Key Senate Committee Passes Legislation Aimed at Encouraging More People to Give to Charity

The Senate Finance Committee has passed a package of tax proposals that, if enacted into law, would have a major impact on charities and donors.

However, the measure, known as the Charity Aid, Recovery, and Empowerment (Care) Act of 2002, could have a tough time winning final passage.

The Senate has a crowded agenda this year, making the timing of a vote by all members difficult to predict. What’s more, some lawmakers are expected to oppose the measure because of its expense: The bill’s provisions to offer incentives to encourage people to give are estimated to cost the Treasury more than $4.6-billion over six years.

And, before any charity provisions could become law, the Senate would have to work out differences with the House of Representatives, which last year passed a charity bill of its own.

The legislation approved by the Senate committee would:

• Allow people who do not itemize deductions on their income-tax returns to write off some of their charitable cash gifts. Individuals would have to donate more than $250 in a year to qualify for a deduction; people who donated $500 or more in a year could claim the maximum deduction of $250. The deduction would be allowed for two years — 2002 and 2003 — while the Secretary of the Treasury studied the effect of the provision on charitable giving and of “taxpayer compliance” with the law. About 70 percent of taxpayers currently do not itemize.
• Permit people 70 1/2 and older to withdraw money from their individual retirement accounts and donate it directly to charity without being subject to income tax. People 59 1/2 and older could withdraw money from their IRAs and make donations through planned gifts, such as charitable remainder trusts, without paying tax.
• Allow the Internal Revenue Service to share certain information about charities with state regulators; require tax-exempt groups to disclose to the public additional key rulings and letters that the IRS has issued to the groups, beyond what is currently required by law; and require that charities include on their annual informational tax returns all names under which they operate or do business, and the Internet Web site address of such entities.

The Senate bill would also make a major change in the way that charities count their lobbying expenses (if the organizations have chosen to calculate such costs as a percentage of their budgets). The provision would remove limits on the share of money that organizations can spend on “grass-roots lobbying” — efforts to rally popular opinion on legislation.

Charities are now allowed to spend no more than 25 percent of their total lobbying expenses on grass-roots advocacy, while allocating the rest to “direct” lobbying of government officials.

Under the bill, the percentage limit on grass-roots work would be removed so that charities could make any combination of grassroots and direct lobbying expenditures, up to an overall ceiling based on the size of an organization’s budget.

“Charity record keeping for reporting lobbying expenditures to the IRS would be greatly simplified,” said Thomas A. Troyer, chairman of Charity Lobbying in the Public Interest, a Washington organization that educates nonprofit organizations about the role lobbying can play in achieving their goals. “Equally important, charities would no longer be arbitrarily forced to choose which kind of lobbying activity they wanted to employ to get their message out.”

For additional information about the Senate bill, go to the Web site of Congress’s Joint Committee on Taxation, http://www.house.gov/jct/pubs02.html.