[House Report 107-138]
[From the U.S. Government Publishing Office]
107th Congress Rept. 107-138
HOUSE OF REPRESENTATIVES
1st Session Part 2
======================================================================
COMMUNITY SOLUTIONS ACT OF 2001
_______
July 16, 2001.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Thomas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 7]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 7) to provide incentives for charitable
contributions by individuals and businesses, to improve the
effectiveness and efficiency of government program delivery to
individuals and families in need, and to enhance the ability of
low-income Americans to gain financial security by building
assets, 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..........................................12
A. Purpose and Summary................................. 12
B. Background and Need for Legislation................. 12
C. Legislative History................................. 13
II. Explanation of the Bill.........................................13
A. Charitable Deduction for Nonitemizers (sec. 101).... 13
B. Tax-Free Distributions from Individual Retirement
Arrangements for Charitable Purposes (sec. 102).... 15
C. Increase Percentage Limitation for Corporate
Charitable Contributions (sec. 103)................ 20
D. Enhanced Deduction for Charitable Contributions of
Food Inventory (sec. 105).......................... 21
E. Reform Excise Tax Based on Investment Income of
Private Foundations (sec. 106)..................... 22
F. Modify Tax on Unrelated Business Taxable Income of
Charitable Remainder Trusts (sec. 107)............. 24
G. Extend ``Constructed by'' Requirement for
Contributions of Scientific Property Used for
Research and for Computer Technology and Equipment
(sec. 108)......................................... 26
H. Basis Adjustment to Stock of S Corporation
Contributing Appreciated Property (sec. 109)....... 27
I. Individual Development Accounts (sec. 301-307)...... 28
III. Votes of the Committee..........................................30
IV. Budget Effects of the Bill......................................32
A. Committee Estimates of Budgetary Effects............ 32
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 33
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 33
V. Other Matters To Be Discussed Under the Rules of the House......38
A. Committee Oversight Findings and Recommendations.... 38
B. Statement of General Performance Goals and
Objectives......................................... 38
C. Constitutional Authority Statement.................. 38
D. Information Relating to Unfunded Mandates........... 38
E. Applicability of House Rule XXI 5(b)................ 38
F. Tax Complexity Analysis............................. 39
G. Committee Correspondence............................ 41
VI. Changes in Existing Law Made by the Bill as Reported............43
VII. Dissenting Views................................................63
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Community Solutions
Act of 2001''.
(b) Table of Contents.--The table of contents is as follows:
Sec. 1. Short title; table of contents.
TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE
Sec. 101. Deduction for portion of charitable contributions to be
allowed to individuals who do not itemize deductions.
Sec. 102. Tax-free distributions from individual retirement accounts
for charitable purposes.
Sec. 103. Increase in cap on corporate charitable contributions.
Sec. 104. Charitable donations liability reform for in-kind corporate
contributions.
Sec. 105. Charitable deduction for contributions of food inventory.
Sec. 106. Reform of excise tax on net investment income of private
foundations.
Sec. 107. Excise tax on unrelated business taxable income of charitable
remainder trusts.
Sec. 108. Expansion of charitable contribution allowed for scientific
property used for research and for computer technology and equipment
used for educational purposes.
Sec. 109. Adjustment to basis of S corporation stock for certain
charitable contributions.
TITLE II--EXPANSION OF CHARITABLE CHOICE
Sec. 201. Provision of assistance under government programs by
religious and community organizations.
TITLE III--INDIVIDUAL DEVELOPMENT ACCOUNTS
Sec. 301. Additional qualified entities eligible to conduct projects
under the Assets for Independence Act.
Sec. 302. Increase in limitation on net worth.
Sec. 303. Change in limitation on deposits for an individual.
Sec. 304. Elimination of limitation on deposits for a household.
Sec. 305. Extension of program.
Sec. 306. Conforming amendments.
Sec. 307. Applicability.
TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE
ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE
DEDUCTIONS.
(a) In General.--Section 170 of the Internal Revenue Code of 1986
(relating to charitable, etc., contributions and gifts) is amended by
redesignating subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Deduction for Individuals Not Itemizing Deductions.--
``(1) In general.--In the case of an individual who does not
itemize his deductions for the taxable year, there shall be
taken into account as a direct charitable deduction under
section 63 an amount equal to the lesser of--
``(A) the amount allowable under subsection (a) for
the taxable year for cash contributions, or
``(B) the applicable amount.
``(2) Applicable amount.--For purposes of paragraph (1), the
applicable amount shall be determined as follows:
``For taxable years
The applicable
beginning in:
amount is:
2002 and 2003............................ $25
2004, 2005, 2006......................... $50
2007, 2008, 2009......................... $75
2010 and thereafter...................... $100.
In the case of a joint return, the applicable amount is twice
the applicable amount determined under the preceding table.''.
(b) Direct Charitable Deduction.--
(1) In general.--Subsection (b) of section 63 of such Code is
amended by striking ``and'' at the end of paragraph (1), by
striking the period at the end of paragraph (2) and inserting
``, and'', and by adding at the end thereof the following new
paragraph:
``(3) the direct charitable deduction.''.
(2) Definition.--Section 63 of such Code is amended by
redesignating subsection (g) as subsection (h) and by inserting
after subsection (f) the following new subsection:
``(g) Direct Charitable Deduction.--For purposes of this section, the
term `direct charitable deduction' means that portion of the amount
allowable under section 170(a) which is taken as a direct charitable
deduction for the taxable year under section 170(m).''.
(3) Conforming amendment.--Subsection (d) of section 63 of
such Code is amended by striking ``and'' at the end of
paragraph (1), by striking the period at the end of paragraph
(2) and inserting ``, and'', and by adding at the end thereof
the following new paragraph:
``(3) the direct charitable deduction.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS
FOR CHARITABLE PURPOSES.
(a) In General.--Subsection (d) of section 408 of the Internal
Revenue Code of 1986 (relating to individual retirement accounts) is
amended by adding at the end the following new paragraph:
``(8) Distributions for charitable purposes.--
``(A) In general.--No amount shall be includible in
gross income by reason of a qualified charitable
distribution.
``(B) Qualified charitable distribution.--For
purposes of this paragraph, the term `qualified
charitable distribution' means any distribution from an
individual retirement account--
``(i) which is made on or after the date that
the individual for whose benefit the account is
maintained has attained age 70\1/2\, and
``(ii) which is made directly by the
trustee--
``(I) to an organization described in
section 170(c), or
``(II) to a split-interest entity.
A distribution shall be treated as a qualified
charitable distribution only to the extent that the
distribution would be includible in gross income
without regard to subparagraph (A) and, in the case of
a distribution to a split-interest entity, only if no
person holds an income interest in the amounts in the
split-interest entity attributable to such distribution
other than one or more of the following: the individual
for whose benefit such account is maintained, the
spouse of such individual, or any organization
described in section 170(c).
``(C) Contributions must be otherwise deductible.--
For purposes of this paragraph--
``(i) Direct contributions.--A distribution
to an organization described in section 170(c)
shall be treated as a qualified charitable
distribution only if a deduction for the entire
distribution would be allowable under section
170 (determined without regard to subsection
(b) thereof and this paragraph).
``(ii) Split-interest gifts.--A distribution
to a split-interest entity shall be treated as
a qualified charitable distribution only if a
deduction for the entire value of the interest
in the distribution for the use of an
organization described in section 170(c) would
be allowable under section 170 (determined
without regard to subsection (b) thereof and
this paragraph).
``(D) Application of section 72.--Notwithstanding
section 72, in determining the extent to which a
distribution is a qualified charitable distribution,
the entire amount of the distribution shall be treated
as includible in gross income without regard to
subparagraph (A) to the extent that such amount does
not exceed the aggregate amount which would be so
includible if all amounts were distributed from all
individual retirement accounts otherwise taken into
account in determining the inclusion on such
distribution under section 72. Proper adjustments shall
be made in applying section 72 to other distributions
in such taxable year and subsequent taxable years.
``(E) Special rules for split-interest entities.--
``(i) Charitable remainder trusts.--
Distributions made from an individual
retirement account to a trust described in
subparagraph (G)(ii)(I) shall be treated as
income described in section 664(b)(1) except to
the extent that the beneficiary of the
individual retirement account notifies the
trustee of the trust of the amount which is not
allocable to income under subparagraph (D).
``(ii) Pooled income funds.--No amount shall
be includible in the gross income of a pooled
income fund (as defined in subparagraph
(G)(ii)(II)) by reason of a qualified
charitable distribution to such fund.
``(iii) Charitable gift annuities.--Qualified
charitable distributions made for a charitable
gift annuity shall not be treated as an
investment in the contract.
``(F) Denial of deduction.--Qualified charitable
distributions shall not be taken into account in
determining the deduction under section 170.
``(G) Split-interest entity defined.--For purposes of
this paragraph, the term `split-interest entity'
means--
``(i) a charitable remainder annuity trust or
a charitable remainder unitrust (as such terms
are defined in section 664(d)),
``(ii) a pooled income fund (as defined in
section 642(c)(5)), and
``(iii) a charitable gift annuity (as defined
in section 501(m)(5)).''.
(b) Modifications Relating to Information Returns by Certain
Trusts.--
(1) Returns.--Section 6034 of such Code (relating to returns
by trusts described in section 4947(a)(2) or claiming
charitable deductions under section 642(c)) is amended to read
as follows:
``SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION
642(C).
``(a) Trusts Described in Section 4947(a)(2).--Every trust described
in section 4947(a)(2) shall furnish such information with respect to
the taxable year as the Secretary may by forms or regulations require.
``(b) Trusts Claiming a Charitable Deduction Under Section 642(c).--
``(1) In general.--Every trust not required to file a return
under subsection (a) but claiming a charitable, etc., deduction
under section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the Secretary
may by forms or regulations prescribe, including:
``(A) the amount of the charitable, etc., deduction
taken under section 642(c) within such year,
``(B) the amount paid out within such year which
represents amounts for which charitable, etc.,
deductions under section 642(c) have been taken in
prior years,
``(C) the amount for which charitable, etc.,
deductions have been taken in prior years but which has
not been paid out at the beginning of such year,
``(D) the amount paid out of principal in the current
and prior years for charitable, etc., purposes,
``(E) the total income of the trust within such year
and the expenses attributable thereto, and
``(F) a balance sheet showing the assets,
liabilities, and net worth of the trust as of the
beginning of such year.
``(2) Exceptions.--Paragraph (1) shall not apply in the case
of a taxable year if all the net income for such year,
determined under the applicable principles of the law of
trusts, is required to be distributed currently to the
beneficiaries. Paragraph (1) shall not apply in the case of a
trust described in section 4947(a)(1).''.
(2) Increase in penalty relating to filing of information
return by split-interest trusts.--Paragraph (2) of section
6652(c) of such Code (relating to returns by exempt
organizations and by certain trusts) is amended by adding at
the end the following new subparagraph:
``(C) Split-interest trusts.--In the case of a trust
which is required to file a return under section
6034(a), subparagraphs (A) and (B) of this paragraph
shall not apply and paragraph (1) shall apply in the
same manner as if such return were required under
section 6033, except that--
``(i) the 5 percent limitation in the second
sentence of paragraph (1)(A) shall not apply,
``(ii) in the case of any trust with gross
income in excess of $250,000, the first
sentence of paragraph (1)(A) shall be applied
by substituting `$100' for `$20', and the
second sentence thereof shall be applied by
substituting `$50,000' for `$10,000', and
``(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
If the person required to file such return knowingly
fails to file the return, such person shall be
personally liable for the penalty imposed pursuant to
this subparagraph.''.
(3) Confidentiality of noncharitable beneficiaries.--
Subsection (b) of section 6104 of such Code (relating to
inspection of annual information returns) is amended by adding
at the end the following new sentence: ``In the case of a trust
which is required to file a return under section 6034(a), this
subsection shall not apply to information regarding
beneficiaries which are not organizations described in section
170(c).''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 2001.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to returns for taxable years beginning after
December 31, 2001.
SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (2) of section 170(b) of the Internal
Revenue Code of 1986 (relating to corporations) is amended by striking
``10 percent'' and inserting ``the applicable percentage''.
(b) Applicable Percentage.--Subsection (b) of section 170 of such
Code is amended by adding at the end the following new paragraph:
``(3) Applicable percentage defined.--For purposes of
paragraph (2), the applicable percentage shall be determined in
accordance with the following table:
``For taxable years beginning
The applicable
in calendar year--
percentage is--
2002 through 2007........................ 11
2008..................................... 12
2009..................................... 13
2010 and thereafter...................... 15.''.
(c) Conforming Amendments.--
(1) Sections 512(b)(10) and 805(b)(2)(A) of such Code are
each amended by striking ``10 percent'' each place it occurs
and inserting ``the applicable percentage (determined under
section 170(b)(3))''.
(2) Sections 545(b)(2) and 556(b)(2) of such Code are each
amended by striking ``10-percent limitation'' and inserting
``applicable percentage limitation''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 104. CHARITABLE DONATIONS LIABILITY REFORM FOR IN-KIND CORPORATE
CONTRIBUTIONS.
(a) Definitions.--For purposes of this section:
(1) Aircraft.--The term ``aircraft'' has the meaning provided
that term in section 40102(6) of title 49, United States Code.
(2) Business entity.--The term ``business entity'' means a
firm, corporation, association, partnership, consortium, joint
venture, or other form of enterprise.
(3) Equipment.--The term ``equipment'' includes mechanical
equipment, electronic equipment, and office equipment.
(4) Facility.--The term ``facility'' means any real property,
including any building, improvement, or appurtenance.
(5) Gross negligence.--The term ``gross negligence'' means
voluntary and conscious conduct by a person with knowledge (at
the time of the conduct) that the conduct is likely to be
harmful to the health or well-being of another person.
(6) Intentional misconduct.--The term ``intentional
misconduct'' means conduct by a person with knowledge (at the
time of the conduct) that the conduct is harmful to the health
or well-being of another person.
(7) Motor vehicle.--The term ``motor vehicle'' has the
meaning provided that term in section 30102(6) of title 49,
United States Code.
(8) Nonprofit organization.--The term ``nonprofit
organization'' means--
(A) any organization described in section 501(c)(3)
of the Internal Revenue Code of 1986 and exempt from
tax under section 501(a) of such Code; or
(B) any not-for-profit organization organized and
conducted for public benefit and operated primarily for
charitable, civic, educational, religious, welfare, or
health purposes.
(9) State.--The term ``State'' means each of the several
States, the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, American Samoa, the Northern
Mariana Islands, any other territory or possession of the
United States, or any political subdivision of any such State,
territory, or possession.
(b) Liability.--
(1) Liability of business entities that donate equipment to
nonprofit organizations.--
(A) In general.--Subject to subsection (c), a
business entity shall not be subject to civil liability
relating to any injury or death that results from the
use of equipment donated by a business entity to a
nonprofit organization.
(B) Application.--This paragraph shall apply with
respect to civil liability under Federal and State law.
(2) Liability of business entities providing use of
facilities to nonprofit organizations.--
(A) In general.--Subject to subsection (c), a
business entity shall not be subject to civil liability
relating to any injury or death occurring at a facility
of the business entity in connection with a use of such
facility by a nonprofit organization, if--
(i) the use occurs outside of the scope of
business of the business entity;
(ii) such injury or death occurs during a
period that such facility is used by the
nonprofit organization; and
(iii) the business entity authorized the use
of such facility by the nonprofit organization.
(B) Application.--This paragraph shall apply--
(i) with respect to civil liability under
Federal and State law; and
(ii) regardless of whether a nonprofit
organization pays for the use of a facility.
(3) Liability of business entities providing use of a motor
vehicle or aircraft.--
(A) In general.--Subject to subsection (c), a
business entity shall not be subject to civil liability
relating to any injury or death occurring as a result
of the operation of aircraft or a motor vehicle of a
business entity loaned to a nonprofit organization for
use outside of the scope of business of the business
entity, if--
(i) such injury or death occurs during a
period that such motor vehicle or aircraft is
used by a nonprofit organization; and
(ii) the business entity authorized the use
by the nonprofit organization of motor vehicle
or aircraft that resulted in the injury or
death.
(B) Application.--This paragraph shall apply--
(i) with respect to civil liability under
Federal and State law; and
(ii) regardless of whether a nonprofit
organization pays for the use of the aircraft
or motor vehicle.
(4) Liability of business entities providing tours of
facilities.--
(A) In general.--Subject to subsection (c), a
business entity shall not be subject to civil liability
relating to any injury to, or death of an individual
occurring at a facility of the business entity, if--
(i) such injury or death occurs during a tour
of the facility in an area of the facility that
is not otherwise accessible to the general
public; and
(ii) the business entity authorized the tour.
(B) Application.--This paragraph shall apply--
(i) with respect to civil liability under
Federal and State law; and
(ii) regardless of whether an individual pays
for the tour.
(c) Exceptions.--Subsection (b) shall not apply to an injury or death
that results from an act or omission of a business entity that
constitutes gross negligence or intentional misconduct, including any
misconduct that--
(1) constitutes a crime of violence (as that term is defined
in section 16 of title 18, United States Code) or act of
international terrorism (as that term is defined in section
2331 of title 18, United States Code) for which the defendant
has been convicted in any court;
(2) constitutes a hate crime (as that term is used in the
Hate Crime Statistics Act (28 U.S.C. 534 note));
(3) involves a sexual offense, as defined by applicable State
law, for which the defendant has been convicted in any court;
or
(4) involves misconduct for which the defendant has been
found to have violated a Federal or State civil rights law.
(d) Superseding Provision.--
(1) In general.--Subject to paragraph (2) and subsection (e),
this title preempts the laws of any State to the extent that
such laws are inconsistent with this title, except that this
title shall not preempt any State law that provides additional
protection for a business entity for an injury or death
described in a paragraph of subsection (b) with respect to
which the conditions specified in such paragraph apply.
(2) Limitation.--Nothing in this title shall be construed to
supersede any Federal or State health or safety law.
(e) Election of State Regarding Nonapplicability.--A provision of
this title shall not apply to any civil action in a State court against
a business entity in which all parties are citizens of the State if
such State enacts a statute--
(1) citing the authority of this section;
(2) declaring the election of such State that such provision
shall not apply to such civil action in the State; and
(3) containing no other provisions.
(f) Effective Date.--This section shall apply to injuries (and deaths
resulting therefrom) occurring on or after the date of the enactment of
this Act.
SEC. 105. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD INVENTORY.
