Recently Expired Charitable Tax Provisions
(“Tax Extenders”): In Brief
Jane G. Gravelle
Senior Specialist in Economic Policy
Molly F. Sherlock
Coordinator of Division Research and Specialist
October 17, 2014February 6, 2015
Congressional Research Service
7-5700
www.crs.gov
R43517
Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
Contents
Introduction...................................................................................................................................... 1
Enhanced Charitable Deduction for Contributions of Food Inventory ............................................ 32
Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes ........................ 43
Basis of S Corporation Stock for Charitable Contributions ............................................................. 54
Special Rules for Contributions of Capital Gain Real Property Made for Conservation
Purposes ........................................................................................................................................ 5
Tables
Table 1. Cost of Extending Expired Charitable Provisions ............................................................. 2
Contacts
Author Contact Information............................................................................................................. 6
Congressional Research Service
Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
Introduction
The 113th Congress has considered legislation that would extend certain expired and expiring tax
provisions. The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act (S.
2260), which was reported by the Senate Finance Committee on April 28, 2014, would extend
most expired and expiring tax provisions through the end of 2015. The bill did not advance in the
Senate, as a motion to end debate on H.R. 3474, the legislative vehicle for the tax extenders
package, was voted down on May 15, 2014. The House has taken a different approach, voting to
make permanent certain expired tax provisions. Several expired tax provisions would be
permanently extended as part of the Jobs for America Act (H.R. 4), passed in the House on
September 18, 2014. This legislation includes several provisions from bills passed in the House
earlier in the 113th Congress.
Tax Increase Prevention Act of 2014 (P.L. 113-295) temporarily extended tax provisions that
had expired at the end of 2013, for one year, through 2014. Absent congressional action, the 52
temporary tax provisions that expired at the end of 2014 will not be available to taxpayers for the
2015 tax year. Temporary tax provisions that are regularly extended for one or two years are often
referred to as
“tax extenders.” This report briefly summarizes the temporary charitable tax
provisions that
expired at the end of 2013 and are being2014 and may be considered for extension. The report also
discusses the
economic impact of these charitable tax provisions.
Four charitable tax provisions are discussed in this report: (1)
1. the enhanced charitable deduction
for contributions of food inventory; (2)
2. the tax-free distributions from individual retirement accounts
for charitable purposes; (3) (IRAs) for
charitable purposes;
3. the basis adjustment to stock of S corporations making charitable
contributions of
property; and (4)
4. the special rules for contributions of capital gain real property for
conservation purposes. conservation
purposes (conservation easements).
There are other “tax extender” provisions that may affect tax-exempt
entities discussed in other
CRS products. Specifically, CRS Report R43510, Selected Recently
Expired Business Tax
Provisions (“Tax Extenders”) , by Jane G. Gravelle, Donald J. Marples, and
Molly F. Sherlock
includes a discussion of the modification of tax treatment of certain payments
to controlling
exempt organizations.1 Extender provisions related to the low-income housing tax
credit, which
may be relevant for tax-exempt organizations, are discussed in CRS Report R43449,
Recently Recently
Expired Housing Related Tax Provisions (“Tax Extenders”): In Brief, by Mark P.
Keightley.
Other CRS products that provide background on tax extender provisions include CRS
Report Report
R43541, Recently Expired Community Assistance -Related Tax Provisions (“Tax
Extenders”): In
Brief, by Sean Lowry; CRS Report R43688, Selected Recently Expired Individual
Tax Provisions
(“Extenders”): In Brief, by Jane G. Gravelle; and CRS Report R43124, Expired
and Expiring
Temporary Tax Provisions (“Tax Extenders”), by Molly F. Sherlock.
As an alternative to extending the expired provisions, Congress may allow these provisions to
remain expired. Several provisions that might have been considered “traditional extenders”—that
is, they had
been extended multiple times in the past—were not have not been included in the extenders package enacted in
the American Taxpayer Relief Act (ATRA; P.L. 112-240)recent extenders
packages. Two charitable provisions, the
enhanced deduction for donations of computer
equipment, and the enhanced deduction for book
inventory to schools, which were first enacted in
1997 and 2005 respectively, were allowed to
expire as scheduled at the end of 2011.
