Jane G. Gravelle Senior Specialist in Economic Policy
Molly F. Sherlock Specialist in Public Finance
Prior to the financial crises and subsequent recession, the value
of tax benefits for charitable contributions and organizations was
estimated to be around $100 billion per year. About half of this cost
arose from the deductions for charitable contributions with the other half from exemptions
of earnings of nonprofits. In 2010, the deduction for charitable contributions
resulted in an estimated $40 billion in federal revenue losses. On
average, endowment investments in 2009 experienced losses, meaning that the
federal government did not lose revenues from exempting asset returns from
taxation. However, these returns on endowments have almost recovered to
their prior levels.
This report provides an overview of recent changes affecting tax-exempt and
charitable organizations, while also discussing issues that may be of
legislative interest in the future. The Pension Protection Act (P.L.
109-280) included a number of restrictions related to charitable contributions
as well as restrictions on tax-exempt organizations. These changes are briefly surveyed.
In addition to changes regarding the treatment of charitable contributions and
tax-exempt organizations that have been made in recent years, several
issues may be considered in future legislation. A number of provisions
related to charitable contributions were extended temporarily as part of
the tax extenders in the American Taxpayer Relief Act of 2012 (P.L. 112-240).
Most of the charitable extenders were contained in legislation first
introduced in 2001. Some provisions were enacted temporarily in 2005;
further provisions and extensions occurred in 2006, in the Pension
Protection Act. These extenders include an individual retirement account (IRA)
rollover, liberalized treatment of gifts of food inventory and conservation
property, and two more technical provisions.
Limitations on itemized deductions have been proposed as part of the Fiscal
Commission’s recommendation. President Obama’s budgets have proposed
limiting itemized deductions’ value, including charitable contributions,
to 28%. Other types of limits may be considered as part of tax reform.
The Patient Protection and Affordable Care Act (PPACA; P.L. 111-148), in
response to concerns regarding charity care and community benefits
provided by tax-exempt hospitals, imposed new regulations.
Other issues that may arise reflect concerns about donor-advised funds and
supporting organizations (now under study at the Treasury Department) and
educational institutions’ endowments. For donor-advised funds and
supporting organizations, the main issue is whether and how minimum
distribution requirements should be imposed, alongside other new regulations. The
decline in educational institutions’ endowments had raised concerns that such
declines may lead to tuition increases, although these assets have largely
recovered. New reporting requirements for small tax-exempt organizations,
enacted under the Pension Protection Act (P.L. 109-280) may cause a number
of noncompliant tax-exempt entities to lose their tax-exempt status. .
Date of Report: January 24, 2013
Number of Pages: 29 Order Number: RL34608 Price: $29.95
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