(a) In General.--Paragraph (3) of section 170(e) of the Internal
Revenue Code of 1986 (relating to special rule for certain
contributions of inventory and other property) is amended by
redesignating subparagraph (C) as subparagraph (D) and by inserting
after subparagraph (B) the following new subparagraph:
``(C) Special rule for contributions of food
inventory.--
``(i) General rule.--In the case of a
charitable contribution of food, this paragraph
shall be applied--
``(I) without regard to whether the
contribution is made by a C
corporation, and
``(II) only for food that is
apparently wholesome food.
``(ii) Determination of fair market value.--
In the case of a qualified contribution of
apparently wholesome food to which this
paragraph applies and which, solely by reason
of internal standards of the taxpayer or lack
of market, cannot or will not be sold, the fair
market value of such food shall be determined
by taking into account the price at which the
same or similar food items are sold by the
taxpayer at the time of the contribution (or,
if not so sold at such time, in the recent
past).
``(iii) Apparently wholesome food.--For
purposes of this subparagraph, the term
`apparently wholesome food' shall have the
meaning given to such term by section 22(b)(2)
of the Bill Emerson Good Samaritan Food
Donation Act (42 U.S.C. 1791(b)(2)), as in
effect on the date of the enactment of this
subparagraph.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2001.
SEC. 106. REFORM OF EXCISE TAX ON NET INVESTMENT INCOME OF PRIVATE
FOUNDATIONS.
(a) In General.--Subsection (a) of section 4940 of the Internal
Revenue Code of 1986 (relating to excise tax based on investment
income) is amended by striking ``2 percent'' and inserting ``1
percent''.
(b) Repeal of Reduction In Tax Where Private Foundation Meets Certain
Distribution Requirements.--Section 4940 of such Code is amended by
striking subsection (e).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 107. EXCISE TAX ON UNRELATED BUSINESS TAXABLE INCOME OF CHARITABLE
REMAINDER TRUSTS.
(a) In General.--Subsection (c) of section 664 of the Internal
Revenue Code of 1986 (relating to exemption from income taxes) is
amended to read as follows:
``(c) Taxation of Trusts.--
``(1) Income tax.--A charitable remainder annuity trust and a
charitable remainder unitrust shall, for any taxable year, not
be subject to any tax imposed by this subtitle.
``(2) Excise tax.--
``(A) In general.--In the case of a charitable
remainder annuity trust or a charitable remainder
unitrust that has unrelated business taxable income
(within the meaning of section 512, determined as if
part III of subchapter F applied to such trust) for a
taxable year, there is hereby imposed on such trust or
unitrust an excise tax equal to the amount of such
unrelated business taxable income.
``(B) Certain rules to apply.--The tax imposed by
subparagraph (A) shall be treated as imposed by chapter
42 for purposes of this title other than subchapter E
of chapter 42.
``(C) Character of distributions and coordination
with distribution requirements.--The amounts taken into
account in determining unrelated business taxable
income (as defined in subparagraph (A)) shall not be
taken into account for purposes of--
``(i) subsection (b),
``(ii) determining the value of trust assets
under subsection (d)(2), and
``(iii) determining income under subsection
(d)(3).
``(D) Tax court proceedings.--For purposes of this
paragraph, the references in section 6212(c)(1) to
section 4940 shall be deemed to include references to
this paragraph.''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2001.
SEC. 108. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR SCIENTIFIC
PROPERTY USED FOR RESEARCH AND FOR COMPUTER
TECHNOLOGY AND EQUIPMENT USED FOR EDUCATIONAL
PURPOSES.
(a) Scientific Property Used for Research.--Clause (ii) of section
170(e)(4)(B) of the Internal Revenue Code of 1986 (defining qualified
research contributions) is amended by inserting ``or assembled'' after
``constructed''.
(b) Computer Technology and Equipment for Educational Purposes.--
Clause (ii) of section 170(e)(6)(B) of such Code is amended by
inserting ``or assembled'' after ``constructed'' and ``or assembling''
after ``construction''.
(c) Conforming Amendment.--Subparagraph (D) of section 170(e)(6) of
such Code is amended by inserting ``or assembled'' after
``constructed'' and ``or assembling'' after ``construction''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2001.
SEC. 109. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR CERTAIN
CHARITABLE CONTRIBUTIONS.
(a) In General.--Paragraph (1) of section 1367(a) of such Code
(relating to adjustments to basis of stock of shareholders, etc.) is
amended by striking ``and'' at the end of subparagraph (B), by striking
the period at the end of subparagraph (C) and inserting ``, and'', and
by adding at the end the following new subparagraph:
``(D) the excess of the amount of the shareholder's
deduction for any charitable contribution made by the S
corporation over the shareholder's proportionate share
of the adjusted basis of the property contributed.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2001.
TITLE II--EXPANSION OF CHARITABLE CHOICE
SEC. 201. PROVISION OF ASSISTANCE UNDER GOVERNMENT PROGRAMS BY
RELIGIOUS AND COMMUNITY ORGANIZATIONS.
Title XXIV of the Revised Statutes is amended by inserting after
section 1990 (42 U.S.C. 1994) the following:
``SEC. 1994A. CHARITABLE CHOICE.
``(a) Short Title.--This section may be cited as the `Charitable
Choice Act of 2001'.
``(b) Purposes.--The purposes of this section are--
``(1) to provide assistance to individuals and families in
need in the most effective and efficient manner;
``(2) to prohibit discrimination against religious
organizations on the basis of religion in the administration
and distribution of government assistance under the government
programs described in subsection (c)(4);
``(3) to allow religious organizations to assist in the
administration and distribution of such assistance without
impairing the religious character of such organizations; and
``(4) to protect the religious freedom of individuals and
families in need who are eligible for government assistance,
including expanding the possibility of choosing to receive
services from a religious organization providing such
assistance.
``(c) Religious Organizations Included as NonGovernmental
Providers.--
``(1) In general.--
``(A) Inclusion.--For any program described in
paragraph (4) that is carried out by the Federal
Government, or by a State or local government with
Federal funds, the government shall consider, on the
same basis as other nongovernmental organizations,
religious organizations to provide the assistance under
the program, if the program is implemented in a manner
that is consistent with the Establishment Clause and
the Free Exercise Clause of the first amendment to the
Constitution.
``(B) Discrimination prohibited.--Neither the Federal
Government nor a State or local government receiving
funds under a program described in paragraph (4) shall
discriminate against an organization that provides
assistance under, or applies to provide assistance
under, such program, on the basis that the organization
has a religious character.
``(2) Funds not aid to religion.--Federal, State, or local
government funds or other assistance that is received by a
religious organization for the provision of services under this
section constitutes aid to individuals and families in need,
the ultimate beneficiaries of such services, and not aid to the
religious organization.
``(3) Funds not endorsement of religion.--The receipt by a
religious organization of Federal, State, or local government
funds or other assistance under this section is not and should
not be perceived as an endorsement by the government of
religion or the organization's religious beliefs or practices.
``(4) Programs.--For purposes of this section, a program is
described in this paragraph--
``(A) if it involves activities carried out using
Federal funds--
``(i) related to the prevention and treatment
of juvenile delinquency and the improvement of
the juvenile justice system, including programs
funded under the Juvenile Justice and
Delinquency Prevention Act of 1974 (42 U.S.C.
5601 et seq.);
``(ii) related to the prevention of crime,
including programs funded under title I of the
Omnibus Crime Control and Safe Streets Act of
1968 (42 U.S.C. 3701 et seq.);
``(iii) under the Federal housing laws;
``(iv) under title I of the Workforce
Investment Act of 1998 (29 U.S.C. 2801 et seq.)
``(v) under the Older Americans Act of 1965
(42 U.S.C. 3001 et seq.);
``(vi) under the Child Care Development Block
Grant Act of 1990 (42 U.S.C. 9858 et seq.);
``(vii) under the Community Development Block
Grant Program established under title I of the
Housing and Community Development Act of 1974
(42 U.S.C. 5301 et seq.);
``(viii) related to the intervention in and
prevention of domestic violence;
``(ix) related to hunger relief activities;
or
``(x) under the Job Access and Reverse
Commute grant program established under section
3037 of the Federal Transit Act of 1998 (49
U.S.C. 5309 note); or
``(B)(i) if it involves activities to assist students
in obtaining the recognized equivalents of secondary
school diplomas and activities relating to non-school-
hours programs; and
``(ii) except as provided in subparagraph (A) and
clause (i), does not include activities carried out
under Federal programs providing education to children
eligible to attend elementary schools or secondary
schools, as defined in section 14101 of the Elementary
and Secondary Education Act of 1965 (20 U.S.C. 8801).
``(d) Organizational Character and Autonomy.--
``(1) In general.--A religious organization that provides
assistance under a program described in subsection (c)(4) shall
retain its autonomy from Federal, State, and local governments,
including such organization's control over the definition,
development, practice, and expression of its religious beliefs.
``(2) Additional safeguards.--Neither the Federal Government
nor a State or local government shall require a religious
organization in order to be eligible to provide assistance
under a program described in subsection (c)(4)--
``(A) to alter its form of internal governance; or
``(B) to remove religious art, icons, scripture, or
other symbols because they are religious.
``(e) Employment Practices.--
``(1) In general.--In order to aid in the preservation of its
religious character, a religious organization that provides
assistance under a program described in subsection (c)(4) may,
notwithstanding any other provision of law, require that its
employees adhere to the religious practices of the
organization.
``(2) Title vii exemption.--The exemption of a religious
organization provided under section 702 or 703(e)(2) of the
Civil Rights Act of 1964 (42 U.S.C. 2000e-1, 2000e-2(e)(2))
regarding employment practices shall not be affected by the
religious organization's provision of assistance under, or
receipt of funds from, a program described in subsection
(c)(4).
``(3) Effect on other laws.--Nothing in this section alters
the duty of a religious organization to comply with the
nondiscrimination provisions in title VI of the Civil Rights
Act of 1964 (42 U.S.C. 2000d et seq.) (prohibiting
discrimination on the basis of race, color, and national
origin), title IX of the Education Amendments of 1972 (20
U.S.C. 1681-1686) (prohibiting discrimination in educational
institutions on the basis of sex and visual impairment),
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794)
(prohibiting discrimination against otherwise qualified
disabled individuals), and the Age Discrimination Act of 1975
(42 U.S.C. 6101-6107) (prohibiting discrimination on the basis
of age).
``(f) Rights of Beneficiaries of Assistance.--
``(1) In general.--If an individual described in paragraph
(3) has an objection to the religious character of the
organization from which the individual receives, or would
receive, assistance funded under any program described in
subsection (c)(4), the appropriate Federal, State, or local
governmental entity shall provide to such individual (if
otherwise eligible for such assistance) within a reasonable
period of time after the date of such objection, assistance
that--
``(A) is an alternative, including a nonreligious
alternative, that is accessible to the individual; and
``(B) has a value that is not less than the value of
the assistance that the individual would have received
from such organization.
``(2) Notice.--The appropriate Federal, State, or local
governmental entity shall guarantee that notice is provided to
the individuals described in paragraph (3) of the rights of
such individuals under this section.
``(3) Individual described.--An individual described in this
paragraph is an individual who receives or applies for
assistance under a program described in subsection (c)(4).
``(g) Nondiscrimination Against Beneficiaries.--
``(1) Grants and contracts.--A religious organization
providing assistance through a grant or contract under a
program described in subsection (c)(4) shall not discriminate,
in carrying out the program, against an individual described in
subsection (f)(3) on the basis of religion, a religious belief,
or a refusal to hold a religious belief.
``(2) Indirect forms of disbursement.--A religious
organization providing assistance through a voucher,
certificate, or other form of indirect disbursement under a
program described in subsection (c)(4) shall not discriminate,
in carrying out the program, against an individual described in
subsection (f)(3) on the basis of religion, a religious belief,
or a refusal to hold a religious belief.
``(h) Accountability.--
``(1) In general.--Except as provided in paragraph (2), a
religious organization providing assistance under any program
described in subsection (c)(4) shall be subject to the same
regulations as other nongovernmental organizations to account
in accord with generally accepted accounting principles for the
use of such funds provided under such program.
``(2) Limited audit.--Such organization shall segregate
government funds provided under such program into a separate
account or accounts. Only the government funds shall be subject
to audit by the government.
``(i) Limitations on Use of Funds for Certain Purposes.--No funds
provided through a grant or contract to a religious organization to
provide assistance under any program described in subsection (c)(4)
shall be expended for sectarian worship, instruction, or
proselytization. A certificate shall be signed by such organizations
and filed with the government agency that disbursed the funds that
gives assurance the organization will comply with this subsection.
``(j) Effect on State and Local Funds.--If a State or local
government contributes State or local funds to carry out a program
described in subsection (c)(4), the State or local government may
segregate the State or local funds from the Federal funds provided to
carry out the program or may commingle the State or local funds with
the Federal funds. If the State or local government commingles the
State or local funds, the provisions of this section shall apply to the
commingled funds in the same manner, and to the same extent, as the
provisions apply to the Federal funds.
``(k) Treatment of Intermediate Contractors.--If a nongovernmental
organization (referred to in this subsection as an `intermediate
contractor'), acting under a contract or other agreement with the
Federal Government or a State or local government, is given the
authority under the contract or agreement to select nongovernmental
organizations to provide assistance under the programs described in
subsection (c)(4), the intermediate contractor shall have the same
duties under this section as the government when selecting or otherwise
dealing with subcontractors, but the intermediate contractor, if it is
a religious organization, shall retain all other rights of a religious
organization under this section.
``(l) Compliance.--A party alleging that the rights of the party
under this section have been violated by a State or local government
may bring a civil action pursuant to section 1979 against the official
or government agency that has allegedly committed such violation. A
party alleging that the rights of the party under this section have
been violated by the Federal Government may bring a civil action for
appropriate relief in Federal district court against the official or
government agency that has allegedly committed such violation.''.
TITLE III--INDIVIDUAL DEVELOPMENT ACCOUNTS
SEC. 301. ADDITIONAL QUALIFIED ENTITIES ELIGIBLE TO CONDUCT PROJECTS
UNDER THE ASSETS FOR INDEPENDENCE ACT.
Section 404(7)(A)(iii)(I)(aa) of the Assets for Independence Act (42
U.S.C. 604 note) is amended to read as follows:
``(aa) a federally insured
credit union; or''.
SEC. 302. INCREASE IN LIMITATION ON NET WORTH.
Section 408(a)(2)(A) of the Assets for Independence Act (42 U.S.C.
604 note) is amended by striking ``$10,000'' and inserting ``$20,000''.
SEC. 303. CHANGE IN LIMITATION ON DEPOSITS FOR AN INDIVIDUAL.
Section 410(b) of the Assets for Independence Act (42 U.S.C. 604
note) is amended to read as follows:
``(b) Limitation on Deposits for an Individual.--Not more than $500
from a grant made under section 406(b) shall be provided per year to
any one individual during the project.''.
SEC. 304. ELIMINATION OF LIMITATION ON DEPOSITS FOR A HOUSEHOLD.
Section 410 of the Assets for Independence Act (42 U.S.C. 604 note)
is amended by striking subsection (c) and redesignating subsections (d)
and (e) as subsections (c) and (d), respectively.
SEC. 305. EXTENSION OF PROGRAM.
Section 416 of the Assets for Independence Act (42 U.S.C. 604 note)
is amended by striking ``2001, 2002, and 2003'' and inserting ``and
2001, and $50,000,000 for each of fiscal years 2002 through 2008''.
SEC. 306. CONFORMING AMENDMENTS.
(a) Amendments to Text.--The text of each of the following provisions
of the Assets for Independence Act (42 U.S.C. 604 note) is amended by
striking ``demonstration'' each place it appears:
(1) Section 403.
(2) Section 404(2).
(3) Section 405(a).
(4) Section 405(b).
(5) Section 405(c).
(6) Section 405(d).
(7) Section 405(e).
(8) Section 405(g).
(9) Section 406(a).
(10) Section 406(b).
(11) Section 407(b)(1)(A).
(12) Section 407(c)(1)(A).
(13) Section 407(c)(1)(B).
(14) Section 407(c)(1)(C).
(15) Section 407(c)(1)(D).
(16) Section 407(d).
(17) Section 408(a).
(18) Section 408(b).
(19) Section 409.
(20) Section 410(e).
(21) Section 411.
(22) Section 412(a).
(23) Section 412(b)(2).
(24) Section 412(c).
(25) Section 413(a).
(26) Section 413(b).
(27) Section 414(a).
(28) Section 414(b).
(29) Section 414(c).
(30) Section 414(d)(1).
(31) Section 414(d)(2).
(b) Amendments to Subsection Headings.--The heading of each of the
following provisions of the Assets for Independence Act (42 U.S.C. 604
note) is amended by striking ``Demonstration'':
(1) Section 405(a).
(2) Section 406(a).
(3) Section 413(a).
(c) Amendments to Section Headings.--The headings of sections 406 and
411 of the Assets for Independence Act (42 U.S.C. 604 note) are amended
by striking ``DEMONSTRATION''.
SEC. 307. APPLICABILITY.
(a) In General.--The amendments made by this title shall apply to
funds provided before, on or after the date of the enactment of this
Act.
(b) Prior Amendments.--The amendments made by title VI of the
Departments of Labor, Health and Human Services, and Education, and
Related Agencies Appropriations Act, 2001 (as enacted into law by
Public Law 106-554) shall apply to funds provided before, on or after
the date of the enactment of such Act.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The tax and individual development account provisions of
the bill, H.R. 7, as amended (the ``Community Solutions Act of
2001''), facilitate charitable giving and charitable activity.
The bill provides net tax reductions of over $4.4 billion
over fiscal years 2002-2006. This will bolster the nonprofit
sector of the economy.
The bill provides a charitable contribution deduction for
individuals taking the standard deduction, facilitates
transfers to charity from individual retirement arrangements,
increases the percentage limitation on corporate charitable
contributions, and reforms the excise tax based on the
investment income of private foundations leaving such
foundations with more funds to spend on charitable activities.
The bill also encourages charitable contributions of food
inventory, scientific property used for research, and computer
technology and equipment used for educational purposes. In
addition, the bill makes charitable contributions by S
corporations more attractive and provides a more appropriate
remedy on charitable remainder trusts that have unrelated
business income. Finally, the bill strengthens the creation and
maintenance of individual development accounts.
B. Background and Need for Legislation
The provisions approved by the Committee will stimulate
charitable giving and therefore provide more funds to
charitable organizations, many of which will perform activities
that otherwise would have to be performed by the Federal
government. The estimated revenue effects of the provisions
comply with the most recent Congressional Budget Office
revisions of budget surplus projections.
C. Legislative History
Committee Action
The Committee on Ways and Means marked up the provisions of
the bill on July 11, 2001, and reported the provisions, as
amended, on July 11, 2001, by a roll call vote of 23 yeas and
16 nays, with a quorum present.
