Congress Is Talking About the Charitable Contribution Deduction

congressOn Valentine’s Day, during the U.S. House of Representatives Ways and Means Committee hearing to address the itemized deduction for charitable contributions under the Internal Revenue Code, over 40 witnesses provided testimony lasting seven hours. The hearing was described as being part of the Committee’s ongoing work on comprehensive tax reform, similar to the hearing held leading up to the 1986 Tax Reform Act, the last time Congress “reformed” the Internal Revenue Code.

Rather than focusing on any specific legislative proposal, the Committee sought input from stakeholders on the importance of the charitable contribution deduction on the nonprofit community and the community at large.  The Committee also asked for suggestions for reform that would increase charitable giving.  Responses included extending the cutoff date to April 15th of the following year, allowing non-itemizers the charitable contribution deduction, and setting a minimum threshold on charitable contributions that would need to be met before becoming eligible for deduction. The Committee also discussed the substantiation and valuation measures for noncash contributions such as vehicle donations, enforcement of provisions on unrelated business income taxation, and incentives to encourage volunteering, such as an increased mileage reimbursement rate.

A witness representing the Business Coalition for Fair Competition suggested that Congress should examine the ways in which tax-exempt organizations currently compete with for-profit businesses, a topic often raised by those who believe some tax-exempt organizations compete unfairly with commercial businesses.  Adjusting the charitable contribution deduction could have dramatic effects on tax revenues, and it may be tempting for Congress to head down that path thinking those who give will continue to do so with or without benefit of the charitable contribution deduction.  Hopefully, Congress will remember the extent to which the tax-exempt organizations funded by charitable contributions relieve the burden that otherwise would fall on the federal government.  At the recently increased top federal rate of 39.6%, a dollar denied the charitable contribution deduction would bring less than 40 cents to the Treasury; should a donor decide not to contribute that dollar, the tax-exempt community loses a dollar.  The net effect is that those served by either the government or the tax-exempt community are out 60 cents.  That is probably not the intended result.

Contributed by Tim McCutcheon

Considering a Merger or Acquisition as a Strategic Option

mergerFor many nonprofit organizations, the topic of a merger or acquisition (M&A) comes up as a reaction to difficult circumstances, such as financial woes or succession issues. However, some successful nonprofit organizations see M&A activity as a strategic tool to proactively strengthen the organization. It can be an opportunity to become more effective, identify best practices in the delivery of services, expand services and constituencies, and enhance the use of resources. The best time to consider M&A is when stressful circumstances are not driving the process.

A board that is contemplating the merits of M&A activity has many things to consider. But first, it should think about the organization’s mission and strategic plan, and determine whether M&A is an effective option compared with alternatives. If a decision is made to go forward, many factors will be considered. Does the target offer services that fit with current offerings? Are the geographies served compatible? Would the activity enhance the organization’s brand? Will the cultures of the organizations align?  Does the plan make good business and financial sense? Would the transaction create new risks, and if so, how will they be managed?

There is tremendous potential and challenge in M&A activity. Addressing the opportunities proactively will be difficult and time-consuming, but may result is a strong strategic organization.


Health Care Reform Strategy

HealthcareReformThe Patient Protection and Affordable Care Act (Health Care Reform) affects all businesses. However, employers with 50 or more full-time employees will be required to make some significant decisions regarding their options. These options include providing affordable health insurance to all employees, electing not to provide health insurance, or developing a hybrid plan.

Multiple factors should be considered before making a decision to retain or discontinue employer-sponsored health  insurance coverage. Some of those factors include the current and future costs of providing coverage, the impact the decision may have on employee acquisition and retention, comparisons to other organizations, and the alternative uses of potential cost savings.

New regulations and changes to Health Care Reform are likely to be issued as the process moves forward. However, organizations should be prepared for the January 1, 2014 implementation date. The decisions made by an organization could have a significant financial impact. While considering health insurance changes, organizations should identify someone to monitor the relevant issues and impact of Health Care Reform, follow what is happening with the creation and organization of federal and state health care exchanges, and review employee benefit plan design and options.


OMB Proposes Changes to Circular A-133

125900153The US Office of Management and Budget (OMB) has issued proposed guidance that would make some significant changes to OMB Circular A-133, which provides guidance for single audits. Some of the key proposed changes follow.

An increase in the threshold for single audits to $750,000 in federal expenditures from $500,000.

An increase in the minimum threshold for the determination of Type A/B programs to $500,000 from $300,000.

Revisions to the major program determination process criteria for Type A programs designations as high-risk.

A decrease in the percentage of coverage to 40% for normal and 20% for low-risk auditees.

A reduction of the 14 types of compliance to be tested to 6.

The proposed guidance can be found at The comment period closes on May 2, 2013.