Senate Passes Tax Legislation with Significant Exempt Organization Reforms, Anti-Abuse Rules and Charitable Giving Incentives

On November 18, 2005, the Senate passed the Tax Relief Act of 2005 (S. 2020), which contains several significant modifications to the tax rules governing exempt organizations and charitable giving. The companion legislation to be considered by the House of Representatives in December is smaller in scope and does not currently contain these charitable provisions. Thus, it remains unclear which, if any, of these provisions will be included in a final legislative package.

The Senate bill would provide new incentives and anti-abuse rules for individual and corporate donors, as well as more reporting, higher penalties, and increased disclosure requirements for many exempt organizations. The provisions would also change the rules governing how donor-advised funds, supporting organizations and credit counseling agencies must be organized and operated to maintain their exempt status. Following recent trends in tax legislation, some of the provisions would be "temporary" tax changes, and would expire on January 1, 2008, absent further legislation. Senate Finance Committee Chairman Grassley has indicated that further legislation in this area is under consideration.

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