It would cost an estimated $84.9 billion in foregone tax revenue to extend nearly all expired and
expiring provisions through 2015, as proposed in the EXPIRE Act as considered by the Senate on
May 15, 2014.2 The charitable provisions discussed in this report would cost $2.4 billion toThe one-year extension of expiring tax provisions enacted in 2014, the Tax Increase Prevention
Act (P.L. 113-295), reduced federal revenues by an estimated $41.6 billion over the 10-year
budget window.2 Of that cost, $0.7 billion was attributable to the four charitable provisions
discussed in this report (see Table 1).
1
In the past, this provision has been classified as a business-related provision, rather than a charitable one.
This cost includes $87.4 billion for extending provisions that expired at the end of 2013, $0.1 billion for provisions
(continued...)
Joint Committee on Taxation, Estimated Revenue Effects of H.R. 5771, the “Tax Increase Prevention Act of 2014,”
(continued...)
2
Congressional Research Service
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
extend, and thus represent a small portion of the overall cost of extending expired provisions.
Table 1 provides information on the cost of extending the charitable provisions discussed in this
report through the end of 2015, as proposed in the EXPIRE Act.
Permanent extension of certain expiring provisions has recently been discussed in the context of
tax reform.3 Legislation has passed the House that would make permanent certain provisions that
are currently part of the tax extenders. As noted in Table 1, the basis adjustment to stock of S
corporations making charitable contributions or property and the special rules for contributions of
capital gain real property for conservation purposes have been proposed to be made permanent in
the House Committee on Ways and Means Chairman Dave Camp’s tax reform discussion draft,
the Tax Reform Act of 2014. The House has also passed legislation to make permanent certain
rules regarding basis adjustments to stock of S corporations making charitable contributions of
property (see the Permanent S Corporation Charitable Contributions Act of 2014 (H.R. 4454),
passed in the House on June 12, 2014). This provision was also included in an omnibus bill, the
Jobs for America Act (H.R. 4), passed in the House on September 18, 2014.
Table 1. Cost of Extending Expired Charitable Provisions
billions of dollars
Made
Permanent or
Extended in
the Tax
Reform Act of
2014
10-Year Cost
of Extension
through 2015
in EXPIRE Act
10-Year Cost
of Permanent
Extension
Enhanced Charitable Deduction for Contributions of
Food Inventory
$0.3
$1.8
Tax-Free Distributions from Individual Retirement Plans
for Charitable Purposes
$1.8
$8.8
Basis Adjustment to Stock of S Corporations Making
Charitable Contributions of Property
$0.1
$0.7
YESa
Special Rules for Contributions of Capital Gain Real
Property Made for Conservation Purposes
$0.3
$0.7
YES
Source: Joint Committee on Taxation, Estimated Budget Effects of an Amendment in the Nature of a Substitute
to H.R. 3474, the “Expiring Provisions Improvement, Reform, and Efficiency (‘EXPIRE’) Act of 2014,” Scheduled
for Consideration by the Senate, 113th Cong., May 15, 2014, JCX-51-14, https://www.jct.gov/publications.html?
func=startdown&id=4601; Congressional Budget Office, The Budget and Economic Outlook: 2014 to 2024,
Washington, DC, February 4, 2014, http://www.cbo.gov/publication/45010; and the Tax Reform Act of 2014,
available at http://tax.house.gov/; and U.S. Congress, Joint Committee on Taxation, Description of H.R. 4454, A
Bill to Make Permanent Certain Rules Regarding Basis Adjustments to Stock of S Corporations Making
(...continued)
expiring in 2014, a revenue gain of $3.4 billion from various revenue-raising provisions, and a cost of $0.7 billion for
the Hire More Heroes Act of 2014 (H.R. 3474). See Joint Committee on Taxation, Estimated Budget Effects of an
Amendment in the Nature of a Substitute to H.R. 3474, the “Expiring Provisions Improvement, Reform, and Efficiency
(‘EXPIRE’) Act of 2014,” Scheduled for Consideration by the Senate, 113th Cong., May 15, 2014, JCX-51-14,
https://www.jct.gov/publications.html?func=startdown&id=4601.
3
Testimony and statements from a recent hearing on this issue can be found at U.S. Congress, House Committee on
Ways and Means, Benefits of Permanent Tax Policy for America’s Job Creators, 113th Cong., April 8, 2014,
http://waysandmeans.house.gov/calendar/eventsingle.aspx?EventID=374899.
Congressional Research Service
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
Charitable Contributions of Property, 113th Cong., April 25, 2014, JCX-40-14, https://www.jct.gov/
publications.html?func=startdown&id=4590.
a.
