Camp’s Tax Proposal Unveiled

By Bruce R. Hopkins, EditorMarch 19, 2014 | Print

The chairman of the House Ways and Means Committee, Rep. Dave Camp (R-Mich.), on February 26, revealed the details of his tax revision plan, titled the Tax Reform Act of 2014. The measure, yet to be introduced in the House of Representatives, would generally lower tax rates, additionally tax wealthier individuals and banks, repeal the alternative minimum tax, and much more.

Here are some of the provisions that would revise elements of the law of tax-exempt organizations:

  • Repeal of the law authorizing Type II and Type III supporting organizations (Act § 5304).
  • Taxation of all tax-exempt organizations (IRC § 501(a)) on their unrelated business income, notwithstanding entities’ exemption under another IRC provision (§ 5001).
  • Requirement that exempt organizations separately calculate net taxable income of each unrelated business, with any loss from a business used only to offset income from that business (§ 5003).
  • Treatment of name and logo royalties as per se unrelated income (§ 5002).
  • Introduction of parity as to the charitable contribution deduction limitation used in computing taxable unrelated business income; limitation would be 10 percent in the case of corporations or trusts (§ 5005).
  • Increase in specific deduction in computing taxable unrelated business income from $1,000 to $10,000 (§ 5006).
  • Narrowing of scope of qualified sponsorship rules (§ 5008).
  • Repeal of tax exemption (pursuant to IRC § 501(c)(6)) for professional sports leagues (§ 5301).
  • Repeal of tax exemption (pursuant to IRC § 501(c)(15)) for qualified property and casualty insurance companies (§ 5302).
  • Repeal of tax exemption (pursuant to IRC § 501(c)(29)) for qualified health insurance issuers (Ibid.).
  • Increase in information return penalties (§ 5101).
  • Introduction of manager-level penalty when exempt organization is subject to accuracy-related penalty for a substantial understatement of unrelated income (§ 5102).
  • Application of excess benefit transaction excise tax rules to IRC § 501(c)(5) and (6) entities (§ 5201).
  • Revision of intermediate sanctions rules by eliminating the rebuttable presumption of reasonableness and the professional advice reliance safe harbor for managers, and expansion of the definition of disqualified person to include athletic coaches and investment advisors (Ibid.).
  • Introduction of 2.5 percent tax on private foundations in cases of self-dealing; elimination of the professional advice reliance safe harbor for managers (§ 5202).
  • Mandate that donor-advised funds distribute contributions within five years of receipt; imposition of penalty for failure to do so (§ 5203).
  • Reduction of the private foundation tax on net investment income to 1 percent; repeal of exemption from that tax for exempt operating foundations (§ 5204).
  • Subjection of private operating foundations to excise tax for failure to distribute income (§ 5205).
  • Subjection of larger private colleges and universities to 1 percent excise tax on their net investment income (§ 5206).
  • Requirement that organizations seeking to be exempt social welfare organizations (IRC § 501(c)(4) entities) file a notice with the IRS; would apply to existing organizations (§ 6001).
  • Extension of declaratory judgment procedures to social welfare organizations (§ 6002).
  • Requirement that all tax-exempt organizations file Form 990 series returns electronically (§ 6004).
  • Mandatory termination of employment of IRS employees for taking official actions for political purposes (§ 6006).
  • Prohibition for one year on issuance of final regulations concerning social welfare organizations’ involvement in political activities; retention of facts-and-circumstances test in interim (§ 6011).
  • Individuals would be permitted to deduct charitable contributions made after the close of the tax year but before April 15 for the year covered by the return (§ 1403).
  • Harmonization of 50-percent and 30-percent limitations on gift deductibility at single limit of 40 percent; harmonization of 30-percent and 20-percent limitations at single limit of 25 percent (Ibid.).
  • Imposition of 2-percent-of-adjusted-gross-income floor under deductible charitable gifts by individuals (Ibid.).
  • Confinement of amount of charitable deduction for most types of gifts of property to donor’s adjusted basis (Ibid.).
  • Percentage limitations as to conservation easement gifts by farmers and ranchers would be made permanent (Ibid.).
  • College athletic event seating rights charitable deduction rule (IRC § 170(l)) would be repealed (Ibid.).
  • Income from intellectual property contributed to charity would no longer be deductible as additional contributions (IRC § 170(m)) (Ibid.).

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