Outlook for Philanthropy: Legislation Pending in Congress

Long-sought tax incentives for charitable giving have been combined into

---

ALSO SEE:

Charity Bills Under Review in Congress

---

legislation to carry out the administration’s plan to make it easier for religious groups to receive federal funds for their social-service programs. Among the giving incentives being considered this year: allowing people who do not itemize deductions on their income-tax returns to write off some of their charitable gifts, and making it possible for people to withdraw money from their individual retirement accounts and donate it to charity without being subject to income tax. Other provisions include an enhanced deduction for corporate donations of food and books; a reduction of the excise tax on foundations to 1 percent from the current 2 percent; and expedited review for small organizations applying to the Internal Revenue Service for nonprofit tax status.

A bill introduced in the Senate — the Charity Aid, Recovery and Empowerment (CARE) Act — contains the tax incentives mentioned and also would make it easier for faith-based groups to receive federal money. The House passed a version of the bill last year that also includes the so-called charitable choice provision, which would give religious organizations that receive federal funds the freedom to make hiring and other administrative decisions based on religious views.

President Bush has expressed strong support for the legislation, but concerns among some members of Congress about its cost and the potential for some tax incentives to be abused could undermine its chance for passage. The bill would cost $8-billion over two years. In the Senate Finance Committee, Chairman Max Baucus, Democrat of Montana, and Charles E. Grassley, Republican of Iowa, plan to propose revisions to the bill that would reduce its cost. They may pair it with legislation to crack down on corporate tax shelters as a way to increase money flowing to the Treasury — and therefore cover the losses of the charitable-giving incentives.

The Corporation for National and Community Service was created during the Clinton Administration to oversee AmeriCorps and other service programs that receive federal money. The goal of its programs is to encourage people to devote time to helping charities, schools, and other civic organizations.

The Corporation has been caught up in political battles over the years, but its plan for changes seems to have appeased its biggest opponents. The bill to extend the life of the organization, introduced by Rep. Pete Hoekstra, Republican of Michigan, would require nonprofit organizations that participate service programs to produce measurable results; give state and local officials greater control in administering the programs; allow religious groups a greater role in national-service work; and establish a program for elderly volunteers that would allow them to receive scholarship money that they could then transfer to a grandchild or another person they want to help obtain advanced education. Rep. Tim Roemer, Democrat of Indiana, co-sponsored the bill.

President Bush has said he supports the bill, and it is being well received by Democrats and Republicans, making passage likely.

Many charities use data that has been collected from consumers online, often without the consumers’ knowledge, for use in marketing and fund-raising efforts. Consumer-rights groups want to prohibit companies and other organizations from using or disclosing medical, financial, and other sensitive information without the consent of the person involved. According to the Direct Marketing Association, such legislation could increase administrative costs for charities by 30 percent.

Sen. Ernest F. Hollings, Democrat of South Carolina, has introduced a bill that would empower the Federal Trade Commission and state attorneys general to prosecute in cases where organizations disclose to others personal information collected online without an individual’s consent. Individuals also would be allowed to sue the organizations involved. A competing House bill would only require organizations to notify consumers that they are collecting the information.

Although Senator Hollings has lined up Republican support for his bill, the measure appears stalled in the House.

Conservative religious groups last year began pushing for an end to a 48-year-old ban on electioneering by nonprofit organizations, arguing that it was politically motivated and that churches and others should be allowed to express their views.

Rep. Walter B. Jones Jr., Republican of North Carolina, introduced a bill last year designed to partially reverse the ban. Charities other than churches would still be prohibited from engaging in political campaigns. Rep. Philip Crane, Republican of Illinois, has introduced a similar bill. The House Ways and Means Committee recently held hearings on both measures.

This legislation faces stiff opposition, including from many mainstream religious groups. They and civil-rights groups argue that lifting the ban — particularly if it is lifted only for churches and not all charities — would violate the constitutional separation between church and state. Without wide support, the measures are unlikely to advance, particularly this year when Congress will try to wrap up business early in anticipation of the November elections.

Last year’s $1.35-trillion tax-cut law gradually phases out the estate tax, but only until 2010. After that, the estate tax is restored to its 2001 level. President Bush and many lawmakers want the tax repealed permanently. Many nonprofit groups fear that permanent repeal would discourage gifts to charity from wealthy estates because it would remove a major tax incentive for making such contributions.

Both the House and Senate are expected to vote on a bill that would permanently repeal the tax on estates worth more than $1-million ($2-million for couples).

Congress is expected to vote on this bill this summer. Approval is far from certain in the Senate. Senate Majority Leader Tom Daschle, Democrat of South Dakota, has pledged to lead a fight against the legislation. Repeal supporters are optimistic, but opponents say the tax cut would be too expensive and the nation needs the revenue to fight terrorism.

Companies are not required to report their contributions or their ties to charities. Some members of Congress and watchdog groups over the years have urged changes that would require companies to tell shareholders about their charitable contributions. With the collapse of Enron — and related questions that have emerged about gifts it made to charities favored by directors on Enron’s board — the issue has taken on new urgency. The Council on Foundations, among others, has said that requiring such reporting would violate the privacy of donors.

Under a bill pending in the House that covers a wide range of accounting and reporting changes for corporations, companies and their officers would be required to report each contribution to a nonprofit group that exceeds $10,000, as well as any lobbying done in behalf of a nonprofit group.

Some senators oppose the House bill, saying it fails to make meaningful changes in accounting practices. Senators are drafting their own bills, and charity lobbyists are urging them to narrow the reporting requirement from the one in the House bill. At the same time, accounting firms and some conservative senators strongly oppose such legislation and are attempting to stall action on it.

Under federal law, Americans may withdraw funds without penalty from individual retirement accounts when they reach age 5912. But people with such accounts are subject to income tax on the entire amount taken out, including funds given to charity.

Provisions to allow people to transfer IRA assets directly to charities without owing taxes on those funds have come close to being passed in previous years. This bill, introduced by Sen. Byron Dorgan, Democrat of North Dakota, separates this provision from other charitable-giving incentives in the hopes that it will have an easier time winning passage. The bill would allow people over age 7012 to roll over their IRA to charities tax-free, and would permit those over age 5912 to transfer their IRA assets tax-free to a trust managed by a charity, which would make regular payouts to them.

While this bill is far less expensive than the broader CARE Act, it is expected to have a hard time winning passage this Congressional session.