The House has voted to make this provision permanent as part of the Permanent S Corporation Charitable
Contributions Act of 2014 (H.R. 4454) and the Jobs for America Act (H.R. 4).
Enhanced Charitable Deduction for Contributions
of Food Inventory4
Corporations that donate food inventory to charity are generally allowed a deduction for the cost
(not to exceed the market value). A special rule allows businesses paying the corporate tax an
additional deduction equal to half the appreciation (half the difference between market value and
cost) if the inventory is given to an organization that directly passes it on to the ill, the needy, or
infants, and other criteria are met. The total deduction cannot be more than twice the cost.
Permanent extension of certain expiring provisions has recently been considered by the House in
both the 113th and 114th Congresses. Legislation in the 114th Congress that would make permanent
the expired charitable provisions is noted in Table 1. Comprehensive tax reform legislation
introduced in the 113th Congress, the Tax Reform Act of 2014 (H.R. 1), would have made
permanent the basis adjustment to stock of S corporations making charitable contributions or
property and the special rules for contributions of capital gain real property for conservation
purposes. The President’s FY2016 budget proposes to make permanent the enhanced incentives
for conservation easement contributions, with certain reforms.3
Table 1. Cost of Extending Expired Charitable Provisions
billions of dollars
10-Year Cost of
Extension
through 2014 in
P.L. 113-295
10-Year Cost of
Permanent
Extension
Enhanced Charitable Deduction for
Contributions of Food Inventory
$0.1
$2.2
Fighting Hunger Incentive
Act of 2015 (H.R. 644)
Tax-Free Distributions from Individual
Retirement Plans for Charitable
Purposes
$0.4
$8.8
Permanent IRA Charitable
Contribution Act of 2015
(H.R. 637)
Basis Adjustment to Stock of S
Corporations Making Charitable
Contributions of Property
$0.1
$0.6
Permanent S Corporation
Charitable Contribution
Act of 2015 (H.R. 630)
Special Rules for Contributions of
Capital Gain Real Property Made for
Conservation Purposes
$0.1
$1.2
Conservation Easement
Incentive Act of 2015
(H.R. 641)
Legislation to
Permanently Extend in
the 114th Congress
Source: Joint Committee on Taxation revenue estimates for the legislation listed in the table can be found at
https://www.jct.gov/publications.html. Since the extensions were proposed in separate bills, each provision was
scored individually.
Enhanced Charitable Deduction for Contributions
of Food Inventory4
Corporations that donate food inventory to charity are generally allowed a deduction for the cost
(not to exceed the market value). A special rule allows businesses paying the corporate tax an
additional deduction equal to half the appreciation (half the difference between market value and
cost) if the inventory is given to an organization that directly passes it on to the ill, the needy, or
infants, and other criteria are met. The total deduction cannot be more than twice the cost.
(...continued)
Scheduled for Consideration by the House of Representatives on December 3, 2014, 113th Cong., December 3, 2014,
JCX-107-14R, available at https://www.jct.gov/publications.html?func=startdown&id=4677.
3
See Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals,
February 2015, http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx.
4
Internal Revenue Code (IRC) Section 170(e)(3)(C).
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
The enhanced deduction for food inventory was temporarily expanded to include contributions
made by businesses other than C corporations (e.g., sole proprietors, partnerships, and S
corporations) in the Katrina Emergency Tax Relief Act of 2005 (P.L. 109-73). Further, under the
provision, only “apparently wholesome food” qualifies for the enhanced deduction. In recent
years, this provision has been extended as part of the “tax extenders.”
The provision allowing non-corporate businesses an enhanced deduction for charitable
contributions of food inventory was enacted in response to the Gulf Coast hurricanes in 2005
(although nothing in the provision limited the deduction to contributions made as part of
hurricane relief efforts). The provision promotes equity; allowing non-corporate businesses the
same enhanced deduction that is available to C corporations provides greater equity across
different types of business taxpayers. Allowing this enhanced deduction can also simplify
compliance, particularly when viewed as an alternative to a “fair market value” deduction, by
reducing the scope for disputes regarding valuation between taxpayers and the Internal Revenue
Service (IRS).
Allowing deductions for appreciated property lets firms deduct amounts that have not been
included in income. If the donated property (in this case, food) had been sold, the income would
have been taxed at ordinary rates. Generally, there are additional limitations on charitable
contributions of appreciated property, reflecting the fact that by donating property, the donor
avoids generating income that would otherwise be taxed.
