Legislative update: Tax law changes are swirling

This spring, there is certainly no shortage of proposed tax law changes in the works. Notably (and recognizing that it is impossible to predict when, or if, any proposed legislation will become law), we are watching the following developments that could impact your advice to clients about their philanthropy:

• On March 28, the White House released its Fiscal Year 2023 budget proposal laying out several revenue-generating components, some of which are tax provisions similar to those in the stalled Build Back Better legislation. Your clients may be interested in the proposed 20% minimum tax on high-income individuals, slated in the proposal to become effective for tax years beginning in 2023, which is referred to as the “Billionaire Minimum Income Tax.” The tax would be applied to the total income, defined to include unrealized capital gains income, of any taxpayer whose net wealth exceeds $100 million.  

• Also in the proposed Fiscal Year 2023 budget package is a clarification that contributions to donor-advised funds do not meet the definition of “qualifying distributions” for purposes the five percent annual distribution requirement for a private non-operating foundation. These contributions still would be permissible, though, if the private foundation can show that the funds transferred to the donor-advised fund were distributed to charities by the end of the following tax year. 

• The IRS recently published its Technical Guide covering the taxable expenditure rules for private foundations. Taxable expenditures, along with self-dealing, is a major area of risk for board members and officers of private foundations. 

• Donor-advised fund reforms proposed in the Accelerating Charitable Efforts (ACE) Act, introduced in June 2021 via Senate Bill 1981 and again in February 2022 in the form of House Bill 6595, have been prominently featured in the media and subject to a range of opinions. Notably, though, the just-released Fiscal Year 2023 budget proposal appears to meaningfully address donor-advised funds only in relation to receiving private foundation qualifying distributions. We’ll be watching this carefully, but for now, it appears that sweeping reform of donor-advised fund rules is not imminent.   

• On March 29, the House passed the Securing a Strong Retirement Act of 2022 (House Bill 2954, known as the SECURE Act 2.0). The Senate will vote on the legislation next, likely in April. Among many other provisions related to retirement plans, SECURE 2.0 allows taxpayers to make a one-time election for a qualified charitable distribution of up to $50,000 from an IRA to a charitable remainder trust or charitable gift annuity.

As always, we are here for you! Please reach out to the team at the community foundation with your questions. We’d love to help you help your clients achieve their charitable goals.

Photo credit: Photo by Joshua Sukoff on Unsplash