Charities, Community Organizations

This paper attempts to better understand rhetoric over the charitable contributions deduction, arguing that debate surrounding the deduction is ultimately a projection of more fundamental debates relating to the theme of government versus charity. The phrase "government versus charity" can mean government as opposed to charity or government in opposition to charity. The first sense contemplates the need to choose which of government versus charity should supply a given good or service. The second sense contemplates the ideal regulatory posture of government in relation to charity. Competing views over the charitable contributions deduction often reduce to competing views over these two issues.

This paper examines the minimum distribution requirements for foundations. The first section presents a historical review of current law. The second section looks at the technical problems in the distributions requirements which lead to inequities across foundations and inefficiencies in their distribution of funds. The third section presents proposals to eliminate these problems, and the fourth section discusses the role of public policy in requiring minimum distributions and the effects of these requirements on the growth of the foundation sector. The fifth section looks at how these requirements impact the broader charitable sector.

The ongoing political standoff over the budget continues to have implications for all sectors of the economy, including the nonprofit sector. Most notably, proposed changes to personal itemized deductions have implications for the charitable deduction and giving to the sector as a whole.

The conference “The Charitable Deduction: A View from the Other Side of the Cliff,” hosted by the Urban Institute on February 28, 2013 examined how the recent debate over tax changes has affected nonprofits and charitable giving. Throughout the conference, a reoccurring theme was the gap between economic analysis and political feasibility.

Since the charitable deduction first appeared in 1917, its fate has been bound up with arguments over the nature and size of government, as well as the relationship between government and the private sector. This paper examines historical debates over the deduction for charitable giving, focusing on three key periods: 1917, when the deduction was first added to the tax system; 1944, when the introduction of the standard deduction seemed to threaten the efficacy of the charity deduction; and 1981-1986, when the extension of the deduction to non-itemizers was quickly followed by a debate over curbing the deduction substantially as part of general tax reform.

This paper attempts first to clarify tax rules concerning charitable contributions by reorganizing section 170 and simplifying the language, where possible, so that the operative rules will be clearer. In addition, a revision of the estate and gift tax provisions, intended to increase uniformity, is proposed. The possibility of further substantial simplification is explored in the section by section analysis which follows the proposed code revision. Whether or not the Code is actually revised in accordance with the proposed draft, having this tool available will help analyze the statute.

Extending the charitable deduction deadline is a move with precedent: the government has used it to encourage giving following a natural disaster. However, temporary laws have limited effect. Consider instead allowing charitable deductions made by April 15, aka tax day, to be applied to the previous year's tax returns. As in other facets of life, people are prone to making their decisions concerning giving at the last minute. If tax software companies such as TurboTax could show taxpayers how donating an extra $100 or $1,000 would lower their taxable income, this would be a powerful marketing tool for charities.

Gene Steuerle testifies before the Committee on Ways and Means on tax reform and charitable contributions. This testimony centers on the point that a tax subsidy like that for charitable contributions should be treated like any other program of government, examined regularly, and reformed to make it more effective. Moreover, the charitable deduction can be designed to strengthen the charitable sector at the same or even lower revenue cost. This is possible by taking the revenues that are spent with little effect on charitable giving and reallocating toward measures that would be more effective in encouraging giving.

In May 2012, the Tax Court issued two decisions denying income tax deductions for gifts to charitable organizations because they failed to meet the requirements for a qualified appraisal. These cases lit a firestorm of outrage in various circles, raising questions of how strictly substation rules should be applied. This paper reviews the rationales behind the charitable contribution substantiation rules, sets out the complicated regime regarding these rules and applicable case law, and presents a number of possible reforms. Balancing the need to control overvaluation with the need to encourage legitimate charitable contributions is a difficult but important challenge.