Yesterday, Chairman Hatch (R-Utah) released a modified mark of the Senate tax reform proposal. The modified mark makes significant changes to the original proposal, including providing for the sunset after 2025 of many of the provisions covering tax reform for individuals and eliminating the Affordable Care Act’s individual mandate. A score of the modified mark provided by the Joint Committee on Taxation indicates that the modified proposal complies with budget requirements to pass via reconciliation. However, an analysis by the Congressional Budget Office suggests that, if the proposal were enacted in fiscal year 2018, the Pay-As-You-Go Act of 2010 (PAYGO) would require the Office of Management and Budget to issue a sequestration order, which could effectively cut spending on certain programs, including Medicare.
A number of the provisions included in the modifications to the Senate bill would affect tax-exempt organizations:
- The modifications to the Senate bill generally would sunset (with certain exceptions) the provisions of Title I of the bill, covering tax reform for individuals. As a result:
- The changes in the standard deduction, itemized deductions, individual marginal rates, and the estate tax (which generally would weaken the tax incentive to make charitable contributions) would no longer apply after 2025.
- A provision that would increase the percentage-of-income limitation for cash contributions from 50% to 60% would no longer apply after 2025.
- The modifications to the Senate bill adopt two provisions relating to tax-exempt organizations from the House bill that were omitted from the original Senate bill:
- The repeal of the controversial option in section 170(f)(8)(D) under which the IRS currently may allow donee organizations to report charitable contributions to the IRS instead of sending a contemporaneous acknowledgement to the donor.
- A limited exception to the excess business holding rules for private foundations that would be created for certain wholly-owned and independently operated businesses where all net operating income promptly is distributed for use in the foundation’s charitable purposes.
- The modifications to the Senate bill allow for the designation of certain low-income community population census tracts as qualified opportunity zones, and provide tax incentives to encourage investment in qualified opportunity zones through qualified opportunity funds that are certified by the Department of Treasury’s Community Development Financial Institutions Fund in a manner similar to the process for allocating the new markets tax credit.
- The modifications to the Senate bill apply the limitations on the charitable contribution deduction applicable to individuals to electing small business trusts (ESBTs). Under current law, because an ESBT is a trust, the deduction for charitable contributions applicable to trusts under section 640(c), rather than the deduction applicable to individuals under section 170, applies to an ESBT.