As is generally the case with gifts of capital gain property, an important concern is the potential
overstatement of market value. Firms may only be able to sell donated inventory at a much lower
price because the product is damaged in appearance, is older, or has other characteristics that
would require deep discounting to sell. Moreover, a firm with market power may not wish to sell
its inventory because increasing supply will drive the price down more for a sale than a donation.
It is possible that a provision that is extended to non-corporate businesses, which are smaller and
more numerous, will be more difficult to monitor for compliance.
4
Internal Revenue Code (IRC) Section 170(e)(3)(C).
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
For inventory that cannot be practically sold, the barrier to a donation by the firm is the extra
costs encountered in distributing the product. Thus, there is a tradeoff between creating an
incentive to donate and providing a windfall for businesses that would have donated absent
enhanced tax incentives.
Tax-Free Distributions from Individual Retirement
Plans for Charitable Purposes5
Currently, individuals aged 70½ and older are allowed to make tax-free distributions from
individual retirement accounts to charities. The amount is limited to $100,000 per person. The
recipient is limited to active charities, and cannot include non-operating private foundations,
supporting organizations, and donor-advised funds. The excluded organizations do not directly
engage in charitable activities, but instead provide funds to active charities.
5
IRC Section 408(d)(8).
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
The provision was first enacted in the Pension Protection Act of 2006 (P.L. 109-280). Since being
enacted in 2006, these temporary provisions have regularly been extended as part of the “tax
extenders.” In recent years, special rules have allowed qualified charitable distributions made in
January to be treated as if they had been made during the previous tax year.
In effect, the distribution is a tax-free “rollover” rather than a charitable contribution. Thus, the
benefit is available to taxpayers who do not itemize deductions and therefore would not otherwise
be able to take a deduction.6 Although this treatment may appear no different for itemizers from
simply including the amounts in adjusted gross income and then deducting them as itemized
deductions, it can provide several types of benefits even to those who itemize. This treatment
reduces adjusted gross income, which can trigger elements of various entitlement programs,
including the phase-in of taxation of Social Security benefits and the size of Medicare premiums.
Limits on medical expense deductions and casualty losses are also tied to adjusted gross income.
There are also income limits on charitable contributions: individuals can contribute no more than
50% of income in cash to charities and no more than 30% in appreciated property. In some states,
state income taxes may be reduced. Additionally, the provision allows qualified charitable
contributions made from IRAs to satisfy IRA distribution requirements.
There is some debate about the responsiveness of charitable giving to tax benefits, although most
evidence suggests that the effect is small.7 There is no obvious reason for targeting this particular
group of taxpayers for an additional incentive. This age group is the group that is required to take
distributions from IRAs each year, and could choose to donate distributions to charity, absent this
special incentive.
5
IRC Section 408(d)(8)
This provision was originally in a package of proposals made by President Bush in 2001, which included a deduction
for non-itemizers, which was not enacted. Its original objective, therefore, was not to allow a benefit for non-itemizers.
7
For a review of the evidence on the effects of tax incentives on charitable giving, see CRS Report R40518, Charitable
Contributions: The Itemized Deduction Cap and Other FY2011 Budget Options, by Jane G. Gravelle and Donald J.
Marples, and U.S. Congress, Joint Committee on Taxation, Present Law And Background Relating To The Federal Tax
Treatment Of Charitable Contributions, 113th Cong., February 11, 2013, JCX-4-13.
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
For more information, see CRS Report RS22766, Qualified Charitable Distributions from
Individual Retirement Accounts: Features and Legislative History, by John J. Topoleski and Gary
Sidor.
Basis of S Corporation Stock for Charitable
Contributions8
Under current law, a shareholder in a Subchapter S corporation (a corporation not subject to the
corporate income tax) is allowed to deduct his or her pro rata share of any corporate charitable
contribution. At the same time, the taxpayer must decrease the basis of stock by the amount of the
charitable contribution (which is a way of reflecting the effect on the shareholder’s asset position
for tax purposes). This extender provides that a taxpayer does not have to reduce basis in the
stock to the extent a deduction is taken in excess of adjusted basis of the donated property (e.g.,
6
This provision was originally in a package of proposals made by President Bush in 2001, which included a deduction
for non-itemizers, which was not enacted. Its original objective, therefore, was not to allow a benefit for non-itemizers.