Committee Hearing
A joint hearing was held on June 14, 2001, before the
Subcommittees on Select Revenue Measures and Human Resources of
the Committee on Ways and Means on the provisions of H.R. 7.
II. EXPLANATION OF THE BILL
A. Charitable Deduction for Nonitemizers
(Sec. 101 of the Bill and Secs. 63 and 170 of the Code)
Present Law
In computing taxable income, a taxpayer who itemizes
deductions generally is allowed to deduct the amount of cash
and the fair market value of property contributed to a charity
described in section 501(c)(3) or a Federal, State, or local
governmental entity. The deduction also is allowed for purposes
of calculating alternative minimum taxable income.
The amount of the deduction allowable for a taxable year
with respect to a charitable contribution of property may be
reduced depending on the type of property contributed, the type
of charitable organization to which the property is
contributed, and the income of the taxpayer.\1\
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\1\ Secs. 170(b) and (e).
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A taxpayer who takes the standard deduction (i.e., who does
not itemize deductions) may not take a separate deduction for
charitable contributions.\2\
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\2\ Sec. 170(a). The Economic Recovery Tax Act of 1981 adopted a
temporary provision that permitted individual taxpayers who did not
itemize income tax deductions to claim a deduction from gross income
for a specified percentage of their charitable contributions. The
maximum deduction was $25 for 1982 and 1983, $75 for 1984, 50 percent
of the amount of the contribution for 1985, and 100 percent of the
amount of the contribution for 1986. The nonitemizer deduction
terminated after 1986.
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A payment to a charity (regardless of whether it is termed
a ``contribution'') in exchange for which the donor receives an
economic benefit is not deductible, except to the extent that
the donor can demonstrate that the payment exceeds the fair
market value of the benefit received from the charity. To
facilitate distinguishing charitable contributions from
purchases of goods or services from charities, present law
provides that no charitable contribution deduction is allowed
for a separate contribution of $250 or more unless the donor
obtains a contemporaneous written acknowledgement of the
contribution from the charity indicating whether the charity
provided any good or service (and an estimate of the value of
any such good or service) to the taxpayer in consideration for
the contribution.\3\ In addition, present law requires that any
charity that receives a contribution exceeding $75 made partly
as a gift and partly as consideration for goods or services
furnished by the charity (a ``quid pro quo'' contribution) is
required to inform the contributor in writing of an estimate of
the value of the goods or services furnished by the charity and
that only the portion exceeding the value of the goods or
services is deductible as a charitable contribution.\4\
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\3\ Sec. 170(f)(8).
\4\ Sec. 6115.
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Under present law, total deductible contributions of an
individual taxpayer to public charities, private operating
foundations, and certain types of private nonoperating
foundations may not exceed 50 percent of the taxpayer's
contribution base, which is the taxpayer's adjusted gross
income for a taxable year (disregarding any net operating loss
carryback). To the extent a taxpayer has not exceeded the 50-
percent limitation, (1) contributions of capital gain property
to public charities generally may be deducted up to 30 percent
of the taxpayer's contribution base, (2) contributions of cash
to private foundations and certain other charitable
organizations generally may be deducted up to 30 percent of the
taxpayer's contribution base, and (3) contributions of capital
gain property to private foundations and certain other
charitable organizations generally may be deducted up to 20
percent of the taxpayer's contribution base.
Contributions by individuals in excess of the 50-percent,
30-percent, and 20-percent limit may be carried over and
deducted over the next five taxable years, subject to the
relevant percentage limitations on the deduction in each of
those years.
In addition to the percentage limitations imposed
specifically on charitable contributions, present law imposes a
reduction on most itemized deductions, including charitable
contribution deductions, for taxpayers with adjusted gross
income in excess of a threshold amount, which is indexed
annually for inflation. The threshold amount for 2001 is
$132,950 ($66,475 for married individuals filing separate
returns). For those deductions that are subject to the limit,
the total amount of itemized deductions is reduced by 3 percent
of adjusted gross income over the threshold amount, but not by
more than 80 percent of itemized deductions subject to the
limit. Beginning in 2006, the Economic Growth and Tax Relief
Reconciliation Act of 2001 phases-out the overall limitation on
itemized deductions for all taxpayers. The overall limitation
on itemized deductions is reduced by one-third in taxable years
beginning in 2006 and 2007, and by two-thirds in taxable years
beginning in 2008 and 2009. The overall limitation on itemized
deductions is eliminated for taxable years beginning after
December 31, 2009; however this elimination of the limitation
sunsets on December 31, 2010.
Reasons for Change
The Committee believes that allowing a charitable deduction
to nonitemizers will stimulate charitable giving, thereby
providing more funds for worthwhile nonprofit organizations,
many of which provide services that otherwise might have to be
provided by the Federal government.
Explanation of Provision
In the case of an individual taxpayer who does not itemize
deductions, the provision allows a deduction from adjusted
gross income for charitable contributions paid in cash. This
deduction is allowed in addition to the standard deduction and
is calculated as the lesser of (1)the amount allowable to
itemizers as a charitable deduction for cash contributions and (2) an
applicable amount. The new deduction generally is subject to the tax
rules normally governing charitable deductions, such as the
substantiation requirements and carryforward rules. For taxpayers
taking a deduction of the applicable amount, the portion of
contributions in excess of the applicable amount may not be carried
forward. The deduction is allowed in computing alternative minimum
taxable income.
The applicable amount is $25 ($50 in the case of a joint
return) in 2002 and 2003, $50 ($100 in the case of a joint
return) in 2004 through 2006, $75 ($150 in the case of a joint
return) in 2007 through 2009, and $100 ($200 in the case of a
joint return) in 2010 and thereafter.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
B. Tax-Free Distributions From Individual Retirement Arrangements for
Charitable Purposes
(Sec. 102 of the Bill and Secs. 408 and 6034 of the Code)
Present Law
In general
If an amount withdrawn from a traditional individual
retirement arrangement (``IRA'') or a Roth IRA is donated to a
charitable organization, the rules relating to the tax
treatment of withdrawals from IRAs apply and the charitable
contribution is subject to the normally applicable limitations
on deductibility of such contributions.
Charitable contributions
In computing taxable income, a taxpayer who itemizes
deductions generally is allowed to deduct the amount of cash
and the fair market value of property contributed to an
organization described in section 170(c), including charities
and Federal, State, and local governmental entities. The
deduction also is allowed for purposes of calculating
alternative minimum taxable income.
The amount of the deduction allowable for a taxable year
with respect to a charitable contribution of property may be
reduced depending on the type of property contributed, the type
of charitable organization to which the property is
contributed, and the income of the taxpayer.\5\
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\5\ Secs. 170(b) and (e).
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A payment to a charity (regardless of whether it is termed
a ``contribution'') in exchange for which the donor receives an
economic benefit is not deductible, except to the extent that
the donor can demonstrate that the payment exceeds the fair
market value of the benefit received from the charity. To
facilitate distinguishing charitable contributions from
purchases of goods or services from charities, present law
provides that no charitable contribution deduction is allowed
for a separate contribution of $250 or more unless the donor
obtains a contemporaneous written acknowledgement of the
contribution from the charity indicating whether the charity
provided any good or service (and an estimate of the value of
any such good or service) to the taxpayer in consideration for
the contribution.\6\ In addition, present law requires that any
charity that receives a contribution exceeding $75 made partly
as a gift and partly as consideration for goods or services
furnished by the charity (a ``quid pro quo'' contribution) is
required to inform the contributor in writing of an estimate of
the value of the goods or services furnished by the charity and
that only the portion exceeding the value of the goods or
services is deductible as a charitable contribution.\7\
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\6\ Sec. 170(f)(8).
\7\ Sec. 6115.
---------------------------------------------------------------------------
Under present law, total deductible contributions of an
individual taxpayer to public charities, private operating
foundations, and certain types of private nonoperating
foundations may not exceed 50 percent of the taxpayer's
contribution base, which is the taxpayer's adjusted gross
income for a taxable year (disregarding any net operating loss
carryback). To the extent a taxpayer has not exceeded the 50-
percent limitation, (1) contributions of capital gain property
to public charities generally may be deducted up to 30 percent
of the taxpayer's contribution base, (2) contributions of cash
to private foundations and certain other charitable
organizations generally may be deducted up to 30 percent of the
taxpayer's contribution base, and (3) contributions of capital
gain property to private foundations and certain other
charitable organizations generally may be deducted up to 20
percent of the taxpayer's contribution base.
Contributions by individuals in excess of the 50-percent,
30-percent, and 20-percent limit may be carried over and
deducted over the next five taxable years, subject to the
relevant percentage limitations on the deduction in each of
those years.
In addition to the percentage limitations imposed
specifically on charitable contributions, present law imposes a
reduction on most itemized deductions, including charitable
contribution deductions, for taxpayers with adjusted gross
income in excess of a threshold amount, which is indexed
annually for inflation. The threshold amount for 2001 is
$132,950 ($66,475 for married individuals filing separate
returns). For those deductions that are subject to the limit,
the total amount of itemized deductions is reduced by 3 percent
of adjusted gross income over the threshold amount, but not by
more than 80 percent of itemized deductions subject to the
limit. Beginning in 2006, the Economic Growth and Tax Relief
Reconciliation Act of 2001 phases-out the overall limitation on
itemized deductions for all taxpayers. The overall limitation
on itemized deductions is reduced by one-third in taxable years
beginning in 2006 and 2007, and by two-thirds in taxable years
beginning in 2008 and 2009. The overall limitation on itemized
deductions is eliminated for taxable years beginning after
December 31, 2009; however this elimination of the limitation
sunsets on December 31, 2010.
In general, a charitable deduction is not allowed for
income, estate, or gift tax purposes if the donor transfers an
interest in property to a charity (e.g., a remainder) while
also either retaining an interest in that property (e.g., an
income interest) or transferring an interest in that property
to a noncharity for less than full and adequate
consideration.\8\ Exceptions to this general rule are provided
for, among other interests, remainder interests in charitable
remainder annuity trusts, charitable remainder unitrusts, and
pooled income funds, and present interests in the form of a
guaranteed annuity or a fixed percentage of the annual value of
the property.\9\ For such interests, a charitable deduction is
allowed to the extent of the present value of the interest
designated for a charitable organization.
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\8\ Secs. 170(f), 2055(e)(2), and 2522(c)(2).
\9\ Sec. 170(f)(2).
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IRA rules
Within limits, individuals may make deductible and
nondeductible contributions to a traditional IRA. Amounts in a
traditional IRA are includible in income when withdrawn (except
to the extent the withdrawal represents a return of
nondeductible contributions). Individuals also may make
nondeductible contributions to a Roth IRA. Qualified
withdrawals from a Roth IRA are excludable from gross income.
Withdrawals from a Roth IRA that are not qualified withdrawals
are includible in gross income to the extent attributable to
earnings. Includible amounts withdrawn from a traditional IRA
or a Roth IRA before attainment of age 59\1/2\ are subject to
an additional 10-percent early withdrawal tax, unless an
exception applies.
If an individual has made nondeductible contributions to a
traditional IRA, a portion of each distribution from an IRA is
nontaxable, until the total amount of nondeductible
contributions has been received. In general, the amount of a
distribution that is nontaxable is determined by multiplying
the amount of the distribution by the ratio of the remaining
nondeductible contributions to the account balance. In making
the calculation, all traditional IRAs of an individual are
treated as a single IRA, all distributions during any taxable
year are treated as a single distribution, and the value of the
contract, income on the contract, and investment in the
contract are computed as of the close of the calendar year.
In the case of a distribution from a Roth IRA that is not a
qualified distribution, in determining the portion of the
distribution attributable to earnings, contributions and
distributions are deemed to be distributed in the following
order: (1) regular Roth IRA contributions; (2) taxable
conversion contributions; \10\ (3) nontaxable conversion
contributions; and (4) earnings. In determining the amount of
taxable distributions from a Roth IRA, all Roth IRA
distributions in the same taxable year are treated as a single
distribution, all regular Roth IRA contributions for a year are
treated as a single contribution, and all conversion
contributions during the year are treated as a single
contribution.
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\10\ Conversion contributions refer to conversions of amounts in a
traditional IRA to a Roth IRA.
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Split-interest trust filing requirements
Split-interest trusts described in section 4947(a)(2),
including charitable remainder annuity trusts, charitable
remainder unitrusts, and pooled income funds are required to
file an annual information return under section 6034 (Form
1041A). Trusts that are not split-interest trusts but that
claim a charitable deduction for amounts permanently set aside
for a charitable purpose \11\ also are required to file Form
1041A. The returns are required to be made publicly available
by section 6104(b). A trust that is required to distribute all
trust net income currently to trust beneficiaries in a taxable
year is exempt from this return requirement for such taxable
year. A trust's failure to file a return required by section
6034 results in a penalty on the trust of $10 a day for as long
as the failure continues, up to a maximum of $5,000 per return.
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\11\ Sec. 642(c).
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In addition, split-interest trusts are required under
section 6011 to file annually Form 5227.\12\ Form 5227 requires
disclosure of information regarding the trusts' noncharitable
beneficiaries. The penalty for failure to file a return under
section 6011 is calculated based on the amount of tax owed. A
split-interest trust generally is not subject to tax and
therefore, in general, a penalty may not be imposed for the
failure to file Form 5227. Form 5227 is not required to be made
publicly available.
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\12\ Treas. Reg. sec. 53.6011-1(d).
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Reasons for Change
The Committee believes it appropriate to facilitate the
making of charitable contributions from IRAs.
Explanation of Provision
The provision provides an exclusion from gross income for
otherwise taxable IRA withdrawals from a traditional or a Roth
IRA for qualified charitable distributions. The present-law
rules continue to apply to distributions from an IRA that are
not qualified charitable distributions. A qualified charitable
distribution is defined as any distribution from an IRA that is
(1) otherwise includible in gross income, (2) made on or after
the date the IRA owner attains age 70\1/2\, and (3) is made
directly by the IRA trustee (a) to a charitable organization to
which deductible contributions can be made or (b) to a split-
interest entity in which no person holds an income interest in
the amounts in the split-interest entity attributable to the
charitable distribution other than the IRA owner, his or her
spouse, or a charitable organization. A split-interest entity
means a charitable remainder annuity trust or charitable
remainder unitrust, a pooled income fund, or a charitable gift
annuity. Qualified charitable distributions count toward the
minimum distribution requirements applicable to IRAs.
The exclusion applies to distributions made directly to a
charitable organization to which deductible contributions can
be made only if a charitable contribution deduction for the
entire distribution otherwise is allowable, determined without
regard to the percentage limitations. Thus, for example, if the
deductible amount is reduced because of a benefit received in
exchange, or if a deduction is not allowable because the donor
did not obtain sufficient substantiation, the exclusion is not
available with respect to any part of the distribution. The
exclusion applies in the case of a distribution directly to a
split-interest entity only if a charitable contribution
deduction for the entire present value of the charitable
interest (for example, a remainder interest) is allowable,
determined without regard to the percentage limitations.
In determining the extent to which a distribution from an
IRA is a qualified charitable distribution, the distribution is
treated as consisting of income first, up to the aggregate
amount that would be includible in gross income but for the
proposal if all amounts were distributed from all IRAs
otherwise taken into account in determining the amount
includible in income under section 72.
A qualified charitable distribution to a pooled income fund
is not includible in the fund's gross income.
In determining the amount includible in gross income by
reason of a payment from a charitable remainder annuity trust
or charitable remainder unitrust to which a qualified
charitable distribution from an IRA was made, the taxpayer is
required to treat as ordinary income (as described in sec.
664(b)(1)) the total amount distributed directly from the IRA
to the trust, except to the extent the taxpayer notifies the
trust that a portion of the direct distribution was allocable
to investment in the contract. This could occur, for example,
if the entire interest in all an individual's traditional IRAs
is distributed directly to a charitable remainder trust, and
the IRA included nondeductible contributions. Similarly, in
determining the amount includible in gross income by reason of
a payment from a charitable gift annuity purchased with a
qualified charitable distribution from an IRA, the portion of
the distribution from the IRA used to purchase the annuity is
not investment in the annuity contract.
Any amount excluded from gross income by reason of the
proposal is not taken into account in determining the deduction
for charitable contributions under section 170.
The provision increases the penalty on split-interest
trusts described in section 4947(a)(2) for failure to file a
return and for failure to include any of the information
required to be shown on such return and to show the correct
information. The penalty is $20 for each day the failure
continues up to $10,000 for any one return. In the case of a
split-interest trust with gross income in excess of $250,000,
the penalty is $100 for each day the failure continues up to a
maximum of $50,000. If a person (meaning any officer, director,
trustee, employee, or other individual who is under a duty to
file the return or include required information) \13\ knowingly
failed to file the return or include required information, then
the person personally is liable for the penalty. Information
regarding beneficiaries that are not charitable organizations
as described in section 170(c) are exempt from the requirement
to make information publicly available. In addition, the
provision repeals the present law exception to the filing
requirement for split-interest trusts that are required in a
taxable year to distribute all net income currently to
beneficiaries. Such exception remains available to nonsplit-
interest trusts that are otherwise subject to the filing
requirement. The Committee anticipates that the Secretary of
the Treasury shall exercise authority under section 6034 to
require that Form 5227 be filed pursuant to section 6034.
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\13\ Sec. 6652(c)(4)(C).
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Effective Date
The provision generally is effective for taxable years
beginning after December 31, 2001. The provision relating to
information returns of split-interest trusts is effective for
returns for taxable years beginning after December 31, 2001.
C. Increase Percentage Limitation for Corporate Charitable
Contributions
(Sec. 103 of the Bill and Sec. 170 of the Code)
Present Law
Under present law, a corporation is allowed to deduct
charitable contributions up to 10 percent of the corporation's
modified taxable income for the year. For this purpose, taxable
income is determined without regard to (1) the charitable
contributions deduction, (2) any net operating loss carryback,
(3) deductions for dividends received, (4) deductions for
dividends paid on certain preferred stock of public utilities,
and (5) any capital loss carryback for the taxable year.\14\
Any charitable contribution by a corporation that is not
currently deductible because of the percentage limitation may
be carried forward for up to five taxable years.
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\14\ Sec. 170(b)(2).
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A transfer of property by a business to a charity might
qualify as either a charitable contribution or a deductible
business expense, but not both. No deduction is allowed as a
business expense under section 162 for any contribution that
would be deductible as a charitable gift were it not for the
percentage limitations on the charitable contributions
deduction.\15\ Likewise, a business transfer made with a
reasonable expectation of financial return commensurate with
the amount of the transfer is not deductible as a charitable
contribution, but may be deductible under section 162.
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\15\ Sec. 162(b).
