Senator Charles Schumer (D-NY) intends to add another provision to the tax extenders legislation that could further impact charities.
The American Jobs, Closing Tax Loopholes, and Preventing Outsourcing Act of 2010 (H.R.4213) already includes an extension of the IRA Charitable Rollover provision until December 31, 2010. The provision allows individuals over 70 to contribute up to $100,000 from their Individual Retirement Accounts (IRAs) to a charitable organization without having the disbursement taxed as income.
Senator Schumer would add language to the bill repealing the two-tiered excise tax system that currently requires foundations to pay a two percent tax on investment income or only one percent if their charitable disbursements in the past year exceeds the average disbursement of the previous five years. The current system is meant as a reward for increased charitable disbursements but can actually be a penalty if the organization gives a large disbursement in one year, skewing the five year average.
The Schumer proposal would replace the two-tired system with a flat 1.39 percent rate. The proposal, which was introduced as separate legislation last year, has been scored as revenue neutral by the Joint Committee on Taxation. It would be in effect for five years and has bipartisan support.
However, Senator Finance Committee Ranking Member Chuck Grassley (R-IA) is concerned the proposal would actually decrease charitable giving. “For those foundations eligible for the 1 percent rate because they increase or maintain the same payout level every year, their payout to charities may decrease because they may be paying more in taxes,” he told CongressDaily (subscription).