7
For a review of the evidence on the effects of tax incentives on charitable giving, see CRS Report R40518, Charitable
Contributions: The Itemized Deduction Cap and Other FY2011 Budget Options, by Jane G. Gravelle and Donald J.
Marples, and U.S. Congress, Joint Committee on Taxation, Present Law And Background Relating To The Federal Tax
Treatment Of Charitable Contributions, 113th Cong., February 11, 2013, JCX-4-13.
8
IRC Section 1637(a)(2).
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
cost).9 That is, the taxpayer will only reduce the stock value by the adjusted basis of the
contributed property.
For example, assume an S corporation with one individual shareholder makes a charitable
contribution of property with a $1,000 market value and a $300 basis. The shareholder will be
treated as having made a $1,000 charitable contribution. Under the special rule provided by the
provision at hand, the shareholder will reduce their basis in the S corporation stock by $300
(rather than the $1,000 market value). The smaller reduction in basis means that if the shareholder
were to sell their stock in the S corporation, a lower capital gain would be realized. In this
example, the capital gain in the S corporation stock resulting from the charitable contribution
would have been $1,000 without the special rule, but is $300 with the special rule.
The Pension Protection Act of 2006 (P.L. 109-280) included this provision effective through
2007, and it has subsequently been extended as part of “tax extenders” legislation.
This provision appears to be consistent with allowing a deduction for the market value of
appreciated property without including the appreciation in income. Generally, contributions of
appreciated property do not require taxpayers to realize income before contributions are made.
Special Rules for Contributions of Capital Gain
Real Property Made for Conservation Purposes10
A charitable income tax deduction is generally allowed for qualified conservation contributions,
including conservation easements. Qualifying conservation purposes include (but are not limited
to) the preservation of land or open spaces for scenic enjoyment, for recreational or educational
purposes, or to protect natural habitats. Gifts of appreciated property are generally deductible at
the fair market value, but, for individuals, are subject to lower limits (30% of income) than
ordinary gifts such as cash (50% of income).
8
IRC Section 1637(a)(2).
For more on tax basis, see CRS Report RL34662, Tax Basis: What Is It? Why Is It Important?, by Carol A. Pettit.
10
IRC Section 170(b)(1)(E) and 170(b)(2)(B).
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
Temporary provisions initially enacted as part of the Pension Protection Act (P.L. 109-280)
increase the limit for appreciated property contributed for conservation purposes to 50% for
individuals. For farmers and ranchers, including individuals and for corporations that are not
publicly traded, the limit is increased to 100% of income. To qualify for the higher deduction,
land used or available to be used for agricultural or livestock production must remain available
for such purposes. Conservation contributions that exceed the 50% or 100% of income giving
limits can be carried forward for 15 years, instead of the usual 5 years, under the special
temporary rules. Since being enacted in 2006, these temporary provisions have regularly been
extended as part of the “tax extenders.”
Conservation easements that restrict development may reduce the value of the underlying land.
Economic incentives, including the charitable deduction for conservation contributions,
encourage voluntary restriction of development. Landowners with modest incomes, including
farmers and ranchers, may not be able to claim the full value of their conservation contributions
under the general limits placed on gifts of appreciated property. The increased income limits and
9
For more on tax basis, see CRS Report RL34662, Tax Basis: What Is It? Why Is It Important?, by Carol A. Pettit.
IRC Section 170(b)(1)(E) and 170(b)(2)(B).
10
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Recently Expired Charitable Tax Provisions (“Tax Extenders”): In Brief
longer carry-forward period increases the value of the deduction for donors with modest incomes.
Providing increased limits for conservation contributions, however, enhances the charitable
benefits associated with these types of gifts, relative to other forms of giving.
Lower income limits for gifts of appreciated property reflect concerns about the overstatement of
fair market value. Recently, there have been concerns regarding valuation claims for conservation
contributions preserving recreational amenities, such as golf courses. Lower income limits for
gifts of appreciated property also reflect the fact that deductions are being claimed for amounts
that have not been included in income (the property has not been sold, and capital gains taxes
have not been collected).
Author Contact Information
Jane G. Gravelle
Senior Specialist in Economic Policy
jgravelle@crs.loc.gov, 7-7829
Congressional Research Service
Molly F. Sherlock
Coordinator of Division Research and Specialist
msherlock@crs.loc.gov, 7-7797
6