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Reasons for Change
The Committee believes that increasing the annual
limitation on the allowable corporate charitable contribution
deduction will encourage more charitable giving by
corporations.
Explanation of Provision
The provision increases the percentage limitation on
corporate charitable deductions from 10 percent to 15 percent.
The provision is phased-in over nine years, beginning in
taxable years beginning after December 31, 2001. The percentage
limitation on corporate charitable deductions is 11 percent in
2002 through 2007, 12 percent in 2008, 13 percent in 2009, and
15 percent in 2010 and thereafter.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
D. Enhanced Deduction for Charitable Contributions of Food Inventory
(Sec. 105 of the Bill and Sec. 170 of the Code)
Present Law
Under present law, a taxpayer's deduction for charitable
contributions of inventory generally is limited to the
taxpayer's basis (typically, cost) in the inventory. However,
for certain contributions of inventory, C corporations may
claim an enhanced deduction equal to the lesser of (1) basis
plus one-half of the item's appreciated value (i.e., basis plus
one half of fair market value in excess of basis) or (2) two
times basis.\16\
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\16\ Sec. 170(e)(3).
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To be eligible for the enhanced deduction, the contributed
property generally must be inventory of the taxpayer,
contributed to a charitable organization described in section
501(c) (except for private nonoperating foundations), and the
donee must (1) use the property consistent with the donee's
exempt purpose solely for the care of the ill, the needy, or
infants, (2) not transfer the property in exchange for money,
other property, or services, and (3) provide the taxpayer a
written statement that the donee's use of the property will be
consistent with such requirements. In the case of contributed
property subject to the Federal Food, Drug, and Cosmetic Act,
the property must satisfy the applicable requirements of such
Act on the date of transfer and for 180 days prior to the
transfer.
To use the enhanced deduction, the taxpayer must establish
that the fair market value of the donated item exceeds basis.
The valuation of food inventory has been the subject of ongoing
disputes between taxpayers and the IRS. In one case, the Tax
Court held that the value of surplus bread inventory donated to
charity was the full retail price of the bread rather than half
the retail price, as the IRS asserted.\17\
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\17\ Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995).
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Reasons for Change
The Committee believes that more should be done to
encourage contributions of food inventory to charitable
organizations that provide food for the hungry. Extending the
availability of an enhanced deduction for contributions of food
inventory to any taxpayer engaged in a trade or business and
clarifying the determination of the value of the donated food
will increase donations of food inventory and thereby help
nourish more of our nation's underprivileged.
Explanation of Provision
Under the provision, any taxpayer engaged in a trade or
business is eligible under section 170(e) to claim an enhanced
deduction for donations of food inventory. The enhanced
deduction is available only for food that qualifies as
``apparently wholesome food,'' as defined by the Bill Emerson
Good Samaritan Food Donation Act. ``Apparently wholesome food''
is food intended for human consumption that meets all quality
and labeling standards imposed by Federal, State, and local
laws and regulations even though the food may not be readily
marketable due to appearance, age, freshness, grade, size,
surplus, or other conditions.
In addition, the provision provides that the fair market
value of donated apparently wholesome food that cannot or will
not be sold solely due to internal standards of the taxpayer or
lack of market, is determined by taking into account the price
at which the same or similar food items are sold by the
taxpayer at the time of the contribution or, if not so sold at
such time, in the recent past.
Consistent with present law, taxpayers who donate food
inventory and receive consideration in exchange, whether such
consideration is for food processing costs, including the costs
of processing raw food to meet the nutritional specifications
of the donee, or otherwise, shall apply the bargain sale rules
\18\ to determine the amount of gain from the sale and the
value of the enhanced deduction.
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\18\ Sec. 1011(b); Treas. Reg. sec. 170A-4(c)(2).
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Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
E. Reform Excise Tax Based on Investment Income of Private Foundations
(Sec. 106 of the Bill and Sec. 4940 of the Code)
Present Law
In general
In general, a private foundation is an organization
organized and operated exclusively for charitable purposes.\19\
Under section 4940(a) of the Code, private foundations that are
recognized as exempt from Federal income tax under section
501(a) of the Code are subject to a two-percent excise tax on
their net investment income. Private foundations that are not
exempt from tax, such as certain charitable trusts,\20\ also
are subject to an excise tax under section 4940(b).
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\19\ Secs. 509(a) and 501(c)(3).
\20\ Sec. 4947.
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Net investment income is determined under the principles of
Subtitle A of the Code, except to the extent those principles
are inconsistent with section 4940. Net investment income is
defined as the amount by which the sum of gross investment
income and capital gain net income exceeds the deductions
relating to the production of gross investment income.\21\ Net
investment income also is determined by applying section 103
(generally providing an exclusion for interest on certain State
and local bonds) and section 265 (generally disallowing the
deduction for interest and certain other expenses with respect
to tax-exempt income).\22\ Special definitions of gross
investment income and capital gain net income are provided for
purposes of the excise tax.\23\
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\21\ Sec. 4940(c)(1).
\22\ Sec. 4940(c)(5).
\23\ Secs. 4940(c)(2) and 4940(c)(4).
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The two-percent rate of tax is reduced to one-percent if
certain requirements are met in a taxable year.\24\ The
requirements are that the foundation's qualifying distributions
(generally, amounts paid to accomplish exempt purposes) \25\
must be at least a certain amount and the foundation cannot
have been subject to tax for failure to distribute a certain
amount of income \26\ for any of the five years preceding the
taxable year (the ``base period''). The required amount of
qualifying distributions is the sum of two elements: (1) the
amount of the foundation's assets for the taxable year
multiplied by the average over the base period of the
percentage of assets distributed as qualifying distributions in
a year divided by the assets of the foundation for the year
(the ``average percentage payout for the base period'') plus
(2) one percent of the net investment income of the foundation
for the taxable year.\27\
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\24\ Sec. 4940(e).
\25\ Sec. 4942(g).
\26\ Sec. 4942.
\27\ Sec. 4940(e).
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The tax on taxable private foundations under section
4940(b) is equal to the excess of the sum of the excise tax
that would have been imposed under section 4940(a) if the
foundation were tax exempt and the amount of the unrelated
business income tax that would have been imposed if the
foundation were tax exempt, over the income tax imposed on the
foundation under subtitle A of the Code.
Private foundations (taxable and tax exempt) are required
to pay estimated taxes of the section 4940 tax in quarterly
installments in the same manner as corporate estimated tax
payments.\28\ ``Exempt operating foundations'' are exempt from
the section 4940 tax.\29\
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\28\ Treas. Reg. sec. 1.6302-1.
\29\ Sec. 4940(d)(1). To be an exempt operating foundation, an
organization must (1) be an operating foundation (as defined in section
4942(j)(3)), (2) be publicly supported for at least 10 taxable years,
(3) have a governing body no more than 25 percent of whom are
disqualified persons and that is broadly representative of the general
public, and (4) have no officers who are disqualified persons. Sec.
4940(d)(2). Exempt operating foundations generally include
organizations such as museums or libraries that devote their assets to
operating charitable programs but have difficulty meeting the ``public
support'' tests necessary not to be classified as a private foundation.
For an organization to qualify as an exempt operating foundation it
must obtain a ruling letter from the IRS. IRS Announcement 85-88.
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The amount of tax paid under section 4940 reduces a
foundation's ``distributable amount'' under section 4942.\30\
Accordingly, the minimum amount of qualified distributions a
foundation has to make to avoid tax under section 4942 is
reduced by the amount of section 4940 excise taxes paid.
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\30\ Sec. 4942(d)(2).
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Reasons for Change
The Committee believes that reforming the excise tax based
on the investment income of private foundations will result in
increased charitable activity and simplify the tax laws. The
reduction in the rate of tax will increase the required minimum
charitable distributions for many private foundations, leading
private foundations to increase the amount of their charitable
activity. In addition, elimination of the two-tiered nature of
the tax will simplify the Code and make compliance easier for
private foundations.
Explanation of Provision
The provision replaces the two rates of tax under present
law with a single rate of tax based on net investment income
and sets such rate of tax at one percent. Thus, a tax-exempt
private foundation is subject to tax on one percent of net
investment income and does not have to calculate its average
percentage payout for the base period to determine eligibility
for a different rate of tax. A taxable private foundation is
subject to tax on the excess of the sum of one percent of net
investment income and the amount of the unrelated business
income tax (both calculated as if the foundation were tax-
exempt) over the income tax imposed on the foundation under
subtitle A of the Code.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
F. Modify Tax on Unrelated Business Taxable Income of Charitable
Remainder Trusts
(Sec. 107 of the Bill and Sec. 664 of the Code)
Present Law
Sections 170(f), 2055(e)(2), and 2522(c)(2) disallow a
charitable deduction for income, estate or gift tax purposes,
respectively, if the donor transfers an interest in property to
a charity (e.g., a remainder interest) while also either
retaining an interest in that property (e.g., an income
interest) or transferring an interest in that property to a
noncharity for less than full and adequate consideration. One
of several exceptions to this general rule is provided for
remainder interests in charitable remainder annuity trusts and
charitable remainder unitrusts.
A charitable remainder annuity trust is a trust that is
required to pay, at least annually, a fixed dollar amount of at
least five percent of the initial value of the trust to a
noncharity for the life of an individual or for a period of
less than 20 years, with the remainder passing to charity. A
charitable remainder unitrust is a trust that generally is
required to pay, at least annually, a fixed percentage of at
least five percent of the fair market value of the trust's
assets determined at least annually to a non-charity for the
life of an individual or for a period less than 20 years, with
the remainder passing to charity.\31\
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\31\ Sec. 664(d).
---------------------------------------------------------------------------
A trust does not qualify as charitable remainder annuity
trust if the annuity for a year is greater than 50 percent of
the initial fair market value of the trust's assets. A trust
does not qualify as a charitable remainder unitrust if the
percentage of assets that are required to be distributed at
least annually is greater than 50 percent. A trust does not
qualify as a charitable remainder annuity trust or a charitable
remainder unitrust unless the value of the remainder interest
in the trust is at least 10 percent of the value of the assets
contributed to the trust.
Distributions from a charitable remainder annuity trust or
charitable remainder unitrust are treated in the following
order as: (1) ordinary income to the extent of the trust's
current and previously undistributed ordinary income for the
trust's year in which the distribution occurred, (2) capital
gains to the extent of the trust's current capital gain and
previously undistributed capital gain for the trust's year in
which the distribution occurred, (3) other income (e.g., tax-
exempt income) to the extent of the trust's current and
previously undistributed other income for the trust's year in
which the distribution occurred, and (4) corpus.\32\
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\32\ Sec. 664(b).
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Distributions are includible in the income of the
beneficiary for the year that the annuity or unitrust amount is
required to be distributed even though the annuity or unitrust
amount is not distributed until after the close of the trust's
taxable year.\33\
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\33\ Treas. Reg. sec. 1.664-1(d)(4).
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Under section 664(c), charitable remainder annuity trusts
and charitable remainder unitrusts are exempt from Federal
income tax unless the trust has any unrelated business taxable
income. Under section 514, unrelated business taxable income
includes certain debt financed income.
Reasons for Change
The Committee believes that in years that a charitable
remainder trust has unrelated business income, an excise tax of
100 percent on such income is a more appropriate remedy than
loss of tax exemption for the year.
Explanation of Provision
In lieu of removing the income tax exemption of a
charitable remainder trust for any year in which the trust has
any unrelated business taxable income, the provision imposes a
100 percent excise tax on the unrelated business taxable income
of the trust. Because the effect of the excise tax is the same
as if the unrelated business taxable income were not incurred
by the charitable remainder annuity trust or charitable
remainder unitrust, the provision excludes such income from the
determination of (1) the value of a charitable remainder
unitrust's assets,\34\ (2) the amount of charitable remainder
unitrust income for purposes of determining the unitrust's
required distributions, and (3) the effect on the income
character of any distributions to beneficiaries by a charitable
remainder annuity trust or charitable remainder unitrust.
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\34\ See Treas. Reg. sec. 1.664-3(a)(iv), which requires that all
assets and liabilities of the trust are taken into account in
determining their net fair market value.
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Effective Date
The provision is effective for taxable years beginning
after December 31, 2001, regardless of when the trust was
created.
G. Extend ``Constructed by'' Requirement for Contributions of
Scientific Property Used for Research and for Computer Technology and
Equipment
(Sec. 108 of the Bill and Sec. 170 of the Code)
Present Law
In the case of a charitable contribution of inventory or
other ordinary-income or short-term capital gain property, the
amount of the deduction is limited to the taxpayer's basis in
the property. In the case of a charitable contribution of
tangible personal property, the deduction is limited to the
taxpayer's basis in such property if the use by the recipient
charitable organization is unrelated to the organization's tax-
exempt purpose. In cases involving contributions to a private
foundation (other than certain private operating foundations),
the amount of the deduction is limited to the taxpayer's basis
in the property.\35\
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\35\ Sec. 170(e)(1).
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Under present law, a taxpayer's deduction for charitable
contributions of scientific property used for research and for
contributions of computer technology and equipment generally is
limited to the taxpayer's basis (typically, cost) in the
property. However, certain corporations may claim a deduction
in excess of basis for a ``qualified research contribution'' or
a ``qualified computer contribution.'' \36\ This enhanced
deduction is equal to the lesser of (1) basis plus one-half of
the item's appreciated value (i.e., basis plus one half of fair
market value minus basis) or (2) two times basis.
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\36\ Secs. 170(e)(4) and 170(e)(6).
---------------------------------------------------------------------------
A qualified research contribution means a charitable
contribution of inventory that is tangible personal property.
The contribution must be to a qualified educational or
scientific organization and be made not later than two years
after construction of the property is substantially completed.
The original use of the property must be by the donee, and be
used substantially for research or experimentation, or for
research training in the U.S. in the physical or biological
sciences. The property must be scientific equipment or
apparatus, constructed by the taxpayer, and may not be
transferred by the donee in exchange for money, other property,
or services. The donee must provide the taxpayer with a written
statement representing that it will use the property in
accordance with the conditions for the deduction. For purposes
of the enhanced deduction, property is considered constructed
by the taxpayer only if the cost of the parts used in the
construction of the property (other than parts manufactured by
the taxpayer or a related person) do not exceed 50 percent of
the taxpayer's basis in the property.
A qualified computer contribution means a charitable
contribution of any computer technology or equipment, which
meets standards of functionality and suitability as established
by the Secretary of the Treasury. The contribution must be to
certain educational organizations or public libraries and made
not later than three years after the taxpayer acquired the
property or, if the taxpayer constructed the property, not
later than the date construction of the property is
substantially completed.\37\ The original use of the property
must be by the donor or the donee,\38\ and in the case of the
donee, must be used substantially for educational purposes
related to the function or purpose of the donee. The property
must fit productively into the donee's education plan. The
donee may not transfer the property in exchange for money,
other property, or services, except for shipping, installation,
and transfer costs. To determine whether property is
constructed by the taxpayer, the rules applicable to qualified
research contributions apply. Contributions may be made to
private foundations under certain conditions.\39\
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\37\ If the taxpayer constructed the property and reacquired such
property, the contribution must be within three years of the date the
original construction was substantially completed. Sec.
170(e)(6)(D)(i).
\38\ This requirement does not apply if the property was reacquired
by the manufacturer and contributed. Sec. 170(e)(6)(D)(ii).
\39\ Sec. 170(e)(6)(C).
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Reasons for Change
The Committee believes that extension of the enhanced
deduction to include property assembled by the taxpayer will
lead to increased charitable contributions of scientific
property used for research and of computer technology and
equipment.
Explanation of Provision
Under the provision, property assembled by the taxpayer, in
addition to property constructed by the taxpayer, is eligible
for either enhanced deduction. The Committee does not intend
that old or used components assembled by the taxpayer into
scientific property or computer technology or equipment are
eligible for the enhanced deduction.
Effective Date
The provision is effective for taxable years beginning
after December 31, 2001.
H. Basis Adjustment to Stock of S Corporation Contributing Appreciated
Property
(Sec. 109 of the Bill and Sec. 1367 of the Code)
present law
Under present law, if an S corporation contributes money or
other property to a charity, each shareholder takes into
account the shareholder's pro rata share of the contribution in
determining its own income tax liability.\40\ A shareholder of
an S corporation reduces the basis in the stock of the S
corporation by the amount of the charitable contribution that
flows through to the shareholder.\41\
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\40\ Sec. 1366(a)(1)(A).
\41\ Sec. 1367(a)(2)(B).
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reasons for change
The Committee wishes to preserve the benefit of providing a
charitable contribution deduction for contributions of property
by an S corporation with a fair market value in excess of its
adjusted basis. Thus, the bill provides for a basis adjustment
to the stock of the S corporation to prevent the later
recognition of gain attributable to the contributed property on
the disposition of the S corporation stock.
explanation of provision
The provision allows a shareholder in an S corporation to
increase the basis of the S corporation stock by an amount
equal to the excess of the charitable contribution deduction
that flows through to the shareholder \42\ over the
shareholder's pro rata share of the adjusted basis of the
property contributed.\43\
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\42\ The amount of the deduction flowing through to a shareholder
is to be determined after the application of any provision of section
170 limiting the amount of the deduction to less than the fair market
value of the property, but without regard to any percentage limitation
that may be applicable to a shareholder under section 170(b).
\43\ See Rev. Rul. 96-11, 1996-1 C.B. 140, for a similar rule
applicable to contributions made by a partnership.
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effective date
The provision applies to taxable years beginning after
December 31, 2001.
I. Individual Development Accounts
(Secs. 301-307 of the Bill)
present law
The Assets for Independence Act \44\ authorizes $25 million
annually for a five-year demonstration Individual Development
Account (``IDA'') program to evaluate the effects of savings
incentives on persons of limited means. Means tested programs
must disregard all funds in an IDA, including accruing
interest, in determining an individual's eligibility. The
demonstration program provides direct Federal funds to
nonprofit organizations, States and localities, tribal
governments, community-development financial institutions, and
certain credit unions to match the amount of earnings deposited
by eligible individuals. Grantees must provide nonFederal
matching funds (one dollar per Federal grant dollar), and the
maximum Federal grant is $1 million for each project year.
Eligible persons are those (1) who are eligible under the
Temporary Assistance for Needy Families program, or (2) whose
household net worth is below $10,000 (``net worth test''), and
who meet the greater of (a) the income limits of the earned
income credit (taking into account the size of the household)
\45\ or (b) 200 percent of the poverty guideline (``income
test'').
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\44\ Title IV of Pub. L. No. 105-285 (1998).
\45\ Sec. 32(b)(2).
