesses in the DC area. We will also use our DC presence to advocate for laws and regulations that support entities and individuals offering sustainable solutions to societal and environmental issues.
Although we cannot detail the myriad of areas the Senate report touches upon, we highlight here a few areas that may be of particular interest to our clients.
Especially noteworthy for nonprofit social enterprises, the report suggests a number of ways the government can limit the benefits provided to nonprofits engaging in business activities and the donors that support such nonprofits. However, the report also offers a carve-out for nonprofits engaging in business activities that directly further their charitable mission.
CHARITABLE CONTRIBUTION DEDUCTION
1. Outright repeal of the charitable contribution deduction.
2. Converting the deduction to a refundable or Nonrefundable credit
3. Structuring the charitable incentive as a "match" paid directly to the charity (and possibly linking this to the current deduction).
4. Capping the value of the charitable contribution deduction (an option the Obama Administration has repeatedly proffered).
5. Allowing taxpayers that don’t itemize deductions to receive benefits from charitable contributions.
6. Allowing the deduction solely for those charities that serve the "needy."
8. Increase effect of charitable incentives by limiting deduction to taxpayers who give a minimum percentage of their income.
9. And a variety of options to restrict or limit the deduction.
LIMITS ON EXECUTIVE COMPENSATION
The report identifies two ways nonprofits can limit executive compensation, including further defining what constitutes a private benefit when a nonprofit enters into a for profit partnership, increasing officer and director obligations to investigate potential insider benefits](http://www.finance.senate.gov/newsroom/ranking/release/?id=5fa343ed-87eb-49b0-82b9-28a9502910f7), and requiring nonprofit leaders to disclose the compensation surveys they use to justify executive compensation.
The Senate Finance Committee report also includes a number of recommendations regarding lobbying and political activities of nonprofit organizations.
Please contact us if you would like more information on how current tax-exempt organizations’ laws and regulations apply to you, and if you are interested in engaging with policymakers to reform the system Ina way that better serves sustainable organizations.