House Report 113-430 - PERMANENT S CORPORATION CHARITABLE CONTRIBUTIONS ACT OF 2014

[House Report 113-430]
[From the U.S. Government Publishing Office]

113th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 113-430

======================================================================

PERMANENT S CORPORATION CHARITABLE CONTRIBUTIONS ACT OF 2014

_______

May 2, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Camp, from the Committee on Ways and Means, submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 4454]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 4454) to amend the Internal Revenue Code of 1986 to
make permanent certain rules regarding basis adjustments to
stock of S corporations making charitable contributions of
property, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.

CONTENTS

Page
I. SUMMARY AND BACKGROUND...........................................2
A. Purpose and Summary................................. 2
B. Background and Need for Legislation................. 2
C. Legislative History................................. 3
II. EXPLANATION OF THE BILL..........................................3
A. Permanent Rule Regarding Basis Adjustment to Stock
of S Corporations Making Charitable Contributions
of Property (sec. 1367 of the Code)................ 3
III. VOTES OF THE COMMITTEE...........................................5
IV. BUDGET EFFECTS OF THE BILL.......................................6
A. Committee Estimate of Budgetary Effects............. 6
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 6
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 6
D. Macroeconomic Impact Analysis....................... 7
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......7
A. Committee Oversight Findings and Recommendations.... 7
B. Statement of General Performance Goals and
Objectives......................................... 7
C. Information Relating to Unfunded Mandates........... 8
D. Applicability of House Rule XXI 5(b)................ 8
E. Tax Complexity Analysis............................. 8
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 8
G. Duplication of Federal Programs..................... 8
H. Disclosure of Directed Rule Makings................. 9
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............9
VII. DISSENTING VIEWS................................................10

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Permanent S Corporation Charitable
Contributions Act of 2014''.

SEC. 2. PERMANENT RULE REGARDING BASIS ADJUSTMENT TO STOCK OF S
CORPORATIONS MAKING CHARITABLE CONTRIBUTIONS OF
PROPERTY.

(a) In General.--Section 1367(a)(2) of the Internal Revenue Code of
1986 is amended by striking the last sentence.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made in taxable years beginning after December 31,
2013.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

Identical to a provision contained in the discussion draft
of the ``Tax Reform Act of 2014'' released on February 26,
2014, the bill, H.R. 4454, reported by the Committee on Ways
and Means, provides that a shareholder's basis in his S
corporation stock is decreased by his pro rata share of the
adjusted basis of any charitable contributions made by the S
corporation, rather than the fair market value. An identical,
temporary provision expired for taxable years beginning after
December 31, 2013.

B. Background and Need for Legislation

While the Committee continues actively to pursue
comprehensive tax reform as a critical means of promoting
economic growth and job creation, the Committee also believes
that it is important to provide small businesses permanent,
immediate tax relief to help encourage economic growth and job
creation. By providing small businesses with a permanent rule
for adjusting the shareholders' basis in stock of an S
corporation making charitable contributions, H.R. 4454 corrects
a disparity between the treatment of charitable contributions
made by S corporations and partnerships, which can result in a
future tax liability for shareholders of an S corporation that
donates appreciated property. H.R. 4454 will level the playing
field between S corporations and other types of businesses and
provide S corporations with greater certainty so they can plan
for charitable giving that is in the best interest of the
company, its shareholders, and the charitable organizations
receiving such donations.

C. Legislative History

BACKGROUND

H.R. 4454 was introduced on April 10, 2014, and was
referred to the Committee on Ways and Means.

COMMITTEE ACTION

The Committee on Ways and Means marked up H.R. 4454, the
Permanent S Corporation Charitable Contributions Act of 2014,
on April 29, 2014, and ordered the bill, as amended, favorably
reported (with a quorum being present).

COMMITTEE HEARINGS

The need for permanent rules regarding basis adjustments to
stock of S corporations making charitable contributions of
property was discussed at no fewer than four hearings during
the 112th and 113th Congresses:
Full Committee hearing on Fundamental Tax
Reform (January 20, 2011);
Full Committee hearing on the Treatment of
Closely-Held Businesses in the Context of Tax Reform (March 7,
2012);
Select Revenue Measures Subcommittee hearing on
the Small Business and Pass-Through Entity Tax Reform
Discussion Draft (May 15, 2013); and
Full Committee hearing on the Benefits of
Permanent Tax Policy for America's Job Creators (April 8,
2014).

II. EXPLANATION OF THE BILL

A. Permanent Rule Regarding Basis Adjustment to Stock of S Corporations
Making Charitable Contributions of Property (sec. 1367 of the Code)

PRESENT LAW

Under present law, if an S corporation makes a charitable
contribution of money or other property, each shareholder takes
into account the shareholder's pro rata share of the
contribution in determining its own income tax liability.\1\ A
shareholder of an S corporation reduces the basis in the stock
of the S corporation by the shareholder's pro rata share of the
S corporation's charitable contributions.\2\
---------------------------------------------------------------------------
\1\Sec. 1366(a)(1)(A).
\2\Sec. 1367(a)(2)(B). See also the last sentence of section
1366(a)(1) referencing sec. 702(a)(4).
---------------------------------------------------------------------------
In the case of contributions made in taxable years
beginning before January 1, 2014, the amount of a shareholder's
basis reduction in the stock of an S corporation on account of
a charitable contribution made by the corporation is the
shareholder's pro rata share of the adjusted basis of the
contributed property. For contributions made in taxable years
beginning after December 31, 2013, the amount of the reduction
is the shareholder's pro rata share of the fair market value of
the contributed property.

