The Joint Committee on Taxation (JCT) has submitted proposals to the Senate Finance Committee that could affect family foundations and a number of important charitable giving strategies. These proposals seem to have a much better chance of being enacted than the estate and gift tax proposals because they target a pet cause of Sen. Charles Grassley, who has long questioned the appropriateness of the tax benefits that accrue to charitable activities.

Among the most onerous proposals is one that would limit the deduction on donations of real estate property to the lesser of basis or fair market value and another that would eliminate deductions on donations of residential facades, easements and land for conservation purposes. The JCT views conservation as an area of abuse, on the premise that most landowners are taking their tax deductions at inflated values, while agreeing to not alter or use property they were not going to alter or use in the first place.

“But it’s like fixing a leak in a kitchen water pipe by shutting off the water to the house,” says Russell Shay, director of public policy at the Land Trust Alliance in Washington, D.C. Shea feels the real problem is a lack of resources at the IRS to properly monitor these types of donations and, more specifically, the valuations taxpayers assign to them. He feels the focus should be on tightening the appraisal review process.

Nonetheless, many financial advisors are telling their clients to prepare for enactment. “We are encouraging those who are planning to do something, to do it now,” says Marilyn Calister, a managing director with Wealth & Tax Advisory Services in New York. “Due to already heightened scrutiny based on perceived and actual abuses, more oversight of exempt entities and of the appraisal process in general can also be expected.”

Another JCT proposal would require foundations established in the 10 years prior to the proposal’s enactment, and all thereafter, to reapply for their tax-exempt status every five years. Oddly enough, the proposal does not say the IRS must read or respond to the filings.  The proposal would generate additional costs, paperwork and aggravation for the filers and minimal revenue for the government, foes say, but even they see it as having a strong chance of passing because it would create greater public transparency, which has become the rallying cry for Grassley.

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