Today, the House passed the Consolidated Appropriations Act, 2016, an omnibus appropriations bill for 2016, and the Protecting Americans from Tax Hikes Act of 2015, a tax-extenders bill. The Senate is expected to also pass the legislation, and President Obama is expected to sign the legislation this week.
The legislation includes five permanent extensions of expiring or expired provisions affecting tax-exempt organizations:
- A permanent extension of the special rule for contributions of capital gain real property made for conservation purposes; the rule would also be modified with respect to certain contributions of land conveyed by the Alaska Native Claims Settlement Act.
- A permanent extension of tax-free distributions from individual retirement plans for charitable purposes.
- A permanent extension of the charitable deduction for contributions of food inventory; the deduction would also be modified to limit the amount of the deduction for C corporations to the lesser of 15% of taxable income or 15% of the aggregate net income from all trades or businesses from which contributions are made in a given year.
- A permanent extension of the treatment of certain interest, annuity, royalty, or rent payments received by exempt organizations from controlled entities as derived from an unrelated trade or business.
- A permanent extension of the basis adjustment to stock of S corporations making charitable contributions of property.
Each extension is effective retroactive to taxable years beginning after December 31, 2014 (when the provisions being extended expired under current law), while the modifications are effective only for taxable years beginning after December 31, 2015.
The legislation also includes several other provisions that would affect tax-exempt organizations:
- A prohibition on the use of funds by the IRS or Treasury Department during fiscal year 2016 to issue, revise, or finalize any regulation, revenue ruling, or other guidance not limited to a particular taxpayer relating to the standard that is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4). Proposed regulations were published in November 2013, and finalizing these regulations is a part of the IRS’s priority guidance plan, which lists projects the IRS intends to focus on in the current year. The legislation also prohibits the Securities and Exchange Commission from finalizing, issuing, or implementing any rule, regulation, or order regarding the disclosure of contributions to tax exempt organizations.
- A requirement for organizations to notify the Treasury Department of their intent to operate under section 501(c)(4) within 60 days of being established. The provision would apply both to organizations organized after the date of enactment and to organizations that have not yet applied for a written determination or filed at least one annual tax return or informational notice.
- A requirement that the Treasury Department prescribe procedures under which an organization that claims to be described in section 501(c) may request an administrative appeal of an adverse determination of tax-exempt status, private foundation classification, and private operating foundation classification.
- A provision to enable organizations applying for tax exempt status under section 501(c) and 501(d) to seek declaratory judgments with respect to adverse determinations of tax exempt status (in addition to section 501(c)(3) organizations that already have this right).
- A provision that transfers of money or other property to section 501(c)(4), (5), and (6) organizations made for the use of such organizations are not subject to gift tax.
- A provision which provides that charitable contributions to an agricultural research organization are eligible for the higher individual limits (generally up to 50% of the taxpayer’s contribution base) if the organization commits to use the contribution for agricultural research before January 1 of the fifth calendar year that begins after the date of the contribution. In addition, agricultural research organizations are treated as public charities per se, without regard to their sources of financial support. These provisions are modeled after those applicable to medical research organizations.
- A clarification of the valuation method for the early termination of certain charitable remainder unitrusts (NICRUTs and NIMCRUTs).
For detailed coverage on this legislation in general, click here.