[Congressional Record Volume 143, Number 5 (Wednesday, January 22, 1997)]
[Senate]
[Pages S648-S650]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CHAFEE (for himself, Mr. Moynihan, Mr. Abraham, and Mr. 
        Kyl):
  S. 194. A bill to amend the Internal Revenue Code of 1986 to make 
permanent the section 170(e)(5) rules pertaining to gifts of publicly 
traded stock to certain private foundations and for other purposes; to 
the Committee on Finance.

[[Page S649]]

                    private foundations legislation

  Mr. CHAFEE. Mr. President, today, I am introducing legislation which 
makes permanent the full value deduction for gifts of appreciated stock 
to private foundations. I am pleased that my distinguished colleagues, 
Senator Moynihan and Senator Abraham, have agreed to join me in this 
effort.
  Since 1984, donors have been allowed to deduct the full fair market 
value of certain gifts of public traded stock to private foundations. 
This provision of the tax code was added as part of the Tax Reform Act 
of 1984 to encourage individuals to create foundations during their 
lifetime. Unfortunately, when this section was enacted it included a 
sunset date of December 31, 1994 which was extended through May 31, 
1997 as part of the Small Business Jobs Protection Act. Without this 
provision, the number of new foundations--as well as additional 
endowments to existing foundations--is likely to fall off dramatically.
  Private foundations are nonprofit organizations that support 
charitable activities in order to serve the common good. They provide 
support by making grants to other nonprofit agencies, or through 
operating their own programs. In some cases, such as scholarships and 
disaster relief, foundations may make grants to individuals.
  Foundations are created with endowments--money given by individuals, 
families, or corporations. They make grants or operate programs with 
the income earned from investing the endowments. Since most foundations 
have permanent endowments, they do not need to raise funds each year 
from the public in order to continue their work. Freed from these 
constraints, foundations are perfectly positioned to act as the 
research and development arm of society.
  In a 1965 Report on Private Foundations, the Treasury Department 
recognized the special nature of foundations by describing them as 
``uniquely qualified to initiate thought and action, experiment with 
new untried ventures, dissent from prevailing attitudes, and act 
quickly and flexibly.'' Indeed, foundations reflect the innovative 
spirit of the individuals and corporations that endow them.
  There are more than 34,000 private foundations in America today that 
provide over $9 billion annually to support innumerable projects, large 
and small. Among other things, they help the poor and disadvantaged, 
advance scientific and medical research, and strengthen the American 
educational system.
  Let me give you a few examples of some of the medical advances that 
have occurred as a result of the financial assistance provided by 
private foundations: The polio vaccine developed by Dr. Jonas Salk in 
1953 after the Sarah Scaife Foundation provided him with the money he 
needed to establish and equip his virus laboratory.
  With the help of the Commonwealth Fund, Dr. Papanicolaou discovered 
in 1923 that cervical cancer could be diagnosed before a woman 
presented any symptoms. That breakthrough led to the basic and now 
routine diagnostic technique known as the Pap smear.
  In 1951, Dr. Max Theiler received the Nobel Prize in medicine for his 
work in developing the yellow fever vaccine. That effort was the direct 
result of a 30-year, all-out commitment by the Rockefeller Foundation 
to eradicate this disease.
  But, Mr. President, private foundations have been involved in many 
more aspects of our daily lives than simply funding medical advances. 
Dr. John V.N. Dorr was an engineer in the early 1950's. He speculated 
that many accidents occurring on our Nation's highways during inclement 
weather were the result of drivers hugging the white lines painted in 
the middle of the road. Dorr believed that if similar lines were 
painted on the shoulder side of the road, lives could be saved.
  Dorr convinced transportation engineers in Westchester County, NY, to 
test his theory along a particularly treacherous stretch of highway. 
The dropoff in accidents along this part of the road was dramatic, and 
Dr. Dorr used his own foundation to publicize the demonstration's 
results nationally. Today, although State funds are now used to paint 
white lines on the shoulder side of the Nation's highways, every person 
traveling in motor vehicles is indebted to Dorr and his foundation for 
implementing this lifesaving discovery.
  As these examples indicate, private foundations provide a great many 
benefits to our society. By permanently extending this tax incentive, 
we can continue to encourage individuals to dedicate a substantial 
portion of their wealth to public, rather than private purposes. I hope 
my colleagues will support this legislation.
  Our bill permanently extends the tax incentive for an individual who 
contributes stock to a private foundation. This provision currently 
expires on May 31, 1997.
  Under this bill, a taxpayer who contributes publicly traded stock to 
a private foundation would be allowed a deduction for the full fair 
market value of the stock. Absent this legislation, the deduction would 
be limited to the cost basis of the stock, which for many donors 
effectively eliminates the incentive to make the donation.
  The legislation also conforms the due date for a private foundation's 
first quarter estimated tax payment with the filing date for the annual 
tax return. Currently, a private foundation is required to make its 
first quarter estimated tax payment on April 15, even though the annual 
income tax return is not due until May 15. Under this bill, a 
foundation's first estimated tax payment would be due on May 15.
  Finally, the bill also simplifies the rules governing distributions 
from a private foundation to a charity located outside the United 
States.
  A similar proposal introduced in the 104th Congress was estimated by 
the Joint Committee on Taxation to cost $287 million over 5 years.
  Mr. MOYNIHAN. Mr. President, I am pleased to join my distinguished 
colleague, Senator Chafee, in introducing this legislation to extend 
permanently the full, fair market value deduction for gifts of publicly 
traded stock to private foundations.
  Much of the focus in Congress over the last several years has been on 
efforts to control or reduce Government spending in order to balance 
the budget. As programs are cut to meet budget constraints, pressure 
will be placed on other sectors, particularly the independent sector, 
to fill the void. Already, the extent to which nonprofit institutions 
in the United States perform functions that are typically governmental 
undertakings in other countries is perhaps not fully understood or 
appreciated. It is a unique feature of our society of inestimable value 
and must be sustained. As demand on the independent sector grows, we 
must support its efforts to promote the common good and confront social 
problems.
  A bit of history: prior to 1969, contributions of appreciated 
property were deductible at their fair market value. In 1969, Congress 
adopted a number of rules to address certain abuses then occurring with 
respect to a small number of private foundations. These included a 
series of targeted Treasury Department recommendations to impose excise 
tax penalties on self-dealing transactions, excess business holdings, 
insufficient distributions for charitable purposes, and the like. 
However, in response to the negative publicity surrounding private 
foundations at the time, Congress felt it necessary to impose other 
restrictions beyond the targeted Treasury proposals. These included a 
provision to limit the deduction for gifts of appreciated property to 
private foundations to the donor's basis, usually, the original 
purchase price.
  After 1969, the IRS and other experts concluded that the targeted 
antiabuse rules worked well to correct the problems with private 
foundations. And nothing indicated that the 1969 limit on deductibility 
of gifts of appreciated property to private foundations was necessary 
to prevent abuse, at least to the extent that the property's value was 
readily determinable. Thus, in 1984, Congress approved a rule, that 
sunset after 10 years, providing a deduction for the full value of 
gifts of publicly traded stock to private foundations. This temporarily 
restored parity of treatment to contributions of stock to public 
charities--already fully deductible--and to private foundations.
  Then came the Tax Reform Act of 1986, which was largely an effort to 
broaden the tax base and reduce rates. One such base-broadening 
provision was the creation of a tax preference under the individual 
alternative minimum tax [AMT] for gifts of appreciated