REASONS FOR CHANGE

The Committee believes that the provision regarding basis
adjustments to S corporation stock should be made permanent to
prevent S corporation shareholders from losing the tax benefit
of the deduction for charitable contributions of appreciated
property when the shareholders sell their stock. Under the
provision, S corporation shareholders will be treated in the
same manner as other persons owning an interest in a business
making charitable contributions, including partnerships and
limited liability companies. The Committee also believes that
this provision will encourage charitable giving.

EXPLANATION OF PROVISION

The provision makes permanent the basis reduction rule
applicable for contributions made in taxable years beginning
before January 1, 2014.

EFFECTIVE DATE

The provision applies to charitable contributions made in
taxable years beginning after December 31, 2013.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 4454, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2014-2024:

Fiscal years, billions of dollars--
----------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-19 2014-24
----------------------------------------------------------------------------------------------------------------
- - - -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.3 -0.7
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4454, the
Permanent S Corporation Charitable Contributions Act of 2014.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Logan
Timmerhoff.
Sincerely,
Douglas W. Elmendorf.
Enclosure.

H.R. 4454--Permanent S Corporation Charitable Contributions Act of 2014

H.R. 4454 would amend the Internal Revenue Code to make
permanent a rule that expired at the end of 2013 that defines
how a shareholder in an S corporation adjusts the basis of that
S corporation stock to account for that corporation's
contributions of property to charity. This legislation would
permanently provide that a shareholder reduces S corporation
stock basis by an amount equal to the shareholder's pro rata
share of the adjusted basis of the contributed property,
instead of the pro rata share of the fair market value of the
contributed property.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 4454 would reduce revenues, thus
increasing federal deficits, by $662 million over the 2014-2024
period.
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
direct spending and revenues. Enacting H.R. 4454 would result
in revenue losses in each year beginning in 2015. The estimated
increases in the deficit are shown in the following table.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Logan
Timmerhoff. The estimate was approved by David Weiner,
Assistant Director for Tax Analysis.

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4454, AS ORDERED REPORTED BY THE HOUSE COMMITTE ON WAYS AND MEANS ON APRIL 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014-2019 2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects............ 0 74 53 56 60 63 66 68 71 74 77 306 662
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.

D. Macroeconomic Impact Analysis

In compliance with clause 3(h)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made by the Joint Committee on Taxation with respect to the
provisions of the bill amending the Internal Revenue Code of
1986: the effects of the bill on economic activity are so small
as to be incalculable within the context of a model of the
aggregate economy.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 4454 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.

D. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.

E. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code and has widespread applicability to
individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Code and that
have ``widespread applicability'' to individuals or small
businesses, within the meaning of the rule.

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits

With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.

G. Duplication of Federal Programs

In compliance with Sec. 3(j)(2) of H. Res. 5 (113th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).

H. Disclosure of Directed Rule Makings

In compliance with Sec. 3(k) of H. Res. 5 (113th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

SECTION 1367 OF THE INTERNAL REVENUE CODE OF 1986

SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

(a) General Rule.--
(1) * * *
(2) Decreases in basis.--The basis of each
shareholder's stock in an S corporation shall be
decreased for any period (but not below zero) by the
sum of the following items determined with respect to
the shareholder for such period:
(A) * * *

* * * * * * *

The decrease under subparagraph (B) by reason of a
charitable contribution (as defined in section 170(c))
of property shall be the amount equal to the
shareholder's pro rata share of the adjusted basis of
such property. [The preceding sentence shall not apply
to contributions made in taxable years beginning after
December 31, 2013.]

* * * * * * *

VII. DISSENTING VIEWS

These bills would add a combined $310 billion to the
deficit. Even though these bills were introduced individually
with some bipartisan support, the opposition to these bills was
based on the position that these tax provisions should not be
made permanent by adding to the deficit without any revenue
offset.
To put the combined cost ($310 billion) into context, this
total represents more than one-half of the entire federal
deficit this year--the lowest it has been since President Obama
took office. It represents nearly two-thirds of all non-defense
domestic discretionary spending in 2014. It is more than three
times what we spend annually on education, job training, and
social services. It is five times more than we spend on
veterans. And, it is five times more than we spend on medical
research and public health.
We also opposed the manner in which Republicans were
proceeding--selecting six to make permanent without any offset
from the approximately 60 tax provisions that expired last
year. This approach was both fiscally irresponsible and
fundamentally hypocritical.
We found it hypocritical that, four months ago, Republicans
let emergency unemployment insurance expire for more than 1.3
million Americans by arguing that an adequate offset had yet to
be proposed. In early April, the Senate came to a bipartisan
agreement on an offset after months of painstaking
negotiations. Yet House Republicans still refuse to act.
Further, we found it also hypocritical that the Republicans
were in favor of passing these six tax bills at a cost of $310
billion without an offset at the same time that they were
requiring an offset for a provision stripped from another bill
under consideration at the markup that helped foster children
at a cost of $12 million.
The consideration of these six tax bills should have been
part of the consideration of all the expired tax provisions
commonly referred to as ``tax extenders.'' The Republicans did
not take up other tax extenders that also are important to
Democratic Committee Members. Left to an uncertain fate are
provisions like the Work Opportunity Tax Credit, the New
Markets Tax Credit, and the renewable energy tax credits, as
well as the long-term status of the Earned Income Tax Credit,
the Child Tax Credit, and the American Opportunity Tax Credit.

Sincerely,
Sander M. Levin,
Ranking Member.