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2005 Presidential Tax Reform Commission and Nonprofits

2005 Presidential Tax Reform Commission and Nonprofits

The President's Advisory Panel on Tax Reform issued a report in November, 2005 that addresses the complexities and inequities of the present Federal income tax system. The 456-page (292 numbered pages) final report may be downloaded in four separate PDF (Adobe Acrobat) files.

The package of specific reforms in the report are unlikely to be adopted by Congress. However, the report is valuable because it crystallizes thought on a number of tax-related policy issues, including treatment of charities and charitable giving. Proposals made in the report may become part of legislation and regulations in the next few years.

Only about ten pages of the report deal directly with charitable giving and nonprofits. The key nonprofit and charity provisions are as follows:

For donors:
  • allow all income tax filers to claim charitable deductions for gifts in excess of 1% of adjusted gross income (AGI)
  • allow taxpayers over age 65 to make deductible gifts to charity directly from their traditional IRAs
  • allow taxpayers to sell property in an arm's-length transaction “...without recognizing gain and receive a full charitable deduction if the entire sales proceeds are donated to a charity within 60 days of the sale.” (p. 77)

For charities:
  • charities should be required to report to the donor and the IRS the receipt of gifts in excess of $600 (similar in process to that for Forms 1099 for income). Small charities would be relieved of this burden if:
    • they receive 250 or fewer contributions of $600 or more in a year; or
    • they receive total annual contributions under $150,000 in a year
  • Congress should revise the standards for: 1) qualifying for; and 2) maintaining status as a charitable organization.

For donors and charities:
  • require the IRS to revise and clarify rules relating to valuation of non-cash charitable gifts
  • require appraisers to report appraisal amounts to the IRS, the donor, and the charity (similar in process to that for Forms 1099 for income)
  • enact penalties for appraisers who misstate appraisal values used in charitable gifts by more than 50 percent
  • allow deductions for gifts of clothing and household items only when the taxpayer receives a price list and an itemized receipt form the charity.

According to the report, Federal policymakers estimate the “cost” of deductibility of charitable contributions at a little more than $40 billion a year for the next five years. In other words, if charitable gifts were not deductible, the US Treasury would receive about $210 billion in additional revenue between 2006 and 2010. The report states that charitable “ is likely to continue, even if changes in law affect the tax benefits of giving. Research has shown, however, that taxpayers are sensitive to the tax rules on charitable giving.”