Exempt Organizations Advisory - Charity Bill Passed in House Would Relax PPA Reforms

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

On September 26, the US House of Representatives passed the Charity Enhancement Act of 2008, H.R. 7083, which relaxes some of the reforms included in the Pension Protection Act of 2006, particularly those relating to donor-advised funds and supporting organizations.  The bill’s provisions would:

• exempt certain public charities and governmental entities from tax rules that apply to donor-advised funds;
• relax the rules that require taxable distribution treatment of certain scholarship distributions made by donor-advised funds; 
• repeal the special written acknowledgement requirement for charitable contributions to donor-advised funds;
• allow supporting organizations to pay reasonable compensation to substantial contributors without incurring excess benefit treatment;
• exempt Type III supporting organizations from certain holding and payout requirements;
• treat contributions from Indian tribal governments the same as contributions by a State;
• require exempt organizations that file at least 5 returns with the IRS to file annual returns electronically; and
• expand the bad check penalty to electronic payments.
  

It is uncertain whether the bill will be passed by the Senate.  Several organizations, including the Council on Foundations, support the provisions of the Charity Enhancement Act, but the bill was opposed by Senator Charles Grassley, ranking member of the Senate Finance Committee.  Grassley issued a statement on September 26th, saying  “there may be legitimate reasons to look at some of these issues, but the House bill as written is much too broad...[the bill] contains several provisions that need much more study before being enacted. For all of these reasons, the House bill needs more work. I would vote against it if I had to vote and urge my House colleagues to vote no.”