[[Page S650]]

property to charitable organizations. Thus, taxpayers subject to the 
AMT could only deduct the basis of property donated to charitable 
organizations.
  As it turned out, the 1986 Tax Act worked all too well. Not only was 
the base broadened, but charitable giving of appreciated property 
nearly disappeared. And the charitable organizations let us know that 
our action had hurt them financially in such a way that not only they, 
but the larger public trust they serve, were suffering. Thus, at the 
behest of this Senator, in 1990 Congress at first temporarily, and then 
in 1993 permanently, repealed the tax preference for contributions of 
appreciated property.
  At the end of 1994, however, the full deduction for contributions of 
appreciated stock to private foundations expired. It had been intended 
as a 10-year experiment; the 10 years ran out, and the experiment was 
over. But most observers concluded that the experiment had worked--the 
private foundation rules continued to work reasonably well to prevent 
abuse, even while gifts of appreciated stock were fully deductible. In 
particular, the rule was not a source of compliance problems for the 
Internal Revenue Service. Thus, we agreed to extend the provision 
temporarily just last year in the Small Business Job Protection Act. 
Unfortunately, it will expire once again at the end of May. There being 
no harm done by this provision, and much good, it is a rule we should 
like to see extended once again--and this time permanently.
  Mr. President, no reason exists to provide different treatment under 
the Tax Code for gifts of appreciated stock to private foundations than 
is provided for such gifts to public charities. Private foundations are 
an important component of our nonprofit, independent sector. They make 
vast contributions to our society in the areas of education, health, 
disaster relief, the advancement of knowledge and the preservation of 
historical and cultural artifacts, to name only a few. Government must 
play a role in ensuring that nonprofit institutions not merely survive, 
but thrive--particularly during an era of Government cutbacks. The 
legislation we introduce today will be a great help in this regard. I 
look forward to its early and favorable consideration in the 105th 
Congress.
                                 ______