Order Code RS22213
July 29, 2005
CRS Report for Congress
Received through the CRS Web
Summary of Joint Committee on Taxation’s
Staff Proposals Relating to Charitable
American Law Division
This report summarizes several proposals by the staff of the Joint Committee on
Taxation dealing with charitable contributions that have received significant attention.
The proposals would affect the treatment of contributions of conservation and facade
easements, clothing and household items, and appreciated property. Legislation that
incorporates these proposals has not yet been introduced. This report will be updated.
In January 2005, the Joint Committee on Taxation released a report that addresses
ways to improve compliance with the tax laws and reform certain tax expenditures.1 The
report was written at the request of Senators Grassley and Baucus, but the proposals are
suggestions by the Joint Committee’s staff and were not approved by the Senators or their
staffs. Three of the proposals would impose additional limitations on certain types of
charitable contributions. No legislation has been introduced that incorporates these
proposals. They are discussed below.
One proposal would impose additional limitations on the ability to claim a deduction
for charitable contributions that are in the form of conservation easements.2 Under
current law, donors may claim a deduction for a qualifying charitable contribution of an
interest in real property that is exclusively for conservation purposes.3 Conservation
Options to Improve Tax Compliance and Reform Tax Expenditures, prepared by the staff of the
Joint Committee on Taxation, JCS-02-05 (January 27, 2005).
Id. at 277-87.
IRC § 170(h).
Congressional Research Service ˜ The Library of Congress
the preservation of land for outdoor recreation by, or the education of, the
the protection of a natural habitat of fish, wildlife or plants, or similar
the preservation of open space for the scenic enjoyment of the general
public or pursuant to a clearly delineated governmental policy, so long as
the preservation will yield a significant public benefit, and
the preservation of an historically important land area or certified historic
The contribution may be in the form of a permanent restriction on the property’s use (i.e.,
an easement), including a facade easement relating to a certified historic structure. The
value of the contribution is the value of the restriction, which is generally determined by
comparing the value of the property with and without the restriction.
The proposal would limit the current deduction in four ways. First, it would
eliminate the deduction for contributions that involve property used as a personal
residence by the donor or a family member. Specifically, no deduction could be claimed
for a facade easement relating to a structure that recently had been, is being, or could be
expected to be used by the donor or family member as a personal residence. Similarly,
a deduction would be denied for a contribution of a real property interest if the donor or
family member had a right to use any of the property as a personal residence after the
Second, the proposal would reduce the amount that could be deducted. For
contributions of facade easements, the proposal would limit the deduction to the lesser of
5% of the structure’s fair market value determined without regard to the facade easement
or 33% of the easement’s value. For all other contributions, the proposal would limit the
deduction to 33% of the fair market value of the contributed interest.
Third, the proposal would restrict some of the qualifying conservation purposes. As
mentioned above, a contribution relating to the preservation of open space may be
deducted if the preservation is pursuant to a clearly delineated governmental policy (i.e,.
a specific conservation project4). The proposal would require that this requirement be met
for any conservation purpose except for the preservation of an historically important land
area or certified historic structure.
Fourth, the proposal would impose requirements on the appraiser who determined
the contribution’s value. Under current law, the donor must receive an appraisal for any
contribution in excess of $5,000.5 The proposal would require the appraiser to affirm that
the value had been determined in accordance with generally accepted appraisal standards
and that he or she met specific requirements relating to his or her ability and eligibility to
conduct the appraisal.
See 26 CFR § 170A-14(d)(4)(iii).
