Washington Snapshot: Tax Bill Heads to Conference, Moves Closer to Passage
In This Week's Edition of Snapshot
- Tax Bill Proceeds to Conference Committee
- Congress Faces Deadline to Avoid a Government Shutdown
- IRS Requests Comments for Certain Situations Involving DAFs
- In the States: Governors, Legislatures Struggle to Close Budget Gaps, Illinois Improves Government-Nonprofit Contracting Rules
In the early hours of the morning on Saturday, Dec. 2, the Senate voted to pass its version of the Tax Cuts and Jobs Act (S.1) on a mostly party-line vote of 51-49 (see the Joint Committee on Taxation’s estimated revenue effects). With each chamber having passed different versions of the bill, the legislation must go to a conference committee to iron-out the differences and negotiate a single version of the bill—which will then be put up for another vote in both the House and Senate. If the conference version passes both chambers, it then goes to the President’s desk for signature.
On Monday, the House officially voted to go to conference, naming fourteen conferees to serve on the committee: Reps. Kevin Brady (R-TX), Fred Upton (R-MI), Rob Bishop (R-UT), Devin Nunes (R-CA), Peter Roskam (R-IL), Diane Black (R-TN), Kristi Noem (R-SD), Don Young (R-AK), John Shimkus (R-IL), Richard Neal (D-MA), Sandy Levin (D-MI), Lloyd Doggett (D-TX), Raúl Grijalva (D-AZ), and Kathy Castor (D-FL). The Senate followed suit, voting on Wednesday to go to conference. Thus far, Republicans have named eight conferees, including: Sens. Orrin Hatch (R-UT), Mike Enzi (R-WY), Lisa Murkowski (R-AK), John Cornyn (R-TX), John Thune (R-SD), Rob Portman (R-OH), Pat Toomey (R-PA), and Tim Scott (R-SC). Democrats are expected to name their Senate conferees today.
The two versions of the bill are similar in many ways, but have some key differences that could pose a challenge for the conference committee. One provision that remains constant between the two bills is the almost-doubling of the standard deduction with no proposed change to the structure of the charitable deduction (i.e. enacting a universal charitable deduction). A number of studies report consistent findings that charitable giving will be severely diminished as a result of this by anywhere from $16 - $24 billion. Unfortunately, we are looking at an inevitable decrease in charitable giving across our sector.
One key difference between the bills that has potential to be incredibly damaging to our sector is Section 5201 of the House tax bill—which would significantly weaken the Johnson Amendment. Because this language was included in the House bill, it is possible that this could be included in the bill currently under negotiation by the committee. The Council took a strong position to strike Section 5201 from the bill that comes out of committee. This week, we sent a joint letter with Independent Sector and the National Council of Nonprofits to all conferees urging them to leave the Johnson Amendment alone. Our three organizations also placed a statement in the Dec. 6 edition of Roll Call to emphasize this same point. The Council urges readers to take action now to protect nonprofit nonpartisanship.
With regard to the timing of how all of this is expected to progress, we anticipate that the conference committee will meet to formally open the conference process before the end of this week. Moving quickly, the committee is aiming to have their agreed-upon version of the bill by next week so that the House and Senate can put it up for a vote the following week of Dec. 18—sending it to the President’s desk for signature by the self-imposed deadline of Dec. 22. However, there are a few factors that could complicate this from moving forward according to schedule.
First off, there are a number of provisions in the bill that may have technical issues that need to be fixed before this bill can successfully be implemented. Another potential hang-up could be the ability of the House and Senate to come to agreement on some of the more contentious provisions that would make or break the bill’s passage in each respective chamber—such as the state and local tax (SALT) deduction and the repeal of the individual mandate under the Affordable Care Act. The Administration has also signaled its desire for a speedy conference process—adding pressure for the committee to come to agreement is short order.
With funding for the federal government set to expire tomorrow, questions are still swirling about whether there will be a government shutdown. Republican leaders in the House are working on a funding strategy that would involve a two-week funding measure, or continuing resolution (CR), to get past the Dec. 8 deadline without a shutdown. From there, they hope to pass a defense spending bill through the end of the fiscal year (FY) 2018, along with another CR to fund remaining agencies through mid-to-late January. However, there are still questions of whether this will be a “clean” measure that excludes policy riders for non-defense spending programs—such as conditions for the Deferred Action for Childhood Arrivals (DACA) program or health care-related spending—as would be favored by Democrats and some moderate Republicans, but opposed by hardline conservatives (such as the Freedom Caucus and Republican Study Committee).
The Senate is largely waiting to see what the House puts forward before staking a firm position on their strategy. Republican leaders Mitch McConnell (R-KY) and Paul Ryan (R-WI), along with Democratic leaders Chuck Schumer (D-NY) and Nancy Pelosi (D-CA) are set to meet with President Trump at the White House this afternoon to try and reach an agreement to avoid a shutdown.
