Legislative Action Center

Congress Reconsiders Tax Deductibility of NonCash Donations

The Senate Finance Committee is drafting legislation to curb charitable giving abuses that could include unfavorable changes to current laws governing the tax-deductibility of noncash gifts. A recent report by Congress’s Joint Committee on Taxation (JCT) suggests eliminating or significantly modifying the deductions for noncash charitable contributions such as art, collectibles, real estate, and household goods. The proposed changes are an effort to reduce the potential of valuation misstatements by taxpayers.  

On July 15, 2005, the MTA Board of Directors endorsed the Coalition to Uphold Noncash Charitable Giving Letter to Senate Finance Committee (dated July 20, 2005).

On June 3, 2005, the MTA Board of Directors voted to endorse the Statement of Purpose of the Coalition to Uphold Noncash Charitable Giving:

Coalition to Uphold Noncash Charitable Giving
Statement of Purpose
|May 23, 2005

Numerous nonprofit organizations representing the charitable community are concerned that legislation being developed by the U.S. Senate Finance Committee could include significant and unfavorable changes to current laws and regulations governing the charitable sector. Our organizations are especially concerned about proposed changes affecting the tax deductibility of noncash donations.

Troubled by these proposals that appear to have been fashioned in response to only anecdotal evidence, the American Association of Museums and the Association of Fundraising Professionals, as co-conveners, have formed the Coalition to Uphold Noncash Charitable Giving with numerous other charitable organizations and are educating members of Congress on the immediate and devastating negative effects that some of the proposed recommendations would have on charities in their states and districts.

The Senate Finance Committee is considering eliminating or significantly modifying the deductions for noncash charitable contributions such as art, collectibles, real estate, household goods, books, food, medicine, and clothing. One of the proposals would limit a donor's deduction to the lesser of two values, the donor's basis (cost basis) in the property or the fair market value. A donor's basis, determined under the donor's method of accounting for income tax purposes, usually has less value than fair market value. Currently, taxpayers may take a charitable deduction for the fair-market value of noncash gifts.

If adopted, some of these proposals likely would force large numbers of charities to close their doors and permanently halt their philanthropic efforts. Government agencies would then need to fill the void and offer the vital social services that charities currently provide, and the resulting new demands on these agencies could be huge. Initial evidence of the impact of changes to the car donation deduction which became effective on January 1, 2005, suggests that donations to charities in this area have been reduced by as much as fifty percent. A similar drop in other forms of noncash gifts would irretrievably impair the makeup and vitality of the nonprofit sector.

House Ways and Means Committee Chairman Thomas has recently indicated that revenue in the nonprofit sector amounted to $1.2 trillion in 2001. That amount is more than 12% of the gross domestic product. Indeed, current government estimates indicate that 9% of the national workforce is employed in the nonprofit sector. Hasty actions which undermine the financial foundations of the charitable sector through new rules and limitations could have severe consequences for the American economy in general.

Congress enacted a version of the cost-basis deduction in the Tax Reform Act of 1986 which was not repealed until 1993. During that period, the change dramatically decreased the ability of museums to attract donations to their collections. A national survey by AAM showed a 60 percent drop in giving to museums from 1985 to 1987.

The various proposals under consideration regarding noncash donations were ostensibly created in order to instill responsible taxpayer compliance. We, in the charitable sector, share that goal and will continue to educate and assist our donors with regard to IRS regulations. Any necessary reform measures, however, can be pursued in such a way that will not harm our charities and the communities and populations which we serve. For that reason, our coalition has been formed to preserve the tax incentives for noncash gifts.

The coalition welcomes the opportunity to work on these issues in partnership with Congress.

For more information, contact Jason Lee, Director of Government Relations, the Association of Fundraising Professionals, at 703-519-8484 or jlee@afpnet.org; or Jason Hall, Director of Government and Media Relations, the American Association of Museums, at 202-289-9125 or jhall@aam-us.org.

Write your Congressperson today!

We are asking MTA members to write to their members of Congress about this issue. Instructions are provided below.

How do you find your members of Congress? That's easy! Simply visit http://www.house.gov and enter your zip code to find your Representative or visit http://www.senate.gov and choose your state to find your Senators.

View sample letters from other museums at the American Association of Museums Web site.

Write the text of your letter onto your museum's stationery and FAX to your Senators and/or Representative. Be sure to FAX a copy of your letter to MTA headquarters at 520.323.3399!

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