Senate's Tax Reform Could Greatly Impact Charities

Senate Finance Committee Chairman Max Baucus and Ranking Member Orrin Hatch publicly announced Friday their much-anticipated plan for next steps on comprehensive tax reform. The announcement and a related letter to Senate colleagues made clear the Finance Committee's strategy to start tax reform from a "blank slate," meaning "a tax code without all of the special provisions in the form of exclusions, deductions and credits."

While this approach may be one way to achieve a "simpler, more efficient and fairer tax code" as suggested by Senators Baucus and Hatch, it does put at risk the charitable contribution deduction, which is vital to religious and other nonprofit organizations. As expressed in my comments submitted to the House Ways & Means Committee in February 2013, "ECFA is deeply concerned by any tax reform proposals that would reduce or eliminate the value of the charitable contribution deduction under section 170 of the tax code, which has traditionally been regarded as the most effective policy tool at the government's disposal to encourage individual charitable giving."

Besides the charitable contribution deduction, some of the other important provisions affecting religious and other nonprofits include the clergy housing exclusion and exclusion for employer contributions to health insurance and other fringe benefits. (The Joint Committee on Taxation has compiled a list of special tax provisions under consideration.)

Recognizing the important public policy purposes achieved by these provisions in the existing tax code, the senators have requested input until July 26 as to which exclusions, deductions, and credits should be preserved in the course of tax reform. To be preserved, it must be clear that any special provision will (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

In the coming days and weeks ahead, ECFA will be working with a broad coalition of religious and other charities across the country to provide input to Congress on these key issues related to comprehensive tax reform.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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