Overview
CHARITY Act Introduced in Senate
Today, Senators John Thune (R-SD) and Bob Casey (D-PA) introduced the Charities Helping Americans Regularly Throughout the Year (CHARITY) Act of 2017 in the Senate. The bill, which is similar to a bill of the same name introduced in the last Congress, includes the following provisions, which encourage charitable giving and simplify certain private foundation rules:
- A statement that the Senate does not intend to diminish the charitable deduction in any comprehensive reform of the tax code and that encouraging charitable giving should be a goal of tax reform
- Authorization for the Treasury Department to issue regulations to set the simplified standard mileage rate for the use of personal vehicles for volunteer charitable services as equal to the mileage rate that applies to the deduction for medical and moving expense
- Elimination of a controversial provision providing for donee reporting as an alternative to the usual process for charitable contribution substantiation
- A requirement that all tax-exempt organizations file Form 990 electronically
- Expansion of the rule allowing an exclusion from gross income for distributions made from an individual retirement account (IRA) directly to public charities to include distributions to donor-advised funds (and requiring additional reporting from donor advised fund sponsors)
- Replacement of the current two-tiered excise tax on investment income of private foundations with a single rate of one percent
- Creation of a limited exception to the excess-business-holdings rules for private foundations that own philanthropic businesses
EO Partners Should Familiarize Themselves with Proposed Rules for Partnership Audits
Today the IRS re-released proposed regulations for the implementation of the new centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (the BBA), which will apply for taxable years beginning after December 31, 2017. Exempt organizations that are partners with taxable parties – whether because they make investments through partnerships or conduct activities through joint ventures – need to understand the new rules and ensure that necessary amendments are made to the partnership agreement to protect their interests and exempt status.
The BBA repealed current rules for partnership audits, which generally require the IRS to assess tax on partnership income at the partner level. Instead, the BBA enacted a new audit regime that, in general, assesses and collects any tax due at the partnership level, thereby imposing the economic burden of the additional tax on the adjustment-year partners (rather than the reviewed-year partners). The BBA also eliminates the current “tax matters partner” concept (and certain notice requirements), replacing it with a new “partnership representative” concept. The partnership representative will be the sole party entitled to notice from the IRS, and will have the sole authority to act on behalf of the partnership with respect to an audit (including deciding whether to pursue litigation, whether to settle claims, and whether to extend the statute of limitations). The proposed regulations provide rules for partnerships subject to the new regime, including with respect to opting out of the new rules, calculating and modifying the partnership-level tax (the “imputed underpayment”), and electing to “push out” the imputed underpayment to the reviewed-year partners such that the adjustment-year partners do not bear the economic burden. The proposed regulations also provide guidance concerning the designation of the partnership representative.
Exempt organizations and their counsel will need to be involved in discussions regarding the necessary amendments of partnership agreements to address the new economic and tax dynamics created by new rules. In particular, exempt organizations will want to take care to address issues of potential private benefit and inurement that can arise when tax assessments are made at the partnership level. For example, exempt organizations will want to ensure that they cannot be liable for the imputed underpayment attributable to a taxable partner or to a departed partner