As members of the House and Senate worked out a compromise tax measure this week, they dropped nearly every provision that charities and lawmakers had sought to cut down on abuses of charity tax laws and encourage charitable giving.
The negotiators said the charity provisions may be included in a different bill, meaning that it is possible they could become law this year.
The tax bill now contains just a single nonprofit provision: a measure to tighten rules on corporate tax-shelter abuses that involve charities. The provision, which would impose penalties on charities and other entities that participate in illegal tax shelters, is expected to produce $428-million for the federal government over the next decade, according to the Joint Committee on Taxation.
The Senate's tax measure contained many provisions that affected charities while the House's had none. Among the provisions passed by the Senate:
Donors who do not itemize deductions on their tax returns — more than two-thirds of Americans — would be allowed to write off a portion of their charitable donations. Currently, only those who itemize may write off their gifts. However, some donors would lose part of their charitable deductions: Donors who itemize could only write off the sum above $210 that they donated each year to nonprofit organizations; couples filing jointly could have written off the amount that exceeded $420.
People age 70 1/2 and older would be permitted to withdraw money from their individual retirement accounts and donate it directly to charity without being subject to income tax.
Individuals and companies would be prohibited from realizing improper financial gains from charity-owned life-insurance policies.
Rules would be tightened for donors who create conservation easements, a legal tool used to protect private land from development.
Supporting organizations and donor-advised funds that offer overly generous benefits to donors would also face new restrictions.
Congressional staff members say the compromise tax measure represented the best chance charities had to see their top priorities become law this year. Negotiators spent five months working out differences between the House and Senate bills.
Ultimately it proved too difficult to incorporate the charity provisions into the bill, said a Senate Finance Committee aide who spoke on condition of anonymity. To get agreement, the lawmakers decided to keep the final measure simple, the aide said.
But the charity provisions might get new life if they are included in legislation to change the rules governing employer-provided pensions, the aide said. The pension bill is considered "must pass" legislation, he said. "This is very much a real opportunity."
Some of the charity measures included in the pension bill would probably differ from what was proposed in the Senate's version of the tax bill, according to House and Senate staff members. Lawmakers in both chambers may add more provisions, they said, and changes are also being made to the provisions that were in the Senate bill.
Details of the final package are still being worked out, but the most controversial provision, the one affecting people who don't itemize on their taxes, has been changed.
Many charities complained that the Senate's provision to extend write-offs to people who do not itemize on their taxes might actually hurt charities. Some donors who itemize their deductions might be discouraged from making small gifts, they said, because of the $210 limit. More than 60 organizations wrote members of Congress asking them to change the provision.
In response, lawmakers have tentatively decided that people who itemize would not face the $210 floor on the portion of their gifts they can write off. In addition, they have decided that people who don't itemize would be allowed to write off up to $210 a year in charitable donations, but no more, regardless of how much they gave.