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Each participant is eligible to receive up to $2,000 in
Federal funds plus accrued interest while they participate over
the course of the project. Households may receive no more than
$4,000 in Federal grant funds over the course of the project.
The projects must create trust or custodial accounts that
permit withdrawals of account balances only for three
designated purposes: (1) first home purchase, (2) business
capitalization, and (3) postsecondary education. Emergency
withdrawals (from the account holder's own deposits only) are
allowed for three conditions--medical expenses, prevention of
eviction or mortgage foreclosure, and living expenses after job
losses.
Each grantee is required to prepare an annual report on the
progress of its project. These reports must be submitted to the
Secretary of Health and Human Services, and if a tribe, State
or local government committed funds to the project, to the
Treasurer (or equivalent official) of the State in which the
project is conducted. The Secretary of Health and Human
Services is required to provide the results of these reports to
Congress every 12 months until all of the demonstration
projects are completed, and to submit a final report, setting
forth the results and findings of all reports and evaluations,
not later than 12 months after the conclusion of all
demonstration projects. The Assets for Independence Act directs
the Secretary of Health and Human Services to enter into a
contract with an independent research organization to evaluate
the projects, individually, and as a group. The Secretary of
Health and Human Services may spend up to $500,000 each fiscal
year for evaluation expenses.
The demonstration program expires at the end of fiscal year
2003.
reasons for change
The Committee seeks to expand the availability and use of
IDAs, which promote work and asset-building among low-income
families, rather than dependence on cash welfare and other
benefits. These goals are consistent with the Committee's
extensive activities in recent years to reform welfare by
promoting work and independence from government benefits, as
well as the Committee's recent activities to promote savings
and investment through tax policy changes.
explanation of provision
The provision eliminates references to ``demonstration''
projects. The provision expands the category of qualified
entities that could apply for IDA projects to include any
federally-insured credit union.
The provision repeals the current household cap on receipt
of Federal funds. The individual lifetime cap on receipt of
Federal funds is replaced with an annual cap of $500.
The provision increases the net worth test for eligible
individuals from $10,000 to $20,000.
The provision extends the program for an additional five
years, through fiscal year 2008. Under the provision, the
annual program authorization would be doubled from $25 million
to $50 million, beginning in fiscal year 2002.
The program modifications made under the provision and the
``Assets for Independence Act Amendments of 2000'' \46\ apply
to existing grants, as well as grants made on or after the date
of enactment.
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\46\ Title IV of H.R. 5656 as enacted by Pub. L. No. 106-554
(2000). The ``Assets for Independence Act Amendments of 2000'' (1) made
matching contributions unavailable for emergency withdrawals, (2) added
low income credit unions and community financial development
institutions as qualified entities; (3) modified home purchase costs;
(4) increased set-aside for economic literacy training and
administrative costs; (5) added the 200 percent of poverty alternative
to the income test; (6) revised the annual and interim progress report
deadlines; (7) increased appropriations for evaluation expenses; and
(8) provided that means tested programs must disregard all funds in an
IDA, including accruing interest, in determining an individual's
eligibility. Id. at secs. 602-610.
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effective date
The provision is effective on the date of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the votes of the Committee on Ways and Means in its
consideration of the bill, H.R. 7.
motion to report the bill
The bill, H.R. 7, as amended, was ordered favorably
reported by a rollcall vote of 23 yeas to 16 nays (with a
quorum being present). The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Crane...................... X ........ ......... Mr. Stark........ ........ X .........
Mr. Shaw....................... X ........ ......... Mr. Matsui....... ........ X .........
Mrs. Johnson................... X ........ ......... Mr. Coyne........ ........ ........ .........
Mr. Houghton................... ........ ........ ......... Mr. Levin........ ........ X .........
Mr. Herger..................... X ........ ......... Mr. Cardin....... ........ X .........
Mr. McCrery.................... X ........ ......... Mr. McDermott.... ........ X .........
Mr. Camp....................... X ........ ......... Mr. Kleczka...... ........ X .........
Mr. Ramstad.................... X ........ ......... Mr. Lewis (GA)... ........ X .........
Mr. Nussle..................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. McNulty...... ........ X .........
Ms. Dunn....................... X ........ ......... Mr. Jefferson.... ........ X .........
Mr. Collins.................... X ........ ......... Mr. Tanner....... ........ X .........
Mr. Portman.................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. English.................... X ........ ......... Mrs. Thurman..... ........ X .........
Mr. Watkins.................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Hayworth................... X ........ ......... Mr. Pomeroy...... ........ X .........
Mr. Weller..................... X ........ .........
Mr. Hulshof.................... X ........ .........
Mr. McInnis.................... X ........ .........
Mr. Lewis (KY)................. X ........ .........
Mr. Foley...................... X ........ .........
Mr. Brady...................... X ........ .........
Mr. Ryan....................... X ........ .........
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
A rollcall vote was conducted on the following amendments
to the amendment in the nature of a substitute.
An amendment by Mrs. Thurman, which would make the
provisions in the bill contingent upon sufficient non-Social
Security, non-Medicare surpluses, was defeated by a rollcall
vote of 17 yeas to 23 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ ........ ........ .........
Mr. Houghton................... X ........ ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
Mr. Brady...................... ........ X .........
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. McDermott, which would add a new
section relating to credits to holders of residential solar
energy bonds, was defeated by a rollcall vote of 15 yeas to 24
nays, and 1 voting present. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ ........ ........ .........
Mr. Houghton................... ........ X ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... ........ ........ X
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
Mr. Brady...................... ........ X .........
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Rangel, which would increase the top
individual income tax rate by 0.2 percentage points for taxable
years 2002 through 2005, and by 0.5 percentage points for
taxable years 2006 through 2010, was defeated by a rollcall
vote of 16 yeas to 23 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representatives Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas..................... ........ X ......... Mr. Rangel....... X ........ .........
Mr. Crane...................... ........ X ......... Mr. Stark........ X ........ .........
Mr. Shaw....................... ........ X ......... Mr. Matsui....... X ........ .........
Mrs. Johnson................... ........ X ......... Mr. Coyne........ ........ ........ .........
Mr. Houghton................... ........ ........ ......... Mr. Levin........ X ........ .........
Mr. Herger..................... ........ X ......... Mr. Cardin....... X ........ .........
Mr. McCrery.................... ........ X ......... Mr. McDermott.... X ........ .........
Mr. Camp....................... ........ X ......... Mr. Kleczka...... X ........ .........
Mr. Ramstad.................... ........ X ......... Mr. Lewis (GA)... X ........ .........
Mr. Nussle..................... ........ X ......... Mr. Neal......... X ........ .........
Mr. Johnson.................... ........ X ......... Mr. McNulty...... X ........ .........
Ms. Dunn....................... ........ X ......... Mr. Jefferson.... X ........ .........
Mr. Collins.................... ........ X ......... Mr. Tanner....... X ........ .........
Mr. Portman.................... ........ X ......... Mr. Becerra...... X ........ .........
Mr. English.................... ........ X ......... Mrs. Thurman..... X ........ .........
Mr. Watkins.................... ........ X ......... Mr. Doggett...... X ........ .........
Mr. Hayworth................... ........ X ......... Mr. Pomeroy...... X ........ .........
Mr. Weller..................... ........ X .........
Mr. Hulshof.................... ........ X .........
Mr. McInnis.................... ........ X .........
Mr. Lewis (KY)................. ........ X .........
Mr. Foley...................... ........ X .........
Mr. Brady...................... ........ X .........
Mr. Ryan....................... ........ X .........
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of the rule XIII of the
Rules of the House of Representatives, the following statement
is made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 7 as reported.
The bill is estimated to have the following effects on
budget receipts for fiscal years 2002-2006:
ESTIMATED BUDGET EFFECTS OF H.R. 7, THE ``COMMUNITY SOLUTIONS ACT OF 2001,'' AS REPORTED BY THE COMMITTEE ON
WAYS AND MEANS
[Fiscal years 2002-2006, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
Provision Effective 2002 2003 2004 2005 2006 2002-06
----------------------------------------------------------------------------------------------------------------
Charitable Giving Incentive
Provisions
1. Deduction for cash tyba 12/31/01 -40 -269 -316 -561 -573 -1,759
charitable contributions of
individuals who do not
itemize deductions in
addition to their standard
deduction; maximum deduction
of $25 single/$50 joint for
2002 and 2003, $50 single/
$100 joint for 2004 through
2006, $75 single/$150 joint
for 2007 through 2009, and
$100 single/$200 joint for
2010 and thereafter.........
2. Tax-free distributions tyba 12/31/01 -143 -233 -245 -259 -253 -1,133
from individual retirement
accounts for charitable
purposes for individuals age
70\1/2\ and above...........
3. Raise the cap on corporate cmi tyba 12/31/01 -28 -50 -52 -55 -41 -226
charitable contributions
from 10% to: 11% in 2002
through 2007, 12% in 2008,
13% in 2009, and 15% in 2010
and thereafter..............
4. Extend present-law section tyba 12/31/01 -27 -46 -55 -61 -66 -255
170(e)(3) deduction for food
inventory to all businesses.
5. Modify the section 4940(a) tyba 12/31/01 -118 -186 -195 -205 -215 -920
2% excise tax to eliminate
the 2-tier regime and impose
1% excise tax on net
investment income...........
6. Modify the unrelated tyba 12/31/01 ....... -5 -5 -5 -6 -21
business income tax for
charitable remainder trusts.
7. Modify the self- cma DOE -1 -1 -1 -1 -1 -4
constructed property rule
for certain charitable
contributions...............
8. Modify the basis of S tyba 12/31/01 -11 -26 -31 -35 -38 -141
corporation stock for
certain charitable
contributions...............
----------------------------------------------------------------------------------
Net Total.............. ..................... -368 -816 -900 -1,182 -1,193 -4,459
----------------------------------------------------------------------------------------------------------------
Legend for ``Effective'' column: cma = contributions made after; cmi = contributions made in; DOE = date of
payment; tyba = taxable years beginning after.
Note.--Details may not add to totals due of rounding.
Source: Joint Committee on Taxation.
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 new or increased budget authority (as detailed in
the statement by the Congressional Budget Office (``CBO''); see
Part IV.C., below). The Committee further states that the
revenue reducing income 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, July 16, 2001.
Hon. William ``Bill'' M. Thomas,
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. 7, the Community
Solutions Act of 2001.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Sheila
Dacey (for federal spending), Erin Whitaker (for revenues), and
Shelley Finlayson (for the state and local impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 7--Community Solutions Act of 2001
Summary: H.R. 7 would establish certain guidelines for
religious organizations or their affiliates to receive federal
funds for the provision of social services and would make
several changes to tax law concerning deductions for charitable
contributions. The Joint Committee on Taxation (JCT) estimates
that the revenue loss associated with this legislation would be
$4.5 billion over the 2002-2006 period and more than $13
billion over the 2002-2011 period. Because H.R. 7 would affect
revenues, pay-as-you-go procedures would apply. The bill also
would extend and expand the Assets for Independence Program
that provides federal funds to encourage saving by low-income
individuals. Assuming the appropriation of the specified
amounts, CBO estimates that expansion would cost $119 million
over the 2002-2006 period.
The Joint Committee on Taxation has reviewed the tax
provisions (parts of title I) of H.R. 7 and determined that
they contain no intergovernmental mandates as defined in the
Unfunded Mandates Reform Act (UMRA). CBO reviewed the remaining
provisions of the bill and found that section 104 contains an
intergovernmental mandate as defined in UMRA because it would
preempt certain state liability laws. CBO estimates that
complying with this mandate would result in no direct costs to
state governments and thus, would not exceed the threshold
established in that act ($56 million in 2001, adjusted annually
for inflation). Title III of the bill also would establish new
requirements and prohibitions on state and local governments as
conditions of receiving federal assistance under numerous
federal programs.
Estimated budgetary impact of H.R. 7 is shown in the
following table. The cost of this legislation falls within
budget function 500 (education, training, employment, and
social services).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
---------------------------------------------------------
2001 2002 2003 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Spending for Individual Development Accounts Under
Current Law:
Authorization Level \1\........................... 25 25 25 0 0 0
Outlays........................................... 9 17 23 24 13 4
Total Proposed Changes:
Authorization Level............................... 0 25 25 50 50 50
Outlays........................................... 0 1 12 23 37 46
Spending for Individual Development Accounts Under the
Bill:
Authorization Level \1\........................... 25 50 50 50 50 50
Outlays........................................... 9 19 35 46 50 50
CHANGES IN REVENUES \2\
Deduct some charitable contributions of individuals 0 -40 -269 -316 -561 -573
who do not itemize deductions........................
Allow tax-free distributions from individual 0 -143 -233 -245 -259 -253
retirement accounts for charitable purposes..........
Raise the cap on corporate charitable contributions... 0 -28 -50 -52 -55 -41
Expand and increase the charitable deduction for 0 -27 -46 -55 -61 -66
contributions of food................................
Modify excise tax to eliminate the 2-tier regime and 0 -118 -186 -195 -205 -215
impose 1% excise tax on net investment income........
Modify the unrelated business income tax for 0 0 -5 -5 -5 -6
charitable remainder trusts..........................
Modify the self-constructed property rule for certain 0 1 -1 -1 -1 -1
charitable contributions.............................
Modify the basis of S corporation stock for certain 0 -11 -26 -31 -35 -38
charitable contributions.............................
---------------------------------------------------------
Total Changes in Revenues....................... 0 -368 -816 -900 -1,182 -1,193
----------------------------------------------------------------------------------------------------------------
\1\ The 2001 level is the amount appropriated for that year.
\2\ All estimates of the revenue effects of H.R. 7 were provided to JCT.
Basis of estimate: For this estimate, CBO assumes that H.R.
7 will be enacted by the end of fiscal year 2001 and that the
authorized amounts will be appropriated for each year.
Spending subject to appropriations
Title II--Expansion of Charitable Choice. H.R. 7 would
establish certain guidelines for religious organizations or
their affiliates to receive federal funds for the provision of
social services. It also would require that any governmental
organization that contracts with a religious organization to
provide social services guarantee that eligible individuals who
object to a specific service provider on religious grounds be
directed to a different provider of comparable services.
Although in many areas the number of provisions would be
sufficient to ensure that alternative providers would be
available, very small communities might find it difficult to
comply with these requirements. Although the requirement to
find an alternate provider could increase federal costs in some
cases by requiring the federal government to pay a portion of
the costs of such alternate providers, CBO has been unable to
obtain data to estimate any such costs. However, CBO does not
anticipate that any resulting costs to the federal government
would be substantial.
Title III--Individual Development Accounts. Title III would
reauthorize the Individual Development Accounts (IDA) program,
currently authorized at $25 million through 2003 under the
Assets for Independence Act (Public Law 106-554). The IDA
program provides matching funds to qualified low income
individuals who save in order to encourage more savings. All
deposits made by individuals and matching organizations in IDAs
do not count toward the asset limits for federal means-tested
benefits.
The bill would authorize $50 million for 2002 and extend
the authorization through 2008. The program is funded at $25
million in 2001. Based on historical spending patterns, CBO
estimates implementing this title would cost $119 million over
the 2002-2006 period.
The bill also would increase the net worth test for an
eligible household from a maximum of $10,000 to $20,000, and
replace the $4,000 lifetime grant deposit limit for a household
with an individual annual grant limit of $500.
It is possible that expanding the IDA program could allow
certain people with assets to participate in means-tested
programs who would otherwise be ineligible, but CBO estimates
that would have an insignificant effect (less than $500,000 a
year) on federal spending. While there are limited data on IDA
participants, the available information indicates most
participants would not deposit enough into their accounts to
disqualify themselves from any federal means-tested program.
Revenues
H.R. 7 would allow taxpayers who do not itemize their
deductions to deduct a limited amount of charitable
contributions paid in cash. The deduction would phase in over
time, and would be allowed in computing alternative minimum
taxable income. In 2002 and 2003, a single taxpayer could
deduct up to $25 and married taxpayers filing jointly could
deduct up to $50, with the allowable deduction increasing to
$100 for a single taxpayer or $200 for married taxpayers in
2010 and thereafter. The bill would allow taxpayers to exclude
from their gross income otherwise-taxable withdrawals from
individual retirement accounts (IRAs) if those withdrawals were
made for certain charitable distributions, were made after the
IRA owner attained the age 70\1/2\, and were made directly by
the IRA trustee to certain entities. The bill also would
increase the penalty on certain trusts for failure to file a
return.
H.R. 7 would increase the percentage limitation on modified
taxable income for corporate charitable deductions from 10
percent to 15 percent, and phase in that increase over time.
The bill would allow all taxpayers to claim enhanced deductions
for donations of food that meets certain quality standards. The
bill also would replace two rates of tax based on net
investment income for private foundations not exempt from tax
with a single rate of tax of one percent. It also would apply a
100-percent excise tax to any unrelated business taxable income
of a trust that is required to pay a certain percentage of the
value of the trust to a noncharity (charitable remainder
trust), make donated scientific property or computer technology
and equipment that is assembled by a taxpayer eligible for
either of two enhanced charitable deductions in excess of the
cost of the property, and allow shareholders of certain
corporations to update the basis they hold in stock to a
present value amount in order to take into account the
shareholders' portion of charitable contributions made by those
corporations.
The Joint Committee on Taxation estimates that the revenue
loss associated with this legislation would be $4.5 billion
over the 2002-2006 period and more than $13 billion over the
2002-2011 period.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. Forthe
purposes of enforcing pay-as-you go procedures, only the effects in the
current year, the budget year, and the succeeding four years are
counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays....................... Not applicable
Changes in receipts \1\.................. 0 -368 -816 -900 -1,182 -1,193 -1,281 -1,583 -1,705 -1,901 -2,367
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimate was provided by JCT.
Estimated impact on state, local, and tribal governments:
The Joint Committee on Taxation (JCT) has reviewed the tax
provisions of H.R. 7 and CBO has reviewed the remaining
provisions of the bill for intergovernmental mandates.
Mandates
JCT determined that the tax provisions of H.R. 7 (part of
title I) contain no intergovernmental mandates as defined in
UMRA. CBO has reviewed the remaining provisions of the bill and
has determined that section 104 contains an intergovernmental
mandate as defined in UMRA because it would preempt
inconsistent or more stringent state liability laws that hold
businesses civilly liable for injuries or death that result
from the use of equipment, facilities, or vehicles donated or
lent to nonprofit organizations or for tours of business
facilities. This preemption would be an intergovernmental
mandate as defined in UMRA, but because the preemption is
narrow and state governments could enact legislation to opt
out, CBO estimates complying with this mandate would result in
no direct costs. Thus, the threshold established in that act
($56 million in 2001, adjusted annually for inflation) would
not be exceeded.
