Policy Update

New Tax Provision Worries Some Charities

11/23/2005

By Grant Williams
Source: Chronicle of Philanthropy

Washington -- A bill passed by the U.S. Senate last week to encourage charitable giving is worrying some nonprofit leaders. They fear that a key provision in the legislation, if enacted into law, could put a damper on giving by Americans with modest incomes who itemize on their tax returns.

The Senate-passed measure--included in a comprehensive tax bill that deal with many areas beyond charitable giving--was designed to spur donations in several ways. The chief method would allow people who do not itemize deductions on their tax returns to write off a portion of their charitable donations.

Individuals could write off the sums above $210 that they donate each year to nonprofit organizations; couples filing jointly could write off the amount that exceeds $420.

The provision would be in effect for two years--2006 and 2007--unless Congress later voted to extend it.

But while donors who do not itemize would gain an ability to get a tax break, another provision in the bill would cause some people to lose part of their write-offs. Donors who itemize deductions would no longer be able to claim deductions for cash and noncash gifts of $210 or less ($420 for couples filing jointly)--but only for gifts above that figure.

"We are concerned that this new 'itemized' floor might adversely affect charities that depend on small gifts," including organizations that use mail and telephone appeals to reach donors with modest incomes, said Senny Boone, executive director of the Direct Marketing Association Nonprofit Federation.

"It could hit smaller donors hard," she said. "Those who can only afford to give $500 to $800 would only be able to deduct one half of their contributions, or less."

Other charity coalitions, including Independent Sector, have applauded the Senate for acting to help people who don't itemize on their returns get a break.

"United Way worked very diligently on behalf of the non-itemizer deduction to sign on over 1,200 local and national organizations to support the measure, which was critical to demonstrating to members of Congress its widespread appeal," said a statement by United Way of America.

The House of Representatives has also been working on a tax bill, but a version passed by the House Ways and Means Committee does not include any provisions on charitable giving.

A conference committee of both chambers will work out the differences between the Senate and House bills and decide whether any charity provisions should be included in a final version.