[House Report 114-16]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-16
======================================================================
PERMANENT S CORPORATION CHARITABLE CONTRIBUTION ACT OF 2015
_______
February 9, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 630]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 630) 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................................. 2
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...........................................4
IV. BUDGET EFFECTS OF THE BILL.......................................4
A. Committee Estimate of Budgetary Effects............. 4
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 5
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 5
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......6
A. Committee Oversight Findings and Recommendations.... 6
B. Statement of General Performance Goals and
Objectives......................................... 6
C. Information Relating to Unfunded Mandates........... 6
D. Applicability of House Rule XXI 5(b)................ 7
E. Tax Complexity Analysis............................. 7
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 7
G. Duplication of Federal Programs..................... 7
H. Disclosure of Directed Rule Makings................. 7
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............8
VII. DISSENTING VIEWS.................................................9
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
Contribution Act of 2015''.
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,
2014.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
H.R. 630, reported by the Committee on Ways and Means,
provides that a shareholder's basis in his S corporation stock
is decreased by 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, 2014.
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 in order 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. 630
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. 630 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. 630 was introduced on January 30, 2015, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 630, the
Permanent S Corporation Charitable Contribution Act of 2015, on
February 4, 2015, 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);
Full Committee 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, 2015, 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, 2014, 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, 2015.
EFFECTIVE DATE
The provision applies to charitable contributions made in
taxable years beginning after December 31, 2014.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 630, the Permanent S Corporation
Charitable Contribution Act of 2015, on February 4, 2015.
The bill, H.R. 630, was ordered favorably reported as
amended by a roll call vote of 24 yeas to 14 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Ryan...................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Johnson................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Brady..................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Nunes..................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Tiberi.................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Reichert.................. X ........ ......... Mr. Becerra...... ........ X .........
Mr. Boustany.................. X ........ ......... Mr. Doggett...... ........ X .........
Mr. Roskam.................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Price..................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Buchanan.................. X ........ ......... Mr. Blumenauer... ........ ......... .........
Mr. Smith (NE)................ X ........ ......... Mr. Kind......... ........ X .........
Mr. Schock.................... X ........ ......... Mr. Pascrell..... ........ X .........
Ms. Jenkins................... X ........ ......... Mr. Crowley...... ........ X .........
Mr. Paulsen................... X ........ ......... Mr. Davis........ ........ X .........
Mr. Marchant.................. X ........ ......... Ms. Sanchez...... ........ X .........
Ms. Black..................... X ........ .........
Mr. Reed...................... X ........ .........
Mr. Young..................... X ........ .........
Mr. Kelly..................... X ........ .........
Mr. Renacci................... X ........ .........
Mr. Meehan.................... X ........ .........
Ms. Noem...................... X ........ .........
Mr. Holding................... X ........ .........
Mr. Smith (MO)................ X ........ .........
----------------------------------------------------------------------------------------------------------------
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. 630, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2015-2025:
FISCAL YEARS
[Millions of dollars]
----------------------------------------------------------------------------------------------------------------
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015-20 2015-25
----------------------------------------------------------------------------------------------------------------
-23 -49 -53 -55 -57 -59 -61 -64 -68 -71 -75 -296 -635
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.
Pursuant to clause 8 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 gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
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 states further that the bill involves no new or
increased tax expenditures.
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, February 5, 2015.
Hon. Paul Ryan,
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. 630, the Permanent
S Corporation Charitable Contribution Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Nate Frentz.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 630--Permanent S Corporation Charitable Contribution Act of 2015
H.R. 630 would amend the Internal Revenue Code to make
permanent a rule that expired at the end of 2014 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. 630 would reduce revenues, thus
increasing federal deficits, by $635 million over the 2015-2025
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. 630 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 Nathaniel
Frentz. The estimate was approved by David Weiner, Assistant
Director for Tax Analysis.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 630, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON FEBRUARY 4, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015-2020 2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Impact....................... 23 49 53 55 57 59 61 64 68 71 75 296 635
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
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. 630 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(g)(2) of H. Res. 5 (114th
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(i) of H. Res. 5 (114th 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):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter S--Tax Treatment of S Corporations and Their Shareholders
* * * * * * *
PART II--TAX TREATMENT OF SHAREHOLDERS
* * * * * * *
SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.