On Monday, the IRS released a notice requesting comments on the application of excise taxes with respect to donor advised funds (DAFs) in three distinct situations. Notice 2017-73 describes the current position of the U.S. Department of Treasury and its intent to issue regulations on the following situations involving DAFs:
- A donor advisor recommends a distribution from his/her DAF to a grantee organization to support a charitable event or fundraiser, or membership fees, where the donor advisor receives more than an incidental benefit. For example, if a donor advisor recommends a distribution for $1,000 from his/her DAF to sponsor a table at a gala fundraiser (where the donor advisor will be a guest of that table), Treasury would consider imposing penalties. Treasury further suggests that even a distribution for an amount that excludes the quid pro quo for the donor advisor is still a subsidy for a donor advisor’s participation, and would be subject to penalty. A permissible alternative to this scenario would include a donor contributing directly from his/her own pocket to sponsor a fundraiser or pay membership fees.
- A donor advisor recommends a distribution from his/her DAF to satisfy a pledge that he/she made to a qualified charitable organization (donee). The Council has been engaged with Treasury on this issue for some time now, and has pushed for clarity in the regulations that would allow for the charities on the receiving end of the pledge to obtain the pledged contribution, regardless of where the dollars are coming from. Treasury suggests that this would be permitted—regardless of whether the pledge is considered legally enforceable by the donee—as long as three conditions are met: 1) the sponsoring organization of the DAF (such as a community foundation) does not make reference to the pledge when making the DAF distribution; 2) there is no other benefit flowing to the donor advisor; and 3) the donor advisor cannot attempt to claim an additional charitable deduction for said pledge if he/she already claimed a charitable deduction for contributing to the DAF in that year.
- A donor uses a DAF as an intermediary to contribute money to a small charity to avoid “tipping” the charity into private foundation status which may occur in cases of large gifts from individuals. Under current law, when calculating “public support” for purposes of meeting the public support test, a gift from an individual may not comprise more than 2% of an organization’s total charitable contributions for the year. In some cases, to avoid forcing small charities into private foundation status by “tipping” the public support test as a result of a large gift from an individual, a donor may wish to contribute to a DAF (support from which a donee may count as public dollars, as opposed to dollars from an individual) and recommend a distribution from the DAF to the small charity. Treasury suggests that all contributions donees receive from DAFs must be counted as support from an individual (and therefore, subject to the 2% rule) unless the sponsoring organization specifies that the distribution is not from a DAF, nor recommended by any individual or donor advisor. Treasury also suggests that donees must aggregate and treat all anonymous contributions as a gift from an individual (presumably in an effort to preempt a workaround from a donor by coordinating an anonymous giving effort for an amount above the 2% limit).
Beyond these three specific circumstances, the notice also requests information or examples about how private foundations use DAFs, whether the field would be okay with imposing a payout time limit for private foundation contributions into DAFs, and considerations for DAFs that have multiple unrelated donors.
Comments in response to this notice are due by March 5, 2018. The Council is in the process of drafting comments, and is happy to work with members who are interested in doing so as well and welcomes any input or thoughts from Council members on the issues at hand—please email firstname.lastname@example.org.
Exclusive from our colleagues at the National Council of Nonprofits.
Governors, Legislatures Struggle to Close Budget Gaps
Several states continue to experience revenue shortfalls and struggle to reach agreements that balance their budgets while trying to avoid cutting vital services performed by charitable nonprofits and others. The Connecticut Legislature and Governor Malloy finally agreed on a budget after six dramatic attempts, including one veto. The final budget includes $50 million for the Nonprofit Grant Program and restores significant funding to municipalities and public education, but the budget reduces and transfers funding from certain subsectors.
Agreement is still out of reach in Oklahoma, where the Governor vetoed the Legislature’s budget to cut $60 million from the state budget, including higher education, health care, human services, and mental health. A budget shortfall arose due to falling oil and natural gas revenues and the results of a state income tax cut. In a veto message posted on her official Twitter account, the Governor claimed to have “preserve[d] key health and human services funding.” A separate fiscal crisis has arisen because of a $30 million gap in available funds that nobody can explain. The Attorney General is investigating with a grand jury, the OK House is investigating (and has issued public subpoenas), and the State Auditor and Inspector is investigating.
This past month, Montana addressed the debate on health insurance during its special session called to close a $227 million gap in FY2018. Legislators opted to withhold payments to the state employee health plan, but managed to avoid $150 million in cuts for services. The Governor vetoed the budget, however, so things remain in limbo.
Illinois Improves Government-Nonprofit Contracting Rules
The Illinois Legislature overrode the Governor on two contracting bills affecting nonprofits. As the result of one measure, government agencies are now required to report current State unpaid vouchers and invoices monthly rather than annually. This is important to help keep the heat on individual government agencies and to make government officials more accountable. The other new law broadens the State Prompt Payment Act to include services for youth and includes invoices issued under a contractual grant agreement.