The Tax Reform Act of 2014 May Impact Nonprofit Organizations

by Bob Moreland CPA, Tax Manager – Ohio Office

  Print Version

Note: This article begins a two-part series

On February 26, 2014, House Ways and Means Committee Chairman Dave Camp released an ambitious and wide-ranging draft proposal for tax reform. The draft generally seeks to reduce tax rates and broaden the tax base. The intent of the proposed reform would be to consolidate and simplify numerous tax provisions in an attempt to reduce complexity and avoid taxpayer controversy with the IRS. Here are some of the more significant proposals that would impact tax exempt organizations.

Charitable Giving

Late Charitable Deductions: The proposal would expand the ability of individuals to make income-tax-deductible charitable contributions past the end of the tax year through an election. An individual would be allowed to deduct charitable contributions on a given tax year's income tax return even if the contributions are made after the close of that tax year as long as the contributions are made no later than the due date (without regard to extensions) for the income tax return covering that year.

Conservation Easements: The proposal would make permanent conservation easement contribution incentives. Income tax charitable deductions for conservation easements would generally be limited to 40% of adjusted gross income. Farmers and ranchers would continue to be allowed an income tax charitable deduction of up to 100% of adjusted gross income for property used in agricultural or livestock production. The proposal would clarify that a charitable deduction is not allowed for land reasonably expected to be used as a golf course.

Limitation on Charitable Deductions: The proposal would simplify the current percentage limitations on the amount of the charitable contribution deduction and would apply a floor (or reduction) to the amount of the deduction. The 50%, 30%, and 20% limitations would be consolidated into 40% and 25% limitations. The proposal would also allow an individual's charitable contributions to be deducted only to the extent the contributions exceed 2% of his or her adjusted gross income and would apply this reduction to charitable contributions in a specified order.

Value of Charitable Deductions: The proposal would simplify the rules for determining the value of income tax charitable deductions. Under the proposal, the income tax charitable deduction would generally be limited to an amount equal to the adjusted basis of the contributed asset. However, the proposal would allow an income tax charitable deduction based on the contributed asset's fair market value, reduced by any ordinary gain that would have been realized if the taxpayer had sold the asset for fair market value, when the contribution involves: (a) tangible property related to the recipient charity's exempt purpose; (b) a qualified conservation contribution; (c) qualified inventory; (d) qualified research property; or (e) publicly traded stock.

College Athletic Event Seating Rights: The proposal would repeal the §170(l) special rule that allows an income tax charitable deduction for 80% of a contribution made to an institution of higher education to obtain ticket purchasing rights for seating at athletic events in a stadium at the institution.