26 CFR § 170A-13(c).
The Joint Committee staff explained the reasons for the proposal:
Charitable deductions of qualified conservation contributions, including conservation
and facade easements, present serious policy and compliance issues. Valuation is
especially problematic because the measure of the deduction . . . is highly speculative,
considering that, in general, there is no market and thus no comparable sales data for
such easements. In many instances, present law does not require that the preservation
or protection of conservation be pursuant to a clearly delineated governmental
conservation policy, only requiring such a policy in cases of open space preservation
if the preservation is not for the scenic enjoyment of the general public. As a result,
taxpayers and donee organizations have considerable flexibility to determine the
conservation purpose served by an easement or other restriction, enabling taxpayers
to claim substantial charitable deductions for conservation easements that arguably
do not serve a significant conservation purpose.6
Clothing and Household Items
The Joint Committee’s staff also proposed to limit the deduction that may be claimed
for contributing clothing and household items.7 Under current law, a donor typically
deducts the fair market value of these items, subject to the general restrictions on
charitable deductions.8 The proposal would limit the deduction to $500 per year. The cap
would apply to both new and used items. Household items would not include food,
objects of art, antiques, jewelry and collections.
The Joint Committee staff explained that the reason for the $500 cap is to address
the problem with donors overvaluing their contributions of these types of goods, while
still allowing a “reasonable” deduction.9 The amount of the cap was chosen because,
under current law, donors who give more than $500 in non-cash goods must generally
report the gift to the IRS. The Joint Committee staff felt that linking the cap and the
reporting requirement would “minimize the filing burdens of taxpayers and donee
The proposal would also modify the existing rules for contributions of appreciated
property.11 Under current law, the deduction for such a contribution is generally the fair
market value of the property on the date of contribution. The deduction is reduced to the
taxpayer’s basis (the property’s cost plus or minus certain adjustments) for contributions
of ordinary income property (property that would not result in long-term capital gain if
JCS-02-05 at 282.
Id. at 288-92.
IRC § 170.
JCS-02-05 at 290.
Id at 293-307.
sold), tangible personal property that is used by the donee in a manner unrelated to its
exempt purpose, and property for the use of a private foundation.12
In general, under current law, if the donor claims a deduction exceeding $500 for
non-cash contributions, he or she must report the contributions on Form 8283. The return
includes such information as a description of the property, the donor’s basis, and whether
the property will be used for the donee organization’s exempt purpose. If the donee
organization sells or disposes of property with a claimed value in excess of $5,000 within
two years of the contribution, then the organization must generally file Form 8282 with
the IRS and furnish a copy of the return to the donor.
The Joint Committee staff’s proposal has two options. The first option would limit
the deduction for any contribution of appreciated property to the lesser of the donor’s
basis in the property or the property’s fair market value. This rule would not apply to
contributions of publicly-traded securities, qualified intellectual property, qualified
vehicles, or property that qualified for the enhanced deduction under IRC § 170(e).
The second option would be the same as the first option, but with an exception for
contributions of “exempt use property” — property used by the donee organization to
substantially further its exempt purpose. Thus, for this property, the existing rule would
continue to apply so that the deduction could equal the property’s fair market value.
There would be rules to recapture the deduction if the donee organization disposed of the
exempt use property within three years. Additionally, the second option would change
the current reporting requirements. For Form 8283, the donee organization would have
to explain the intended use of any property for which a deduction of more than $500 was
claimed. For Form 8282, the donee organization would have to report any disposition of
this property if made within three years of the contribution.
The Joint Committee staff explained that its reasons for the proposal include
addressing the fact that while error and abuse occurs with respect to the overvaluation of
this property, in part because these are not arm’s length transactions since the donee has
no tax-related reason to question the donor’s value, it is often not cost-effective for the
IRS to pursue overvaluation issues.13 Further, the Joint Committee staff reasoned:
Apart from the issues of valuation and enforcement, the fair market value deduction
for property contributions raises separate policy questions. The fair market value
deduction for property generally places gifts of cash and gifts of property on an equal
footing. A primary goal of the charitable deduction, however, should be to encourage
gifts that are most useful to a charitable organization, and should not be to encourage
gifts that entail significant diversion of resources from the charitable mission or that
require a charity to incur substantial transaction costs. Cash, publicly traded securities,
and arguably property that can be used directly in substantial furtherance of exempt
purposes meet this standard. Other gifts of property generally do not and so need not
be as favored.14
IRC § 170(e).
Id. at 296.