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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