As part of a series of papers outlining tax reform options for the Senate Finance Committee (SFC), the SFC staff recently published a paper on tax reform options for tax-exempt organizations and charitable giving. Like the other staff papers on tax reform options, the exempt organizations paper compiles suggestions that have been made by witnesses at SFC hearings, by policy experts, by bipartisan commissions, and elsewhere. Thus, the paper does not set forth new proposals, but gathers in one place numerous proposals that have been made, with links to sources of those proposals where available. For exempt organizations, the proposals range from taxing all commercial activities of tax-exempt organizations, to revising the unrelated business income tax rules for organizations conducting commercial activities, to requiring specified payout levels from endowments, to limiting executive compensation that tax-exempt organizations may pay. With respect to the tax deduction for charitable contributions, the proposals range from repealing the deduction, to fundamentally changing the deduction, to incrementally reforming the deduction in a variety of ways.
Aside from the compilation of specific proposals, the staff paper sets forth a useful framework of possible goals and concerns for the SFC’s consideration when addressing tax-exempt organizations. Potential goals include:
- Improving tax-exempt organizations’ accountability and oversight;
- Addressing the permissible amount of commercial activity for tax-exempt organizations;
- Aligning tax-exempt status with sufficient charitable benefits more tightly;
- Examining the relationship between political activity and tax-exempt status; and
- Making incentives for charitable giving maximally efficient and effective, and considering whether these incentives should be expanded to more taxpayers.
The listed potential concerns correspond to the potential goals; for example, the concern as to whether tax-exempt organizations provide sufficient charitable benefits corresponds to the goal of more tightly aligning tax-exempt status with charitable benefits.
Whatever the ultimate fate of comprehensive tax reform this session, it is clear that tax-exempt organizations and the options compiled in the report will continue to be under scrutiny by the SFC and others.