(a) General Rule.--
(1) Increases in basis.--The basis of each
shareholder's stock in an S corporation shall be
increased for any period by the sum of the following
items determined with respect to that shareholder for
such period:
(A) the items of income described in
subparagraph (A) of section 1366(a)(1),
(B) any nonseparately computed income
determined under subparagraph (B) of section
1366(a)(1), and
(C) the excess of the deductions for
depletion over the basis of the property
subject to depletion.
(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) distributions by the corporation which
were not includible in the income of the
shareholder by reason of section 1368,
(B) the items of loss and deduction described
in subparagraph (A) of section 1366(a)(1),
(C) any nonseparately computed loss
determined under subparagraph (B) of section
1366(a)(1),
(D) any expense of the corporation not
deductible in computing its taxable income and
not properly chargeable to capital account, and
(E) the amount of the shareholder's deduction
for depletion for any oil and gas property held
by the S corporation to the extent such
deduction does not exceed the proportionate
share of the adjusted basis of such property
allocated to such shareholder under section
613A(c)(11)(B).
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, 2014.]
(b) Special Rules.--
(1) Income items.--An amount which is required to be
included in the gross income of a shareholder and shown
on his return shall be taken into account under
subparagraph (A) or (B) of subsection (a)(1) only to
the extent such amount is included in the shareholder's
gross income on his return, increased or decreased by
any adjustment of such amount in a redetermination of
the shareholder's tax liability.
(2) Adjustments in basis of indebtedness.--
(A) Reduction of basis.--If for any taxable
year the amounts specified in subparagraphs
(B), (C), (D), and (E) of subsection (a)(2)
exceed the amount which reduces the
shareholder's basis to zero, such excess shall
be applied to reduce (but not below zero) the
shareholder's basis in any indebtedness of the
S corporation to the shareholder.
(B) Restoration of basis.--If for any taxable
year beginning after December 31, 1982, there
is a reduction under subparagraph (A) in the
shareholder's basis in the indebtedness of an S
corporation to a shareholder, any net increase
(after the application of paragraphs (1) and
(2) of subsection (a)) for any subsequent
taxable year shall be applied to restore such
reduction in basis before any of it may be used
to increase the shareholder's basis in the
stock of the S corporation.
(3) Coordination with sections 165(g) and 166(d).--
This section and section 1366 shall be applied before
the application of sections 165(g) and 166(d) to any
taxable year of the shareholder or the corporation in
which the security or debt becomes worthless.
(4) Adjustments in case of inherited stock.--
(A) In general.--If any person acquires stock
in an S corporation by reason of the death of a
decedent or by bequest, devise, or inheritance,
section 691 shall be applied with respect to
any item of income of the S corporation in the
same manner as if the decedent had held
directly his pro rata share of such item.
(B) Adjustments to basis.--The basis
determined under section 1014 of any stock in
an S corporation shall be reduced by the
portion of the value of the stock which is
attributable to items constituting income in
respect of the decedent.
* * * * * * *
VII. DISSENTING VIEWS
The seven bills approved by the Republicans at the markup
would add more than $93 billion to the deficit--and if history
is our guide, this is merely the start of the approach the
Republicans embraced last Congress. In the 113th Congress, Ways
and Means Committee Republicans approved $825 billion worth of
deficit-financed, permanent tax cuts. The bills marked up by
the Committee set us down a partisan path, when we should be
embracing bipartisanship and working in a responsible,
bipartisan manner on tax reform.
Even though some of 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. Our nation's small businesses play a vital
role in the economy. They are the backbone of our communities,
creating jobs, economic growth, and harnessing the American
entrepreneurial spirit--this is undeniable. But the approach
that the Committee Republicans are taking with respect to this
and other important legislation undermines that bipartisan
support that the provisions enjoy. The American people expect a
tax code that maintains and supports our shared priorities, and
each time the Committee considers these bills in a piecemeal
approach, it is taking a step in the wrong direction and away
from comprehensive tax reform.
We all support the small businesses in our communities and
across the nation. The markup was not to debate the economic
growth driven by small businesses, the role of small businesses
donations in our country's charitable giving, or the merits of
H.R. 630, which would make permanent the certain rules
regarding basis adjustments to the stock of S corporations
making charitable contributions of property.
Finally, we also oppose the manner in which Republicans
were proceeding--selecting seven provisions to make permanent
at a cost of nearly $100 billion without any offset from the
approximately 60 tax provisions that expired at the end of last
year. This approach is both fiscally irresponsible and contrary
to the goals of bipartisan, comprehensive tax reform.
Expired provisions must be dealt with in a comprehensive
manner. 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.
Sander M. Levin.
[all]