The Protecting Americans from Tax Hikes (PATH) Act of 2015, signed into law late last year, restored and made permanent several federal income-tax provisions designed to encourage charitable giving.
Contributions from IRAs
Charitably minded individuals age 70½ and older continue to have the ability to have up to $100,000 a year directly transferred from their individual retirement accounts (IRAs) to qualifying charitable organizations. Qualified charitable distributions are excluded from taxable income.
A qualified charitable distribution offers the donor the potential for greater tax savings than a taxable IRA withdrawal followed by a cash contribution, for several reasons. First, the donor’s adjusted gross income is not increased by the amount of the distribution, which could be helpful in qualifying the donor for various other tax breaks. Second, in the latter scenario, the donor might not receive a first-year deduction equal to the full contribution due to the tax law’s percentage-of-income limits on charitable deductions. And third, even though IRA charitable distributions are nontaxable, they count toward satisfying the IRA owner’s minimum distribution requirement for the year.
Qualified Conservation Contributions
The PATH Act makes permanent the more generous income-based ceilings applicable to individual donors’ tax deductions for charitable contributions of qualified real property interests exclusively for conservation purposes. Instead of the deduction ceiling that normally applies — generally, 30% of the taxpayer’s “contribution base” — deductions for qualified conservation contributions are subject to a 50% ceiling (100% if made by a qualifying farmer or rancher). Amounts that are not deductible because of the applicable percentage limitation may be carried over for up to 15 years.
The law also makes permanent the higher deduction limit (100% of adjusted taxable income) and the 15-year deduction carryover period for qualified conservation contributions by corporate farmers and ranchers.
Donations of Food Inventory
Businesses continue to receive an enhanced deduction for charitable contributions of food inventory. The food must be “apparently wholesome” — that is, be intended for human consumption and meet all quality and labeling standards imposed by government laws and regulations, even though the food may not be readily marketable because of age, appearance, freshness, size, surplus, grade, or other conditions. The PATH Act also makes certain other taxpayer-friendly changes with respect to donations of food inventory.
News from the IRS
The following are some additional PATH Act and other tax-related developments of interest to nonprofit organizations.
Donee reporting regulations. The IRS has withdrawn proposed regulations regarding the contemporaneous written acknowledgments taxpayers must have on hand to substantiate their charitable contributions of $250 or more. The regulations would have given organizations the option of reporting the information their donors require for substantiation purposes on a new IRS information return to be sent to the IRS and the donor.
Although the proposed donee reporting method was to be optional, organizations and charity regulators expressed concerns about it. A key concern was the potential for taxpayer identity theft, since organizations electing to use the new method would have been required to obtain, store, and send to the IRS their donors’ personal information (names, addresses, and Social Security or other taxpayer identification numbers).
Social welfare organizations. The IRS has announced its intention to issue temporary regulations implementing a new tax law provision added by the Protecting Americans from Tax Hikes (PATH) Act of 2015 that requires a Code Section 501(c)(4) social welfare organization formed after December 18, 2015, to provide the IRS with notification that it is operating as a Code Section 501(c)(4) organization. Certain existing social welfare organizations also must provide the notification. Affected organizations will have at least 60 days from the date the regulations are issued to submit the notification.
Transportation fringe benefits. For 2016, employers may provide up to $255 a month in transit passes or transportation in a commuter highway vehicle as a nontaxable fringe benefit. This figure reflects the PATH Act provision creating parity between the exclusion for transportation fringe benefits and the exclusion for qualified parking benefits.