[Congressional Record Volume 142, Number 137 (Saturday, September 28, 1996)]
[Extensions of Remarks]
[Page E1808]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 INTRODUCTION OF LEGISLATION TO ENCOURAGE CHARITABLE CONTRIBUTIONS OF 
                       CLOSELY-HELD CORPORATIONS

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                           HON. JENNIFER DUNN

                             of washington

                    in the house of representatives

                       Friday, September 27, 1996

  Ms. DUNN of Washington. Mr. Speaker, government at every level--
Federal, State, and local--are being forced to reduce spending. At the 
same time, government should do all it can reasonably do to encourage 
private philanthropic efforts. Many of these government services can be 
provided at the local level by charities that know the community best 
and can supply the most efficient and competent delivery of services to 
those most in need. Public charities and private foundations already 
have proven they can distribute funds to a very diverse, wide-ranging 
group of support organizations at the community level.
  One source of untapped resources for charitable purposes is closely-
held corporate stock. Today the tax cost of contributing closely-held 
stock to a charity or foundation is prohibitive, and discourages 
families and owners from disposing of their businesses in this manner. 
This legislation, which I introduce today, will correct this problem by 
once again permitting certain tax-free liquidations of closely-held 
corporations into one or more tax exempt 501(c)(3) organizations.
  Under current law, the problem with giving closely-held stock to 
charity is that the absence of a market for such stock and the typical 
pattern of small and sporadic dividends paid by such companies make it 
difficult for a charity to benefit from ownership of such stock. 
Accordingly, if such stock is given to a charitable organization, and 
in particular if a controlling interest is given, the corporation may 
have to be liquidated either by statute requirement or to effectively 
complete the transfer of assets to the charity for its use. Under 
current law, such a liquidation would incur a corporate tax at a 
Federal tax rate of 35 percent.
  This cost is imposed as a result of the tax law changes made in 1986 
that repealed the general utilities doctrine and thus imposed a 
corporate level tax on all corporate transfers, including those to tax 
exempt organizations. The charitable organization could also be subject 
to unrelated business income taxes. These tax costs make contributions 
of closely-held stock a costly and ineffective means of transferring 
resources to charity, and these are the costs I propose to eliminate in 
order to free up additional private resources for charitable purposes.
  This legislation eliminates the corporate tax upon liquidation of a 
qualifying closely-held corporation of certain conditions are met. Most 
importantly, qualification would require that 80 percent or more of the 
stock must be bequeathed at death to a 501(c)(3) tax-exempt 
organization. The bill also clarifies that the charity can receive 
mortgaged property in a qualified liquidation free from unrelated 
business income tax for a period of ten years. This change parallels 
the exemption from UBIT for 10 years provided under current law for 
direct transfers by gift or bequest.
  By eliminating the corporate tax upon liquidation Congress would 
encourage additional, and much needed, transfer to charity. Individuals 
who are willing to make generous bequests of companies and assets they 
have spent years building should not be discouraged by seeing the value 
of their gifts so substantially reduced by taxes. It is worthwhile to 
note that the individual donor does not receive any tax benefit from 
the proposal. All tax savings go to the charity.
  I urge all of my colleagues to support this important legislation 
designed to encourage charitable contributions.

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