Other impacts
Title II would establish new requirements and prohibitions
on how state and local governments receive and use federal
funds under numerous federal programs. Such programs include
anything related to hunger relief activities, federal housing
under the Community Development Block Grant Program, prevention
of domestic violence under the Child Abuse Prevention and
Treatment Act, and services for the elderly under the Older
Americans Act. Specifically, title II would require state and
local governments to consider religious organizations on the
same basis as other organizations to provide assistance under
programs carried out using federal funds.
The bill also would require that the appropriate government
entity notify applicants and recipients about provider options
and provide, in a timely manner, an equivalent alternative from
a nonreligious provider if a recipient objects to receiving
services from a religious provider. In addition, state and
local governments that discriminate on the basis of religion in
selecting service providers could be sued for injunctive
relief. All of those requirements are conditions of federal
assistance, and therefore, are not mandates under UMRA.
However, those requirements could increase state and local
costs to administer numerous federal programs. In particular,
some small communities could find it difficult or costly to
comply with the alternate provider requirements. CBO does not
have sufficient information to estimate for aggregate costs
nationwide.
Estimated impact on the private sector: This bill contains
no new private-sector mandates as defined in UMRA.
Previous CBO estimate: On July 11, 2001, CBO transmitted a
cost estimate for H.R. 7, the Community Solutions Act of 2001,
as ordered reported by the House Committee on the Judiciary on
June 28, 2001. That bill included somewhat different provisions
related to tax changes and individual development accounts.
The House Judiciary Committee's version of H.R. 7 would
allow taxpayers to deduct charitable contributions up to the
amount of the standard deduction. The bill included slightly
different provisions relating to tax-free distributions from
individual retirement accounts and charitable deductions for
contributions on food. In addition, it included a tax credit
for financial institutions running individual development
account programs, rather than a grant program to encourage such
accounts. The Joint Committee on Taxation estimates that the
revenue loss associated with those changes would be almost $50
billion over the 2002-2006 period and more than $120 billion
over the 2002-2011 period.
While this version of H.R. 7 differs from the version
ordered reported by the House Judiciary Committee, CBO's
estimate of the costs to state and local governments is the
same for both versions.
Estimate prepared by: Federal Spending: Sheila Dacey, Donna
Wong, and Geoff Gerhardt; Federal Revenues: Erin Whitaker;
Impact on State, Local, and Tribal Governments: Shelly
Finlayson; and Impact on the Private Sector: Paige Piper/Bach.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis. G. Thomas Woodward, Assistant
Director for Tax Analysis Division.
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 a result of the Committee's
oversight review concerning the tax burden on individual
taxpayers and the tax rules relating to charitable giving and
the impact of these rules on charitable organizations that the
Committee concluded that it is appropriate and timely to enact
the revenue provisions included in the bill as reported.
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 performance goals and
objectives of that part of this legislation that authorizes
funding (i.e., individual development accounts) are to
encourage savings of certain lower-income individuals.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of the rule XIII of the
Rules of the House of Representatives (relating to
Constitutional Authority), the Committee states that the
Committee's action in reporting this bill is derived from
Article I of the Constitution, Section 8 (``The Congress shall
have Power To lay and collect Taxes, Duties, Imposts and
Excises * * *''), and from the 16th Amendment to the
Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 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.
E. 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 provisions of the bill, and states that
the provisions of the bill do not involve any Federal income
tax rate increases within the meaning of the rule.
F. Tax Complexity Analysis
The following tax complexity analysis is provided pursuant
to section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998, which requires the staff of the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service (``IRS'') and the Treasury Department) to
provide a complexity analysis of tax legislation reported by
the House Committee on Ways and Means, the Senate Committee on
Finance, or a Conference Report containing tax provisions. The
complexity analysis is required to report on the complexity and
administrative issues raised by provisions that directly or
indirectly amend the Internal Revenue Code and that have
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation, a summary description of the provision
is provided along with an estimate of the number and type of
affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and the Treasury
Department regarding each of the provisions included in the
complexity analysis, including a discussion of the likely
effect on IRS forms and any expected impact on the IRS.
Charitable deduction for nonitemizers (sec. 101 of the bill)
Summary description of provision
The provision permits an individual taxpayer who does not
itemize deductions to take a deduction for charitable
contributions paid in cash. The deduction is allowed in
addition to the standard deduction and is calculated as the
lesser of (1) the amount allowable to itemizers as a charitable
deduction for cash contributions and (2) an applicable amount.
The applicable amount is $25 ($50 in the case of a joint
return) in 2002 and 2003, $50 ($100 in the case of a joint
return) in 2004 through 2006, $75 ($150 in the case of a joint
return) in 2007 through 2009, and $100 ($200 in the case of a
joint return) in 2010 and thereafter.
Number of affected taxpayers
It is estimated that the provision will affect
approximately 43 million individual tax returns.
Discussion
Individuals who do not itemize their deductions will need
to keep additional records (e.g., canceled checks, a receipt
from the donee organization, or other reliable written records)
in order to substantiate that a contribution was made to a
qualified charitable organization. The information necessary to
implement the provision should be readily available to
taxpayers (in the form of new tax return forms and
instructions). The nonitemizer charitable contribution
deduction is expected to require an additional line on the
individual income tax return forms. The provision might result
in an increase in disputes with the IRS for taxpayers who are
unable to substantiate a claimed deduction. Additional
regulatory guidance will not be necessary to implement this
provision. Any increase in tax preparation costs is expected be
negligible.
Department of the Treasury,
Internal Revenue Service,
Washington, DC, July 13, 2001.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washignton, DC
Dear Ms. Paull: Enclosed are the combined comments of the
Internal Revenue Service and the Treasury Department on the
provisions from the House Committee on Ways and Means markup of
the ``Community Solutions Act of 2001'' that you identified for
complexity analysis in your letter of July 10, 2001. Our
comments are based on the description of those provisions in
JCX-58-01, Joint Committee on Taxation, description of an
Amendment in the Nature of a Substitute to H.R. 7, July 10,
2001, and the statutory language for the substitute published
in the Daily Tax Report on July 12, 2001.
Due to the short turnaround time, our comments are
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
Sincerely,
Charles O. Rossotti.
Enclosure.
Complexity Analysis of Community Solutions Act of 2001
charitable deduction for non-itemizers
Provision: Individuals who do not itemize deductions would
be allowed a deduction from adjusted gross income for
charitable contributions paid in cash. This deduction would be
in addition to the standard deduction and would be calculated
as the lesser of (i) the amount allowable to itemizers as a
charitable deduction for cash contributions and (ii) an
applicable amount. The applicable amount would be $25 ($50 in
the case of a joint return) in 2002 and 2003, $50 ($100 in the
case of a joint return) in 2004 through 2006, $75 ($150 in the
case of a joint return) in 2007 through 2009, and $100 ($200 in
the case of a joint return) in 2010 and thereafter. The
deduction would be allowed in computing alternative minimum
taxable income. The provision would be effective for taxable
years beginning after December 31, 2001.
IRS and Treasury Comments
Two lines would have to be added to Forms 1040,
1040A, 1040EZ, 1040NR, and 1040NR-EZ and to the TeleFile tax
Record beginning in 2002--one for entering the new deduction,
the second for subtracting the new deduction to derive the
subtotal. All taxpayers, including those who itemize and those
who have no charitable deductions for the year, would need to
make an entry on the subtotal line. No new forms would be
required.
The deduction would have to be reflected on Forms
1040-ES and 6251 for 2002. The Form 1040-ES instructions for
2004, 2007, and 2010 would have to be modified to reflect the
phase-in of the deduction amount.
Information necessary for taxpayers to determine
their eligibility for the deduction would have to be reflected
in the instructions for Forms 1040, 1040A, 1040EZ, 1040NR, and
1040NR-EZ and for TeleFile beginning in 2002. The Instructions
for 2004, 2007, and 2010 forms would have to be revised to
reflect the phase-in of the deduction.
Programming changes would be required to reflect
the new deduction and the phase-in of the amount of the
deduction. Currently, IRS tax computation programs are updated
annually to incorporate mandated inflation adjustments.
Programming changes necessitated by this provision would be
included during that process.
The TeleFile script would have to be expanded to
accommodate the deduction, thereby increasing the time needed
to file by TeleFile.
Ensuring compliance with the direct charitable
deduction would be difficult. The only means of verifying
amounts deducted would be through examination, which is not
practical because of the small amounts involved.
G. Committee Correspondence
Committee on Education and the Workforce,
House of Representatives,
Washington, DC, July 12, 2001.
Hon. William M. Thomas,
Chairman, Committee on Ways and Means, Longworth House Office Building,
Washington, DC.
Dear Chairman Thomas: Thank you for working with me
regarding H.R. 7, the Community Solutions Act of 2001, which
was referred to the Committee on Ways and Means and in addition
the Committee on the Judiciary. As you know, the Committee on
Education and the Workforce holds a jurisdictional interest in
this legislation and I appreciate your acknowledgement of that
jurisdictional interest. While the bill would be sequentially
referred to the Education and the Workforce Committee, I
understand the desire to have this legislation considered
expeditiously by the House; hence, I do not intend to hold a
hearing or markup on this legislation.
In agreeing to waive consideration by our Committee, I
would expect you to agree that this procedural route should not
be construed to prejudice the Committee on Education and the
Workforce's jurisdictional interest and prerogatives on this or
any similar legislation and will not be considered as precedent
for consideration of matters of jurisdictional interest to my
Committee in the future. I would also expect your support in my
request to the Speaker for the appointment of conferees from my
Committee with respect to matters within the jurisdiction of my
Committee should a conference with the Senate be convened on
this or similar legislation.
Again, thank you for your letter. I would appreciate your
including our exchange of letters in your Committee's report to
accompany H.R. 7. Again, I thank you for working with me in
developing this legislation and I look forward to working with
you on these issues in the future.
Sincerely,
John Boehner,
Chairman.
------
House of Representatives,
Committee on Ways and Means,
Washington, DC, July 12, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
Rayburn House Office Building, Washington, DC.
Dear Chairman Oxley: Thank you for your letter regarding
H.R. 7, the ``Community Solutions Act of 2001.''
As you have noted, the Committee on Ways and Means has
ordered favorably reported H.R. 7, the ``Community Solutions
Act of 2001.'' I appreciate your agreement to expedite the
passage of this legislation despite affecting programs within
the jurisdiction of the Committee on Financial Services. I
acknowledge your decision to forego further action on the bill
was based on our mutual understanding that it will not
prejudice the Committee on Financial Services with respect to
the appointment of conferees or its jurisdictional prerogatives
on this or similar legislation.
Finally, I will include in the Congressional Record a copy
of our exchange of letters on this matter. Thank you for your
assistance and cooperation. We look forward to working with you
in the future.
Sincerely,
Bill Thomas,
Chairman.
------
House of Representatives,
Committee on Financial Services,
Washington, DC, July 11, 2001.
Hon. William M. Thomas,
Chairman, Committee on Ways and Means,
Longworth House Office Building, Washington, DC.
Dear Chairman, Thomas: I understand that the Committee on
Ways of Means recently ordered reported H.R. 7, the Community
Solutions Act of 2001. As you know, the legislation contains
provisions relating to community development block grants
(CDBGs) and other programs under the Nation's housing laws
which fall within the jurisdiction of the Committee on
Financial Services pursuant to clause 1(g) of rule X of the
Rules of the House of Representatives.
Because of your willingness to consult with the Committee
on Financial Services regarding this matter and the need to
move this legislation expeditiously, I will waive consideration
of the bill by the Financial Services Committee. By agreeing to
waive its consideration of the bill, the Financial Services
Committee does not waive its jurisdiction over H.R. 7. In
addition, the Committee on Financial Services reserves its
authority to seek conferees on any provisions of the bill that
are within the Financial Services Committee's jurisdiction
during any House-Senate conference that may be convened on this
legislation. I ask your commitment to support any request by
the Committee on Financial Services for conferees on H.R. 7 or
related legislation.
I request that you include this letter and your response as
part of your committee's report on the bill and the
Congressional Record during consideration of the legislation on
the House floor.
Thank you for your attention to these matters.
Sincerely,
Michael G. Oxley,
Chairman.
------
House of Representatives,
Committee on Ways and Means,
Washington, DC, July 16, 2001.
Hon. John A. Boehner,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.
Dear Chairman Boehner: Thank you for your letter regarding
H.R. 7, the ``Community Solutions Act of 2001.''
As you have noted, the Committee on Ways and Means has
ordered favorably reported H.R. 7, the ``Community Solutions
Act of 2001.'' I appreciate your agreement to expedite the
passage of this legislation despite affecting programs within
the jurisdiction of Committee on Education and the Workforce. I
acknowledge your decision to forego further action on the bill
was based on the understanding that it will not prejudice the
Committee on Education and the Workforce with respect to the
appointment of conferees or its jurisdictional prerogatives on
this or similar legislation.
Finally, I will include in the Congressional Record a copy
of our exchange of letters on this matter. Thank you for your
assistance and cooperation. We look forward to working with you
in the future.
Best regards,
Bill Thomas,
Chairman.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
The bill was referred to this committee, and in addition to
the Committee on the Judiciary, for a period to be subsequently
determined by the Speaker, in each case for consideration of
such provisions as fall within the jurisdiction of the
committee concerned.
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
that portion of the bill within the jurisdiction of the
Committee on the Judiciary, as reported, are shown in part 1 of
this report and changes in existing law made by that portion of
the bill within the jurisdiction of the Committee on Ways and
Means, 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 B--Computation of Taxable Income
* * * * * * *
PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
INCOME, ETC.
* * * * * * *
SEC. 63. TAXABLE INCOME DEFINED.
(a) * * *
(b) Individuals Who Do Not Itemize Their Deductions.--In the
case of an individual who does not elect to itemize his
deductions for the taxable year, for purposes of this subtitle,
the term ``taxable income'' means adjusted gross income,
minus--
(1) the standard deduction, [and]
(2) the deduction for personal exemptions provided in
section 151[.], and
(3) the direct charitable deduction.
* * * * * * *
(d) Itemized Deductions.--For purposes of this subtitle, the
term ``itemized deductions'' means the deductions allowable
under this chapter other than--
(1) the deductions allowable in arriving at adjusted
gross income, [and]
(2) the deduction for personal exemptions provided by
section 151[.], and
(3) the direct charitable deduction.
* * * * * * *
(g) Direct Charitable Deduction.--For purposes of this
section, the term ``direct charitable deduction'' means that
portion of the amount allowable under section 170(a) which is
taken as a direct charitable deduction for the taxable year
under section 170(m).
[(g)] (h) Marital Status.--For purposes of this section,
marital status shall be determined under section 7703.
* * * * * * *
PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
* * * * * * *
SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.
(a) * * *
(b) Percentage Limitations.--
(1) * * *
(2) Corporations.--In the case of a corporation, the
total deductions under subsection (a) for any taxable
year shall not exceed [10 percent] the applicable
percentage of the taxpayer's taxable income computed
without regard to--
(A) * * *
* * * * * * *
(3) Applicable percentage defined.--For purposes of
paragraph (2), the applicable percentage shall be
determined in accordance with the following table:
For taxable years beginning The applicable
in calendar year-- percentage is--
2002 through 2007................................. 11
2008.............................................. 12
2009.............................................. 13
15. 2010 and thereafter...............................
* * * * * * *
(e) Certain Contributions of Ordinary Income and Capital Gain
Property.--
(1) * * *
* * * * * * *
(3) Special rule for certain contributions of
inventory and other property.--
(A) * * *
* * * * * * *
(C) Special rule for contributions of food
inventory.--
(i) General rule.--In the case of a
charitable contribution of food, this
paragraph shall be applied--
(I) without regard to whether
the contribution is made by a C
corporation, and
(II) only for food that is
apparently wholesome food.
(ii) Determination of fair market
value.--In the case of a qualified
contribution of apparently wholesome
food to which this paragraph applies
and which, solely by reason of internal
standards of the taxpayer or lack of
market, cannot or will not be sold, the
fair market value of such food shall be
determined by taking into account the
price at which the same or similar food
items are sold by the taxpayer at the
time of the contribution (or, if not so
sold at such time, in the recent past).
(iii) Apparently wholesome food.--For
purposes of this subparagraph, the term
``apparently wholesome food'' shall
have the meaning given to such term by
section 22(b)(2) of the Bill Emerson
Good Samaritan Food Donation Act (42
U.S.C. 1791(b)(2)), as in effect on the
date of the enactment of this
subparagraph.
[(C)] (D) This paragraph shall not apply to
so much of the amount of the gain described in
paragraph (1)(A) which would be long-term
capital gain but for the application of
sections 617, 1245, 1250, or 1252.
(4) Special rule for contributions of scientific
property used for research.--
(A) * * *
(B) Qualified research contributions.--For
purposes of this paragraph, the term
``qualified research contribution'' means a
charitable contribution by a corporation of
tangible personal property described in
paragraph (1) of section 1221(a), but only if--
(i) * * *
(ii) the property is constructed or
assembled by the taxpayer,
* * * * * * *
(6) Special rule for contributions of computer
technology and equipment for educational purposes.--
(A) * * *
(B) Qualified computer contribution.--For
purposes of this paragraph, the term
``qualified computer contribution'' means a
charitable contribution by a corporation of any
computer technology or equipment, but only if--
(i) * * *
(ii) the contribution is made not
later than 3 years after the date the
taxpayer acquired the property (or in
the case of property constructed or
assembled by the taxpayer, the date the
construction or assembling of the
property is substantially completed),
* * * * * * *
(D) Donations of property reacquired by
manufacturer.--In the case of property which is
reacquired by the person who constructed or
assembled the property--
(i) subparagraph (B)(ii) shall be
applied to a contribution of such
property by such person by taking into
account the date that the original
construction or assembling of the
property was substantially completed,
and
(ii) subparagraph (B)(iii) shall not
apply to such contribution.
* * * * * * *
(m) Deduction for Individuals Not Itemizing Deductions.--
(1) In general.--In the case of an individual who
does not itemize his deductions for the taxable year,
there shall be taken into account as a direct
charitable deduction under section 63 an amount equal
to the lesser of--
(A) the amount allowable under subsection (a)
for the taxable year for cash contributions, or
(B) the applicable amount.
(2) Applicable amount.--For purposes of paragraph
(1), the applicable amount shall be determined as
follows:
For taxable years The applicable
beginning in: amount is:
2002 and 2003..................................... $25
2004, 2005, 2006.................................. $50
2007, 2008, 2009.................................. $75
2010 and thereafter............................... $100.
In the case of a joint return, the applicable amount is
twice the applicable amount determined under the
preceding table.
