Exciting news for the US not-for-profit sector: on December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act. Among its other provisions, it permanently extends various expiring provisions for charitable giving and made a number other modifications that affect the not-for-profit sector.
The extension of provisions that have already expired are generally retroactive to the beginning of 2015. Below, we give an overview of the charitable giving incentives covered by the PATH Act and other provisions affecting tax-exempt organizations.
Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes
The act permanently extends the ability of individuals at least 70½ years of age to exclude from their gross income qualified charitable distributions from individual retirement accounts (IRAs). The exclusion may not exceed $100,000 per taxpayer in any tax year, and it applies to distributions made after December 31, 2014.
Deduction for Contributions of Capital Gain Real Property Made for Conservation Purposes
The charitable deduction for contributions of real property for conservation purposes is permanently extended. The provision also permanently extends the enhanced deduction for certain individual and corporate farmers and ranchers. These provisions apply to years beginning after December 31, 2014.
The provision also modifies the deduction to permit Alaska Native Corporations to deduct donations of conservation easements up to 100 percent of taxable income. This modification applies to years beginning after December 31, 2015.
Modification of the Tax Treatment of Certain Payments to Controlling Exempt Organizations
The act permanently extends the modification of the tax treatment of certain payments by a controlled entity to an exempt organization. This applies to payments received or accrued after December 31, 2014.
Modification of Charitable Deduction for Contributions of Food Inventory
The enhanced deduction for charitable contributions of inventory of wholesome food for noncorporate business taxpayers is permanently extended. This applies to tax years beginning after December 31, 2014.
Beginning in 2016, the provision also modifies the deduction by increasing the limitation on deductible contributions of food inventory from 10 percent to 15 percent of the taxpayer’s adjusted gross income (or 15 percent of taxable income in the case of a C corporation) per year. The provision also modifies the deduction to provide special rules for valuing food inventory.
Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property
The act permanently extends the rule providing that a shareholder’s basis in the stock of an S corporation is reduced by the shareholder’s pro rata share of the adjusted basis of property contributed by the S corporation for charitable purposes. It applies to tax years beginning after December 31, 2014.
Modification of Filing Dates of Returns and Statements Relating to Employee Wage Information and Nonemployee Compensation to Improve Compliance
Forms W-2, W-3, and returns or statements to report nonemployee compensation (Form 1099-MISC), are now required to be filed on or before January 31 of the year following the calendar year to which such returns relate. The provision is effective for returns and statements relating to calendar years after the date of enactment.
Employer Identification Number Required for the American Opportunity Tax Credit
Taxpayers claiming the American Opportunity Tax Credit are required to report the employer identification number (EIN) of the educational institution to which they make qualified payments under the credit. The provision applies to tax years beginning after December 31, 2015, and to expenses paid after that date for education furnished in academic periods beginning after such date.
Higher Education Information Reporting to Include Only Qualified Tuition and Related Expenses Actually Paid
Reporting requirements for Form 1098-T have been reformed so that educational institutions are required to report only qualified tuition and related expenses actually paid, rather than choosing between amounts paid and amounts billed, as under previous law. This applies to expenses paid after December 31, 2015, for education furnished in academic periods beginning after such date.
Requirement That Organizations Notify the Secretary of Their Intent to Operate Under Section 501(c)(4)
The act streamlines the recognition process for organizations seeking tax exemption under Section 501(c)(4). The process requires 501(c)(4) organizations to file a simple one-page notice of registration with the IRS within 60 days of the organization’s formation. The preexisting voluntary 501(c)(4) application process was eliminated. Within 60 days after an application is submitted, the IRS is required to provide a letter of acknowledgement of the registration, which the organization can use to demonstrate its exempt status, typically with state and local tax authorities.
Gift Tax Exemption for Contributions to Certain Exempt Organizations
Transfers to organizations exempt from tax under Sections 501(c)(4), (c)(5), and (c)(6) are treated as exempt from the gift tax. This applies to transfers made after the date of enactment.
Additional Resources
For a complete explanation of the PATH Act, see the document posted by the House of Representatives. The Ways and Means Committee also provides a helpful section-by-section summary of the act.
To learn more about a particular provision of the PATH Act, or for insight on how your organization may be impacted, contact your Moss Adams not-for-profit professional.