As we enter the last few months of the year, understanding how Congress could act on key issues can help inform philanthropic planning. The remainder of the year is a runway to the upcoming election, and lawmakers are working to wrap up their priorities before 2024 and looking for bipartisan proposals that are well-positioned should a year-end legislative package come together. Charitable advocates and advisors are closely watching for what lawmakers might do to address disaster relief and other community needs, as well as how donor-advised funds (DAFs) and crypto philanthropy could make their way into conversations this fall.
Disaster Relief
This has been a historic year for natural disasters, and how to respond has been on lawmakers’ minds since the summer. In years like this, we often see Congress pass disaster relief legislation, which can include temporary tax incentives, such as expanding the adjusted gross income limitation on qualified charitable contributions, to drive additional donations to impacted areas. Should a disaster package advance that includes an expansion to charitable deduction limits, money given in disaster areas could go even further.
The reality is, however, that these types of expansions in incentives only apply to those who itemize their taxes, which hovers around 10% of taxpayers.1 While temporarily easing limitations for qualified charitable contributions will benefit large donors, sector advocates are also directing lawmakers’ attention to other charitable giving incentives. Over the last several months, lawmakers on Capitol Hill have been hearing from sector advocates about the steep declines2 in charitable giving and the need to address this declining participation through public policy.3 The bipartisan legislation known as the “Charitable Act”4 would restore and expand the non-itemizing charitable deduction and has growing support from lawmakers, including many who sit on tax-writing committees.5 The bill aims to encourage charitable giving from all Americans, including low and middle income taxpayers, which is a top priority for the charitable sector and the non-profit organizations to which donors give. So as lawmakers discuss how to respond to the recent disasters, efforts to expand charitable giving incentives more broadly are likely to be part of those conversations.
DAFs
While lawmakers are looking at ways to ensure America’s nonprofits can continue to provide for their communities, some may turn their attention to other charitable vehicles, like DAFs, to tap into resources already earmarked for charity. DAFs, which have grown in popularity among donors large and small, have been criticized by some academics and philanthropists who view them as a place to “park” charitable dollars, leading them to be a target for legislative efforts to rein in charitable giving. DAFs don’t have a payout requirement like that of private foundations (PFs), causing some advocates to encourage federal lawmakers to revisit the rules regulating the giving vehicle.
Legislation to achieve these proposed reforms has yet to be introduced this year, but we could see movement this fall. In the last Congress, a handful of lawmakers in the House and Senate introduced the ACE Act, which included a series of reforms to limit DAFs and PFs, particularly family foundations. The bill failed to gain traction on Capitol Hill despite its bipartisan support and strong financial backing, so the next iteration could look different in an effort to achieve broader appeal in the sector and on the Hill.
The changes proposed in the ACE Act in 2021 and 2022, as well as those that have been proposed by other critics in the sector, would have implications for philanthropists and their chosen giving vehicles if passed in Congress. Remaining aware of the restrictions and flexibilities of different giving vehicles can help philanthropists plan for greater impact.
Crypto Philanthropy
Less traditional, but growing in popularity, charitable contributions of crypto assets have trended upward in recent years6 as more investors engage with digital assets. Crypto’s growing user base has drawn congressional attention to how digital assets should be taxed. Over the summer, the Senate Finance Committee’s lead Democrat and Republican requested public input regarding digital asset tax rules,7 including whether large crypto gifts must be formally appraised to qualify for a charitable deduction, what tax rate should apply to which crypto assets and whether certain crypto transactions should be tax-exempt. Their letter underscores that further questions remain on policies that impact charitable giving of crypto.
We’ve seen proposals from Congress that could impact donors and be top of mind for some lawmakers as negotiations around a year-end legislative package continue this fall. Earlier this year, bipartisan legislation was introduced8 that would eliminate the evaluation requirement for crypto assets, removing a procedural hurdle for donors. So although lawmakers are collecting information on how these assets should be taxed, making it difficult to predict the future tax treatment for digital assets, further action from Congress is likely over the next several years. Estate planners and philanthropists should consider how future changes to the taxation of crypto investments could alter how attractive gifting crypto is compared to other property, like equities or real estate.
Looking Ahead to 2025
Beyond this fall, lawmakers are already teeing up legislative efforts for 2025. The election cycle in 2024 will likely preclude much legislative success next year, and the provisions in the Tax Cuts and Jobs Act that expire in 2025 have created a looming deadline for Congress to take action on those they wish to extend, amend or make permanent.
Republicans already put forward a proposal9 to address many of these tax breaks with the intent to continue these conversations this fall and during the election. Democrats, on the other hand, have closely aligned their agenda with President Biden, so we could see some of their priority tax items, like instituting a wealth tax, come up during the election and tax negotiations in 2025.
As lawmakers look to make changes to the Tax Code, it will be important to note how those changes can impact donors and their charitable giving and any unintended consequences these changes might have. Only time will tell if lawmakers are able to squeeze through a bipartisan tax package this year, but either way, tax policy is sure to take center stage during the election and well into 2025.
Endnotes
7. www.finance.senate.gov/chairmans-news/wyden-crapo-solicit-policy-input-on-taxation-of-digital-assets.
9. https://waysandmeans.house.gov/ways-and-means-committee-passes-tax-cuts-for-working-families-act/.