Bush Proposes New Incentives, Requirements for Charitable Donors

At the same time, the administration proposed several tax incentives to encourage charitable giving, many of them similar to those Mr. Bush requested last year.

Among the proposals President Bush included in his budget for the 2005 fiscal year, which starts on October 1:

• Limit deductions for gifts of patents or other intellectual property to their fair market value or to the amount it cost the donor to produce it, whichever is less. Currently, donors often claim deductions based on the estimated income that could be earned if a patent were developed commercially. Under the new proposal, donors could only claim deductions on income that was actually earned by the charity that receives it. The Treasury estimated that if donors take less generous deductions, the federal government would receive $432-million next year in new tax payments and $3.2-billion over 10 years.
  
  
• Require donors to obtain independent appraisals of any automobiles donated to charity. Taxpayers now may deduct the fair market value for their cars without an appraisal as long as they say the car is worth less than$5,000. The new policy would require taxpayers to obtain appraisals for all vehicles donated to charity, even those worth less than $5,000. Donors who did not want to pay for an independent appraisal would be able to estimate the vehicle's fair market value using a government formula, which probably would yield a lower value than commercial Òblue booksÓ used to set automobile resale prices. Changing the deduction rules would mean an additional $158-million in revenue next year and $1.2-billion over 10 years, according to the Treasury Department.
  
  
• Require companies to obtain an independent appraisal for any items, other than stocks or inventory, donated to charity that they claim are worth more than $5,000. Companies that claim a value in excess of $500,000 would be required to attach a copy of the appraisal to the return. Currently, individuals are bound by these requirements but certain types of companies are not. The new reporting requirement would bring the government $49-million in 2005 and $367-million over 10 years, the White House says.
  
  
• Allow people who do not itemize on their taxes, estimated to be about two-thirds of American taxpayers, to write off a portion of what they give to charity, up to $250 (or $500 for people who file joint returns). The deduction, which would be indexed for inflation after this year, would cost the federal treasury $1.2-billion in 2005 and $12-billion over 10 years, according to the White House.
  
  
• Allow people age 65 or older to make charitable donations directly from their individual retirement accounts without paying income taxes on the donated amounts. Estimated cost: $68-million in 2005; $3.5-billion over 10 years.
  
  
• Extend to all companies the tax deductions now available to certain types of businesses that donate food to food banks. The proposal would also increase the value of the deduction. Estimated cost: $42-million in 2005; $1.2-billion over 10 years.
  
  
• Lower the federal excise tax on private foundations to 1 percent. Foundations currently must pay an excise tax of up to 2 percent on their investment income. Foundations say that lower taxes would enable them to give more money to charities. Estimated cost: $133-million in 2005; $1-billion over 10 years.
  
  
• Require charitable remainder trusts that earn unrelated business income to pay a 100-percent excise tax on that income. Currently, charitable remainder trusts that earn any unrelated business income lose their federal tax exemption on the entire trust during the year in which the income was earned. The administration says its proposed change would be sufficient to discourage such trusts from investing in business unrelated to the charity's mission, without taking the harsher step of removing the tax exemption. The administration estimates that the change would cost $8-million in 2005 and $68-million over 10 years.