Alerts

Coronavirus Relief Legislation Includes Incentives for Charitable Giving

Alerts / April 3, 2020

To date, there have been three separate legislative acts designed to lessen the hardship created by the coronavirus pandemic. The Coronavirus Preparedness and Response Supplemental Appropriations Act provided emergency funding for federal agencies, and the Families First Coronavirus Response Act provided for free diagnosis testing for COVID-19, strengthened unemployment benefit programs and certain food assistance programs, and expanded paid leave in limited situations. By far, the most expansive relief was the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included provisions designed to encourage donors to support charitable causes.

New Limited Deduction for Non-itemizers: Beginning in 2020, taxpayers who do not itemize their deductions may, nevertheless, deduct up to $300 of cash charitable contributions. Most gifts will qualify, other than gifts made to regulated donor-advised funds, supporting organizations or most private foundations.

Increased Cap for Certain Itemized Deductions: For cash contributions made in 2020, a donor who itemizes deductions may elect to deduct cash gifts up to 100 percent of the donor’s adjusted gross income. Again, most gifts will qualify, other than gifts made to regulated donor-advised funds, supporting organizations or most private foundations.

Clarification:

A donor-advised fund is not “considered regulated” for federal tax purposes if:

  • distributions from the fund are made only to a single identified organization or governmental entity; or
  • grants are made from the fund for travel, study or other similar purposes and are determined on an objective and nondiscriminatory basis by a committee not controlled by the donor to the fund.

Gifts to private foundations are eligible under the CARES Act if:

  • the foundation is a so-called private operating foundation;
  • the foundation makes distributions by the 15th day of the third month after the close of the foundation’s taxable year in which, in the aggregate, equals 100 percent of the contributions made to the foundation in that taxable year; or
  • all of the contributions to the foundation are pooled in a common fund from which donors annually designate among certain charities to receive distributions from the foundation.

Increased Cap for Contributions of Food Inventory: The cap applicable to Section 170(e)(3)(c) contributions of food inventory is increased from 15 percent to 25 percent for gifts made during 2020.

Increased Limit for Corporations: For corporations, the limit for cash contributions is increased from 10 percent to 25 percent of taxable income in 2020. Excess contributions may be carried forward to subsequent tax years.

IRA Charitable Rollovers: The CARES Act also waives required minimum distributions (RMD) from 401(k) plans and IRAs for 2020. It should be noted that the legislation did not change the rules applicable to a charitable IRA rollover. Annually, a donor who is 70½ years of age or older is permitted to transfer up to $100,000 directly from the donor’s IRA to a qualified charity. The transfer applies against the donor’s RMD for that year and is not recognized as taxable income by the donor.

Considerations for Charities and the Donors Who Support Them:

  • Every change in the law applicable to charitable giving or in the economic circumstance of donors and the causes they support creates an opportunity to reexamine the best ways to achieve philanthropic objectives.
  • The “above the line” deduction for non-itemizers creates a new tax incentive for a large number of potential donors who may not have been formerly courted.
  • The one-year increase in the amount that may be currently deducted for larger cash gifts to public charities creates an incentive to give more to causes in 2020, particularly those hardest hit by the economic chaos created by COVID-19.
  • The exclusion of regulated donor-advised funds, supporting organizations and most private foundations signals a continuing trend to limit these forms of charitable structures by legislation. In time, Congress may return to favoring those supporting organizations that are clearly affiliated with one or more robust public charities. Similarly, donors may rediscover the attraction and utility of private foundations that operate specific programs and donor-advised funds that are dedicated to a single identified charity or that are designed to make grants for travel, study or other similar purposes.

Authorship Credit: Edward J. Beckwith

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