[(m)] (n) Other Cross References.--
(1) * * *
* * * * * * *
Subchapter D--Deferred Compensation, Etc.
* * * * * * *
PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
* * * * * * *
Subpart A--General Rule
* * * * * * *
SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.
(a) * * *
* * * * * * *
(d) Tax Treatment of Distributions.--
(1) * * *
* * * * * * *
(8) Distributions for charitable purposes.--
(A) In general.--No amount shall be
includible in gross income by reason of a
qualified charitable distribution.
(B) Qualified charitable distribution.--For
purposes of this paragraph, the term
``qualified charitable distribution'' means any
distribution from an individual retirement
account--
(i) which is made on or after the
date that the individual for whose
benefit the account is maintained has
attained age 70\1/2\, and
(ii) which is made directly by the
trustee--
(I) to an organization
described in section 170(c), or
(II) to a split-interest
entity.
A distribution shall be treated as a qualified
charitable distribution only to the extent that
the distribution would be includible in gross
income without regard to subparagraph (A) and,
in the case of a distribution to a split-
interest entity, only if no person holds an
income interest in the amounts in the split-
interest entity attributable to such
distribution other than one or more of the
following: the individual for whose benefit
such account is maintained, the spouse of such
individual, or any organization described in
section 170(c).
(C) Contributions must be otherwise
deductible.--For purposes of this paragraph--
(i) Direct contributions.--A
distribution to an organization
described in section 170(c) shall be
treated as a qualified charitable
distribution only if a deduction for
the entire distribution would be
allowable under section 170 (determined
without regard to subsection (b)
thereof and this paragraph).
(ii) Split-interest gifts.--A
distribution to a split-interest entity
shall be treated as a qualified
charitable distribution only if a
deduction for the entire value of the
interest in the distribution for the
use of an organization described in
section 170(c) would be allowable under
section 170 (determined without regard
to subsection (b) thereof and this
paragraph).
(D) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which a distribution is a qualified
charitable distribution, the entire amount of
the distribution shall be treated as includible
in gross income without regard to subparagraph
(A) to the extent that such amount does not
exceed the aggregate amount which would be so
includible if all amounts were distributed from
all individual retirement accounts otherwise
taken into account in determining the inclusion
on such distribution under section 72. Proper
adjustments shall be made in applying section
72 to other distributions in such taxable year
and subsequent taxable years.
(E) Special rules for split-interest
entities.--
(i) Charitable remainder trusts.--
Distributions made from an individual
retirement account to a trust described
in subparagraph (G)(ii)(I) shall be
treated as income described in section
664(b)(1) except to the extent that the
beneficiary of the individual
retirement account notifies the trustee
of the trust of the amount which is not
allocable to income under subparagraph
(D).
(ii) Pooled income funds.--No amount
shall be includible in the gross income
of a pooled income fund (as defined in
subparagraph (G)(ii)(II)) by reason of
a qualified charitable distribution to
such fund.
(iii) Charitable gift annuities.--
Qualified charitable distributions made
for a charitable gift annuity shall not
be treated as an investment in the
contract.
(F) Denial of deduction.--Qualified
charitable distributions shall not be taken
into account in determining the deduction under
section 170.
(G) Split-interest entity defined.--For
purposes of this paragraph, the term ``split-
interest entity'' means--
(i) a charitable remainder annuity
trust or a charitable remainder
unitrust (as such terms are defined in
section 664(d)),
(ii) a pooled income fund (as defined
in section 642(c)(5)), and
(iii) a charitable gift annuity (as
defined in section 501(m)(5)).
* * * * * * *
Subchapter F--Exempt Organizations
* * * * * * *
PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS
* * * * * * *
SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.
(a) * * *
(b) Modifications.--The modifications referred to in
subsection (a) are the following:
(1) * * *
* * * * * * *
(10) In the case of any organization described in
section 511(a), the deduction allowed by section 170
(relating to charitable etc. contributions and gifts)
shall be allowed (whether or not directly connected
with the carrying on of the trade or business), but
shall not exceed [10 percent] the applicable percentage
(determined under section 170(b)(3)) of the unrelated
business taxable income computed without the benefit of
this paragraph.
* * * * * * *
Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
* * * * * * *
PART II--PERSONAL HOLDING COMPANIES
* * * * * * *
SEC. 545. UNDISTRIBUTED PERSONAL HOLDING COMPANY INCOME.
(a) * * *
(b) Adjustments to Taxable Income.--For the purposes of
subsection (a), the taxable income shall be adjusted as
follows:
(1) * * *
(2) Charitable contributions.--The deduction for
charitable contributions provided under section 170
shall be allowed, but in computing such deduction the
limitations in section 170(b)(1)(A), (B), and (D) shall
apply, and section 170(b)(2) and (d)(1) shall not
apply. For purposes of this paragraph, the term
``contribution base'' when used in section 170(b)(1)
means the taxable income computed with the adjustments
(other than the [10-percent limitation] applicable
percentage limitation) provided in section 170(b)(2)
and (d)(1) and without deduction of the amount
disallowed under paragraph (6) of this subsection.
* * * * * * *
PART III--FOREIGN PERSONAL HOLDING COMPANIES
* * * * * * *
SEC. 556. UNDISTRIBUTED FOREIGN PERSONAL HOLDING COMPANY INCOME.
(a) * * *
(b) Adjustments to Taxable Income.--For the purposes of
subsection (a), the taxable income shall be adjusted as
follows:
(1) * * *
(2) Charitable contributions.--The deduction for
charitable contributions provided under section 170
shall be allowed, but in computing such deduction the
limitations in section 170(b)(1)(A), (B), and (D) shall
apply, and section 170(b)(2) and (d)(1) shall not
apply. For purposes of this paragraph, the term
``contribution base'' when used in section 170(b)(1)
means the taxable income computed with the adjustments
(other than the [10-percent limitation] applicable
percentage limitation) provided in section 170(b)(2)
and (d)(1) and without the deduction of the amounts
disallowed under paragraphs (5) and (6) of this
subsection or the inclusion in gross income of the
amounts includible therein as dividends by reason of
the application of the provisions of section 555(b)
(relating to the inclusion in gross income of a foreign
personal holding company of its distributive share of
the undistributed foreign personal holding company
income of another company in which it is a
shareholder).
* * * * * * *
Subchapter J--Estates, Trusts, Beneficiaries, and Decedents
* * * * * * *
PART I--ESTATES, TRUSTS, AND BENEFICIARIES
* * * * * * *
Subpart C--Estates and Trusts Which May Accumulate Income or Which
Distribute Corpus
* * * * * * *
SEC. 664. CHARITABLE REMAINDER TRUSTS.
(a) * * *
* * * * * * *
[(c) Exemption From Income Taxes.--A charitable remainder
annuity trust and a charitable remainder unitrust shall, for
any taxable year, not be subject to any tax imposed by this
subtitle, unless such trust, for such year, has unrelated
business taxable income (within the meaning of section 512,
determined as if part III of subchapter F applied to such
trust).]
(c) Taxation of Trusts.--
(1) Income tax.--A charitable remainder annuity trust
and a charitable remainder unitrust shall, for any
taxable year, not be subject to any tax imposed by this
subtitle.
(2) Excise tax.--
(A) In general.--In the case of a charitable
remainder annuity trust or a charitable
remainder unitrust that has unrelated business
taxable income (within the meaning of section
512, determined as if part III of subchapter F
applied to such trust) for a taxable year,
there is hereby imposed on such trust or
unitrust an excise tax equal to the amount of
such unrelated business taxable income.
(B) Certain rules to apply.--The tax imposed
by subparagraph (A) shall be treated as imposed
by chapter 42 for purposes of this title other
than subchapter E of chapter 42.
(C) Character of distributions and
coordination with distribution requirements.--
The amounts taken into account in determining
unrelated business taxable income (as defined
in subparagraph (A)) shall not be taken into
account for purposes of--
(i) subsection (b),
(ii) determining the value of trust
assets under subsection (d)(2), and
(iii) determining income under
subsection (d)(3).
(D) Tax court proceedings.--For purposes of
this paragraph, the references in section
6212(c)(1) to section 4940 shall be deemed to
include references to this paragraph.
* * * * * * *
Subchapter L--Insurance Companies
* * * * * * *
PART I--LIFE INSURANCE COMPANIES
* * * * * * *
Subpart C--Life Insurance Deductions
* * * * * * *
SEC. 805. GENERAL DEDUCTIONS.
(a) * * *
(b) Modifications.--The modifications referred to in
subsection (a)(8) are as follows:
(1) * * *
(2) Charitable, etc., contributions and gifts.--In
applying section 170--
(A) the limit on the total deductions under
such section provided by section 170(b)(2)
shall be [10 percent] the applicable percentage
(determined under section 170(b)(3)) of the
life insurance company taxable income computed
without regard to--
(i) * * *
* * * * * * *
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[.], and
(D) the excess of the amount of the
shareholder's deduction for any charitable
contribution made by the S corporation over the
shareholder's proportionate share of the
adjusted basis of the property contributed.
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
* * * * * * *
CHAPTER 42--PRIVATE FOUNDATIONS AND CERTAIN OTHER TAX-EXEMPT
ORGANIZATIONS
* * * * * * *
Subchapter A--Private Foundations
* * * * * * *
SEC. 4940. EXCISE TAX BASED ON INVESTMENT INCOME.
(a) Tax-Exempt Foundations.--There is hereby imposed on each
private foundation which is exempt from taxation under section
501(a) for the taxable year, with respect to the carrying on of
its activities, a tax equal to [2] 1 percent of the net
investment income of such foundation for the taxable year.
* * * * * * *
[(e) Reduction in Tax Where Private Foundation Meets Certain
Distribution Requirements.--
[(1) In general.--In the case of any private
foundation which meets the requirements of paragraph
(2) for any taxable year, subsection (a) shall be
applied with respect to such taxable year by
substituting ``1 percent'' for ``2 percent''.
[(2) Requirements.--A private foundation meets the
requirements of this paragraph for any taxable year
if--
[(A) the amount of the qualifying
distributions made by the private foundation
during such taxable year equals or exceeds the
sum of--
[(i) an amount equal to the assets of
such foundation for such taxable year
multiplied by the average percentage
payout for the base period, plus
[(ii) 1 percent of the net investment
income of such foundation for such
taxable year, and
[(B) such private foundation was not liable
for tax under section 4942 with respect to any
year in the base period.
[(3) Average percentage payout for base period.--For
purposes of this subsection--
[(A) In general.--The average percentage
payout for the base period is the average of
the percentage payouts for taxable years in the
base period.
[(B) Percentage payout.--The term
``percentage payout'' means, with respect to
any taxable year, the percentage determined by
dividing--
[(i) the amount of the qualifying
distributions made by the private
foundation during the taxable year, by
[(ii) the assets of the private
foundation for the taxable year.
[(C) Special rule where tax reduced under
this subsection.--For purposes of this
paragraph, if the amount of the tax imposed by
this section for any taxable year in the base
period is reduced by reason of this subsection,
the amount of the qualifying distributions made
by the private foundation during such year
shall be reduced by the amount of such
reduction in tax.
[(4) Base period.--For purposes of this subsection--
[(A) In general.--The term ``base period''
means, with respect to any taxable year, the 5
taxable years preceding such taxable year.
[(B) New private foundations, etc.--If an
organization has not been a private foundation
throughout the base period referred to in
subparagraph (A), the base period shall consist
of the taxable years during which such
foundation has been in existence.
[(5) Other definitions.--For purposes of this
subsection--
[(A) Qualifying distribution.--The term
``qualifying distribution'' has the meaning
given such term by section 4942(g).
[(B) Assets.--The assets of a private
foundation for any taxable year shall be
treated as equal to the excess determined under
section 4942(e)(1).
[(6) Treatment of successor organizations, etc.--In
the case of--
[(A) a private foundation which is a
successor to another private foundation, this
subsection shall be applied with respect to
such successor by taking into account the
experience of such other foundation, and
[(B) a merger, reorganization, or division of
a private foundation, this subsection shall be
applied under regulations prescribed by the
Secretary.]
* * * * * * *
Subtitle F--Procedures and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--Returns and Records
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart A--Information Concerning Persons Subject to Special Provisions
* * * * * * *
[SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION
642(C).
[(a) General Rule.--Every trust described in section
4947(a)(2) or claiming a charitable, etc., deduction under
section 642(c) for the taxable year shall furnish such
information with respect to such taxable year as the Secretary
may by forms or regulations prescribe, including--
[(1) the amount of the charitable, etc., deduction
taken under section 642(c) within such year,
[(2) the amount paid out within such year which
represents amounts for which charitable, etc.,
deductions under section 642(c) have been taken in
prior years,
[(3) the amount for which charitable, etc.,
deductions have been taken in prior years but which has
not been paid out at the beginning of such year,
[(4) the amount paid out of principal in the current
and prior years for charitable, etc., purposes,
[(5) the total income of the trust within such year
and the expenses attributable thereto, and
[(6) a balance sheet showing the assets, liabilities,
and net worth of the trust as of the beginning of such
year.
[(b) Exceptions.--This section shall not apply in the case of
a taxable year if all the net income for such year, determined
under the applicable principles of the law of trusts, is
required to be distributed currently to the beneficiaries. This
section shall not apply in the case of a trust described in
section 4947(a)(1).
[(c) Cross Reference.--
[For provisions relating to penalties for failure to file a
return required by this section, see section 6652(c).]
SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(A)(2) OR
CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION
642(C).
(a) Trusts Described in Section 4947(a)(2).--Every trust
described in section 4947(a)(2) shall furnish such information
with respect to the taxable year as the Secretary may by forms
or regulations require.
(b) Trusts Claiming a Charitable Deduction Under Section
642(c).--
(1) In general.--Every trust not required to file a
return under subsection (a) but claiming a charitable,
etc., deduction under section 642(c) for the taxable
year shall furnish such information with respect to
such taxable year as the Secretary may by forms or
regulations prescribe, including:
(A) the amount of the charitable, etc.,
deduction taken under section 642(c) within
such year,
(B) the amount paid out within such year
which represents amounts for which charitable,
etc., deductions under section 642(c) have been
taken in prior years,
(C) the amount for which charitable, etc.,
deductions have been taken in prior years but
which has not been paid out at the beginning of
such year,
(D) the amount paid out of principal in the
current and prior years for charitable, etc.,
purposes,
(E) the total income of the trust within such
year and the expenses attributable thereto, and
(F) a balance sheet showing the assets,
liabilities, and net worth of the trust as of
the beginning of such year.
(2) Exceptions.--Paragraph (1) shall not apply in the
case of a taxable year if all the net income for such
year, determined under the applicable principles of the
law of trusts, is required to be distributed currently
to the beneficiaries. Paragraph (1) shall not apply in
the case of a trust described in section 4947(a)(1).
* * * * * * *
Subchapter B--Miscellaneous Provisions
* * * * * * *
SEC. 6104. PUBLICITY OF INFORMATION REQUIRED FROM CERTAIN EXEMPT
ORGANIZATIONS AND CERTAIN TRUSTS.
(a) * * *
(b) Inspection of Annual Information Returns.--The
information required to be furnished by sections 6012(a)(6),
6033, 6034, and 6058, together with the names and addresses of
such organizations and trusts, shall be made available to the
public at such times and in such places as the Secretary may
prescribe. Nothing in this subsection shall authorize the
Secretary to disclose the name or address of any contributor to
any organization or trust (other than a private foundation, as
defined in section 509(a) or a political organization exempt
from taxation under section 527) which is required to furnish
such information. In the case of an organization described in
section 501(d), this subsection shall not apply to copies
referred to in section 6031(b) with respect to such
organization. In the case of a trust which is required to file
a return under section 6034(a), this subsection shall not apply
to information regarding beneficiaries which are not
organizations described in section 170(c).
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter A--Additions to the Tax and Additional Amounts
* * * * * * *
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION
STATEMENTS, ETC.
(a) * * *
* * * * * * *
(c) Returns by Exempt Organizations and by Certain Trusts.--
(1) * * *
(2) Returns under section 6034 or 6043(b).--
(A) * * *
* * * * * * *
(C) Split-interest trusts.--In the case of a
trust which is required to file a return under
section 6034(a), subparagraphs (A) and (B) of
this paragraph shall not apply and paragraph
(1) shall apply in the same manner as if such
return were required under section 6033, except
that--
(i) the 5 percent limitation in the
second sentence of paragraph (1)(A)
shall not apply,
(ii) in the case of any trust with
gross income in excess of $250,000, the
first sentence of paragraph (1)(A)
shall be applied by substituting
``$100'' for ``$20'', and the second
sentence thereof shall be applied by
substituting ``$50,000'' for
``$10,000'', and
(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
If the person required to file such return
knowingly fails to file the return, such person
shall be personally liable for the penalty
imposed pursuant to this subparagraph.
* * * * * * *
----------
ASSETS FOR INDEPENDENCE ACT
* * * * * * *
SEC. 403. PURPOSES.
The purposes of this title are to provide for the
establishment of [demonstration] projects designed to
determine--
(1) the social, civic, psychological, and economic
effects of providing to individuals and families with
limited means an incentive to accumulate assets by
saving a portion of their earned income;
(2) the extent to which an asset-based policy that
promotes saving for postsecondary education,
homeownership, and microenterprise development may be
used to enable individuals and families with limited
means to increase their economic self-sufficiency; and
(3) the extent to which an asset-based policy
stabilizes and improves families and the community in
which the families live.
SEC. 404. DEFINITIONS.
In this title:
(1) * * *
* * * * * * *
(2) Eligible individual.--The term ``eligible
individual'' means an individual who is selected to
participate in a [demonstration] project by a qualified
entity under section 409.
* * * * * * *
(7) Qualified entity.--
(A) In general.--The term ``qualified
entity'' means--
(i) * * *
* * * * * * *
(iii) an entity that--
(I) is--
[(aa) a credit union
designated as a low-
income credit union by
the National Credit
Union Administration
(NCUA); or]
(aa) a federally
insured credit union;
or
* * * * * * *
SEC. 405. APPLICATIONS.
(a) Announcement of [Demonstration] Projects.--Not later than
3 months after the date of enactment of this title, the
Secretary shall publicly announce the availability of funding
under this title for [demonstration] projects and shall ensure
that applications to conduct the [demonstration] projects are
widely available to qualified entities.
(b) Submission.--Not later than 6 months after the date of
enactment of this title, a qualified entity may submit to the
Secretary an application to conduct a [demonstration] project
under this title.
