Presidential Committee Suggests Tax-Law Changes

TAX WATCH

An advisory committee to the Bush administration has recommended that the government make big revisions to the way the federal tax code treats charitable donations.

The President’s Advisory Panel on Federal Tax Reform, formed by Mr. Bush to suggest ways to overhaul and simplify tax laws, concluded in its final report that the government should:

• Allow all taxpayers to deduct charitable gifts on their federal income tax returns. Currently, only people who itemize on their returns are eligible to take charitable deductions. But the committee would allow taxpayers to write off only the portion of their gifts that exceed 1 percent of their income. The committee said that most taxpayers already contribute more than 1 percent of their income to charity. But some critics say that such a change would eliminate the chance for many people to take the deduction and reduce the value of the deduction for many others.
• Allow people to sell stocks, real-estate, and other items that have risen sharply in value and donate the proceeds to charity without paying capital-gains taxes on the appreciated value of the items. Under current law, donors can avoid paying taxes on the increase in the value of assets such as stock or land only if they give the assets directly to a charity, a rule that puts the burden of selling the asset on the charity.
• Require charities that receive noncash gifts valued at more than $600 to send written receipts to the donors and the Internal Revenue Service. For gifts of lesser value, such as clothing and household items, charities would be required to provide donors with lists of suggested values for the goods and itemized receipts.
• Allow older people to contribute directly to charity from their individual retirement accounts without paying federal income tax on the withdrawals.

The advisory committee also recommended that the federal government consider limiting the kinds of organizations that should qualify for tax-exempt status.

The committee included its suggestions on nonprofit organizations in two separate tax plans that it provided the administration. One plan would simplify the current federal income-tax system; the other would revamp the current system and combine it with a tax on the goods and services companies buy.

Observers do not give the committee’s overall proposals much chance to be passed by Congress because huge changes to existing law would be required. But many predict that lawmakers may eventually adopt some of the panel’s recommendations.

A copy of the report is available online at http://www.taxreformpanel.gov.