(c) Criteria.--In considering whether to approve an
application to conduct a [demonstration] project under this
title, the Secretary shall assess the following:
(1) * * *
* * * * * * *
(d) Preferences.--In considering an application to conduct a
[demonstration] project under this title, the Secretary shall
give preference to an application that--
(1) * * *
* * * * * * *
(e) Approval.--Not later than 9 months after the date of
enactment of this title, the Secretary shall, on a competitive
basis, approve such applications to conduct [demonstration]
projects under this title as the Secretary considers to be
appropriate, taking into account the assessments required by
subsections (c) and (d). The Secretary shall ensure, to the
maximum extent practicable, that the applications that are
approved involve a range of communities (both rural and urban)
and diverse populations.
* * * * * * *
(g) Grandfathering of Existing Statewide Programs.--Any
statewide individual asset-building program that is carried out
in a manner consistent with the purposes of this title, that is
established under State law as of the date of enactment of this
Act, and that as of such date is operating with an annual State
appropriation of not less than $1,000,000 in non-Federal funds,
shall be deemed to meet the eligibility requirements of this
subtitle, and the entity carrying out the program shall be
deemed to be a qualified entity. The Secretary shall consider
funding the statewide program as a [demonstration] project
described in this subtitle. In considering the statewide
program for funding, the Secretary shall review an application
submitted by the entity carrying out such statewide program
under this section, notwithstanding the preference requirements
listed in subsection (d). Any program requirements under
sections 407 through 411 that are inconsistent with State
statutory requirements in effect on the date of enactment of
this Act, governing such statewide program, shall not apply to
the program.
SEC. 406. [DEMONSTRATION] AUTHORITY; ANNUAL GRANTS.
(a) [Demonstration] Authority.--If the Secretary approves an
application to conduct a [demonstration] project under this
title, the Secretary shall, not later than 10 months after the
date of enactment of this title, authorize the applicant to
conduct the project for 5 project years in accordance with the
approved application and the requirements of this title.
(b) Grant Authority.--For each project year of a
[demonstration] project conducted under this title, the
Secretary may make a grant to the qualified entity authorized
to conduct the project. In making such a grant, the Secretary
shall make the grant on the first day of the project year in an
amount not to exceed the lesser of--
(1) * * *
* * * * * * *
SEC. 407. RESERVE FUND.
(a) * * *
(b) Amounts in Reserve Fund.--
(1) In general.--As soon after receipt as is
practicable, a qualified entity shall deposit in the
Reserve Fund established under subsection (a)--
(A) all funds provided to the qualified
entity from any public or private source in
connection with the [demonstration] project;
and
* * * * * * *
(c) Use of Amounts in the Reserve Fund.--
(1) In general.--A qualified entity shall use the
amounts in the Reserve Fund established under
subsection (a) to--
(A) assist participants in the
[demonstration] project in obtaining the skills
(including economic literacy, budgeting,
credit, and counseling skills) and information
necessary to achieve economic self-sufficiency
through activities requiring qualified
expenses;
(B) provide deposits in accordance with
section 410 for individuals selected by the
qualified entity to participate in the
[demonstration] project;
(C) administer the [demonstration] project;
and
(D) provide the research organization
evaluating the [demonstration] project under
section 414 with such information with respect
to the [demonstration] project as may be
required for the evaluation.
* * * * * * *
(d) Unused Federal Grant Funds Transferred to the Secretary
When Project Terminates.--Notwithstanding subsection (c), upon
the termination of any [demonstration] project authorized under
this section, the qualified entity conducting the project shall
transfer to the Secretary an amount equal to--
(1) * * *
* * * * * * *
SEC. 408. ELIGIBILITY FOR PARTICIPATION.
(a) In General.--Any individual who is a member of a
household that is eligible for assistance under the State
temporary assistance for needy families program established
under part A of title IV of the Social Security Act (42 U.S.C.
601 et seq.), or that meets each of the following requirements
shall be eligible to participate in a [demonstration] project
conducted under this title:
(1) * * *
(2) Net worth test.--
(A) In general.--The net worth of the
household, as of the end of the calendar year
preceding the determination of eligibility,
does not exceed [$10,000] $20,000.
* * * * * * *
(b) Individuals Unable To Complete the Project.--The
Secretary shall establish such regulations as are necessary to
ensure compliance with this title if an individual
participating in the [demonstration] project moves from the
community in which the project is conducted or is otherwise
unable to continue participating in that project, including
regulations prohibiting future eligibility to participate in
any other [demonstration] project conducted under this title.
SEC. 409. SELECTION OF INDIVIDUALS TO PARTICIPATE.
From among the individuals eligible to participate in a
[demonstration] project conducted under this title, each
qualified entity shall select the individuals--
(1) that the qualified entity determines to be best
suited to participate; and
(2) to whom the qualified entity will provide
deposits in accordance with section 410.
SEC. 410. DEPOSITS BY QUALIFIED ENTITIES.
(a) * * *
* * * * * * *
[(b) Limitation on Deposits for an Individual.--Not more than
$2,000 from a grant made under section 406(b) shall be provided
to any one individual over the course of the demonstration
project.
[(c) Limitation on Deposits for a Household.--Not more than
$4,000 from a grant made under section 406(b) shall be provided
to any one household over the course of the demonstration
project.]
(b) Limitation on Deposits for an Individual.--Not more than
$500 from a grant made under section 406(b) shall be provided
per year to any one individual during the project.
[(d)] (c) Withdrawal of Funds.--The Secretary shall establish
such guidelines as may be necessary to ensure that funds held
in an individual development account are not withdrawn, except
for one or more qualified expenses, or for an emergency
withdrawal. Such guidelines shall include a requirement that a
responsible official of the qualified entity conducting a
project approve a withdrawal from such an account in writing.
The guidelines shall provide that no individual may withdraw
funds from an individual development account earlier than 6
months after the date on which the individual first deposits
funds in the account.
[(e)] (d) Reimbursement.--An individual shall reimburse an
individual development account for any funds withdrawn from the
account for an emergency withdrawal, not later than 12 months
after the date of the withdrawal. If the individual fails to
make the reimbursement, the qualified entity administering the
account shall transfer the funds deposited into the account or
a parallel account under this section to the Reserve Fund of
the qualified entity, and use the funds to benefit other
individuals participating in the [demonstration] project
involved.
SEC. 411. LOCAL CONTROL OVER [DEMONSTRATION] PROJECTS.
A qualified entity under this title, other than a State or
local government agency or a tribal government, shall, subject
to the provisions of section 413, have sole authority over the
administration of the project. The Secretary may prescribe only
such regulations or guidelines with respect to [demonstration]
projects conducted under this title as are necessary to ensure
compliance with the approved applications and the requirements
of this title.
SEC. 412. ANNUAL PROGRESS REPORTS.
(a) In General.--Each qualified entity under this title shall
prepare an annual report on the progress of the [demonstration]
project. Each report shall include both program and participant
information and shall specify for the period covered by the
report the following information:
(1) * * *
* * * * * * *
(6) The savings account characteristics (such as
threshold amounts and match rates) required to
stimulate participation in the [demonstration] project,
and how such characteristics vary among different
populations or communities.
(7) What service configurations of the qualified
entity (such as configurations relating to peer
support, structured planning exercises, mentoring, and
case management) increased the rate and consistency of
participation in the [demonstration] project and how
such configurations varied among different populations
or communities.
(8) Such other information as the Secretary may
require to evaluate the [demonstration] project.
(b) Submission of Reports.--The qualified entity shall submit
each report required to be prepared under subsection (a) to--
(1) the Secretary; and
(2) the Treasurer (or equivalent official) of the
State in which the project is conducted, if the State
or a local government or a tribal government committed
funds to the [demonstration] project.
(c) Timing.--The first report required by subsection (a)
shall be submitted not later than 60 days after the end of the
project year in which the Secretary authorized the qualified
entity to conduct the [demonstration] project, and subsequent
reports shall be submitted every 12 months thereafter, until
the conclusion of the project.
SEC. 413. SANCTIONS.
(a) Authority To Terminate [Demonstration] Project.--If the
Secretary determines that a qualified entity under this title
is not operating a [demonstration] project in accordance with
the entity's approved application under section 405 or the
requirements of this title (and has not implemented any
corrective recommendations directed by the Secretary), the
Secretary shall terminate such entity's authority to conduct
the [demonstration] project.
(b) Actions Required Upon Termination.--If the Secretary
terminates the authority to conduct a [demonstration] project,
the Secretary--
(1) shall suspend the [demonstration] project;
(2) shall take control of the Reserve Fund
established pursuant to section 407;
(3) shall make every effort to identify another
qualified entity (or entities) willing and able to
conduct the project in accordance with the approved
application (or, if modification is necessary to
incorporate the recommendations, the application as
modified) and the requirements of this title;
(4) shall, if the Secretary identifies an entity (or
entities) described in paragraph (3)--
(A) * * *
* * * * * * *
(C) consider, for purposes of this title--
(i) such other entity (or entities)
to be the qualified entity (or
entities) originally authorized to
conduct the [demonstration] project;
and
* * * * * * *
SEC. 414. EVALUATIONS.
(a) In General.--Not later than 10 months after the date of
enactment of this title, the Secretary shall enter into a
contract with an independent research organization to evaluate
the [demonstration] projects conducted under this title,
individually and as a group, including evaluating all qualified
entities participating in and sources providing funds for the
[demonstration] projects conducted under this title.
(b) Factors To Evaluate.--In evaluating any [demonstration]
project conducted under this title, the research organization
shall address the following factors:
(1) The effects of incentives and organizational or
institutional support on savings behavior in the
[demonstration] project.
(2) The savings rates of individuals in the
[demonstration] project based on demographic
characteristics including gender, age, family size,
race or ethnic background, and income.
* * * * * * *
(6) The lessons to be learned from the
[demonstration] projects conducted under this title and
if a permanent program of individual development
accounts should be established.
* * * * * * *
(c) Methodological Requirements.--In evaluating any
[demonstration] project conducted under this title, the
research organization shall--
* * * * * * *
(d) Reports by the Secretary.--
(1) Interim reports.--Not later than 90 days after
the end of the project year in which the Secretary
first authorizes a qualified entity to conduct a
[demonstration] project under this title, and every 12
months thereafter until all [demonstration] projects
conducted under this title are completed, the Secretary
shall submit to Congress an interim report setting
forth the results of the reports submitted pursuant to
section 412(b).
(2) Final reports.--Not later than 12 months after
the conclusion of all [demonstration] projects
conducted under this title, the Secretary shall submit
to Congress a final report setting forth the results
and findings of all reports and evaluations conducted
pursuant to this title.
* * * * * * *
SEC. 416. AUTHORIZATION OF APPROPRIATIONS.
There is authorized to be appropriated to carry out this
title, $25,000,000 for each of fiscal years 1999, 2000, [2001,
2002, and 2003] and 2001, and $50,000,000 for each of fiscal
years 2002 through 2008, to remain available until expended.
* * * * * * *
VII. DISSENTING VIEWS
We support appropriate and meaningful tax incentives for
charitable giving. We regret that earlier this year the
Congressional Republican Leadership and the Bush Administration
decided to enact a large tax reduction that reserved no
resources for bipartisan tax priorities such as charitable
giving incentives, energy tax provisions, extensions of
expiring provisions, minimum tax relief and other priorities of
the American people. The priorities of the Congressional
Republican Leadership and the Bush Administration were
different. They insisted on enacting tax legislation that puts
the Medicare and Social Security surpluses at risk and that
disproportionately benefits the wealthiest in our society.
As a result of the Bush tax cut, Congressional supporters
of provisions such as charitable giving tax incentives face a
difficult choice. They can choose to offset the cost of those
incentives with other provisions, or they can place the
Medicare and Social Security surpluses at risk to fund those
benefits.
Congressman Rangel offered an amendment during the markup
that would have offset the cost of the charitable giving tax
incentives contained in the Committee's bill. The amendment
would have reduced slightly the recently enacted reduction in
the top marginal income tax rate, a rate that applies only to
the wealthiest seven-tenths of one percent of individuals. Even
with that amendment, those individuals still would receive a
4.1 percentage point reduction in their marginal rate, a larger
marginal rate reduction than provided to most other
individuals. Committee Republican rejected the amendment
because, like earlier this year, they have different
priorities.
Without Congressman Rangel's amendment, we believe that
there is a substantial certainty that the tax reductions
contained in the Committee bill will be funded, in part by
raiding the Medicare and possibly the Social Security Trust
Funds. As a result, we can not support the Committee bill.
Reflecting the Republican skittishness over the issue of
raiding the Medicare Trust Fund, during the markup Chairman
Thomas released a letter written by Congressman Nussle, the
Chairman of the Budget Committee. The letter attempts to give
comfort to the Republican members of the Committee. It states
``on the basis of estimates released in May on the state of the
economy, I am pleased to advise you that this bill, in its
present form, will not effect the Medicare Hospital Trust Fund
in fiscal year 2002.'' It goes on to state that there will be a
surplus of $12.3 billion in fiscal 2002 outside the Medicare
and Social Security Trust Funds.
We would suggest that Congressman Nussle's letter should
give no comfort to his Republican colleagues for the following
reasons.
1. Congressman Nussle only was willing to claim that the
Medicare Trust Fund would not be raided in fiscal year 2002.
The fact that he failed to make that assertion for any other
fiscal year speaks for itself.
2. Congressman Nussle's assertion that there will be a
$12.3 billion surplus in fiscal year 2002 after protecting the
Medicare Trust Fund is dubious for reasons discussed below.
However, there would be absolutely no basis for that assertion
if the Bush tax cut had not raided the Medicare Trust Fund in
the current fiscal year (FY 2001) in an attempt to avoid a raid
in fiscal year 2002.
The Bush tax cut contained a gimmick that shifted $32
billion in corporate estimated tax receipts from fiscal year
2001 to 2002. Without that shift in receipts, even under
Congressman Nussle's analysis, there would have been a $20
billion raid on Medicare next year.
As a result of that gimmick, there will be at least a $20
billion raid on Medicare in the current fiscal year according
to recent testimony of Mitchell Daniels, Director of the Office
of Management and Budget. Indeed, according to his testimony, a
raid on the Social Security Trust Fund in fiscal year 2001 will
be avoided by only a very small amount.
Raiding Medicare in 2001 in a desperate attempt to avoid a
raid in 2002 may give comfort to the Republicans, but it gives
on comfort to us.
3. The assertion that there will be a $12 billion surplus
next fiscal year outside of the Medicare system ignores the
recent Administration request for $18.4 billion in additional
defense spending for that year. Secretary Rumsfeld testified
before the Senate Armed Services Committee that the extra $18.4
billion forfiscal 2002 would not be a one time request. He said
that another $18 billion would be ``needed'' for fiscal year 2003 on
top of continuing the $18.4 billion increase in fiscal 2002 just to
stay even. None of those amounts would advance the defense
modernization effort the Administration has promised.
4. The economic projections have deteriorated dramatically
since the CBO May analysis relief on by Congressman Nussle in
his letter. Lawrence B. Lindsey, the Director of the White
House National Economic Council, and OMB Director Daniels both
recently have indicated that there will be shortfall in tax
receipts. They are not alone in suggesting the potential for
unpleasant budget surprises from the current economic slowdown.
William Dudley, Goldman-Sachs Research Director, has been
quoted as stating that revenues would be as much as $75 billion
below expectations, forcing a raid on the Medicare Trust Fund
to balance this year's budget and putting next year's budget in
the red if the downturn persists.
The economy has not weakened significantly since the May
CBO projection, but the budget projections have. One has the
impression that the tax bill was enacted with reckless haste in
order to take advantage of the temporarily favorable budget
projections.
Congresswoman Karen Thurman offered an amendment in
Committee that would have made the Committee bill contingent on
the availability of surpluses outside the Medicare and social
Security systems. If the Republican members of the Committee
believed Congressman Nussle's letter, they could have supported
Mrs. Thurman's amendment without endangering the tax incentives
for charitable giving. They voted no, an action that speaks
louder than Congressman Nussle's letter.
We would have opposed the Committee bill because of the
potential for raiding the Medicare Trust Fund even it had
provided significant and meaningful tax incentives for
charitable giving. However, the Committee bill does not
accomplish its intended goal increasing charitable giving.
Therefore, it is very easy for us to oppose it.
The Committee contains two provisions designed to encourage
charitable giving by individuals, an above-the-line charitable
deduction for nonitemizers and a provision permitting
individual retirement account assets to be used for charitable
purposes. The second provision will provide incentives only to
a very narrow class of individuals, namely individuals who are
over age 70 and have accumulations in individual retirement
accounts not needed for retirement income.
The bill pretends to provide incentives for charitable
giving by individuals who do not itemize their deductions. It
does so by providing a deduction for charitable contributions
in addition to the standard deduction. However, the size of the
new deduction is so small (initially $25 for single
individuals, $50 for married couples) that the provision will
create no significant incentive for additional charitable
contributions. During the markup the staff of the Joint
Committee on Taxation made it clear that the new deduction
would complicate the individual tax return and that there was
little prospect that the Internal Revenue Service could
effectively audit the new provision. One has the strong
impression that the Committee bill is equivalent to a small
increase in the standard deduction and it will result in
little, if any, additional charitable contributions.
During markup, Democrats asked how this new tax cut--
following last month's $1.35 trillion tax cut--would fit into a
budget that would protect Social Security and Medicare,
accommodate the policies in the Budget Resolution, and
accommodate the President's new June defense spending request.
Chairman Thomas explained that the ways and Means Committee
should press ahead with a new tax cut because the Congressional
budget process was a race. If other Committees weren't as
quickly reporting legislation to use up budget surpluses, that
was their problem.
Democrats do not agree with Chairman Thomas, nor we expect,
do his Republican colleagues on the Appropriations and other
Committees who do not agree that their priorities should be
crowded out by Mr. Thomas's rush to report more tax cuts.
The purpose of the Congressional Budget is to have a
sensible plan, not a race among Committees to use up budget
surpluses. Formally, the Congressional Budget makes allocations
among Committees and sets targets for revenues that are
separate from spending limits. However, Chairman Thomas may be
correct about how the Republican majority actually will
administer the congressional Budget process. If so, his remarks
validate earlier criticism from Democrats that Republican
Congressional budgets have been publicity documents that are
not enforced. In recent years, this Committee has been used to
pump out one tax-cut bill after another no matter how large the
cumulative total, and the Majority has voted overwhelmingly
appropriations bills that busted their own budgets.
Charles B. Rangel.
Pete Stark.
Karen L. Thurman.
William J. Coyne.
Richard E. Neal.
Jim McDermott.
Xavier Becerra.
Wm. J. Jefferson.
John Lewis.
Jerry Kleczka.
Ben Cardin.
John Tanner.
Robert T. Matsui.
Lloyd Doggett.
Michael R. McNulty.
Sander M. Levin.
Earl Pomeroy.