[Congressional Record Volume 143, Number 155 (Friday, November 7, 1997)]
[Senate]
[Pages S11996-S11998]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH of Oregon (for himself, Mrs. Feinstein, Mr. Wyden, 
        Mr. Baucus and Mr. Gorton):
  S. 1412. A bill to amend the Internal Revenue Code of 1986 to permit 
certain tax free corporate liquidations into a 501(c)(3) organization 
and to revise the unrelated business income tax rules regarding receipt 
of debt-financed property in such a liquidation; to the Committee on 
Finance.


                  THE CHARITABLE GIVING INCENTIVE ACT

  Mr. SMITH of Oregon. Mr. President, I rise to introduce with Senator 
Feinstein legislation that will provide incentives to taxpayers to use 
their wealth for charitable causes. In this era of ever-tightening 
fiscal constraints placed on congressional ability

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to authorize discretionary funding, we have asked our communities to do 
more and more for those less fortunate. Charitable organizations in our 
communities have become an integral part of the safety net for the poor 
and homeless and significant sources of assistance for education in 
every community.
  To help charities take advantage of those donors who wish to 
contribute significant wealth for charitable purposes, we are 
introducing the Charitable Giving Incentive Act. This legislation will 
change current tax law to encourage prospective donors to contribute a 
controlling interest in a closely-held corporation to charity.
  When a donor is willing to make a gift of a controlling interest in a 
company, a tax is imposed on the corporation upon its liquidation, 
reducing the gift that the charity receives by 35 percent. The Smith/
Feinstein bill would eliminate this egregious tax that is levied upon 
the value of these qualifying corporations. We sincerely hope that this 
will directly encourage meaningful contributions to charitable 
organizations that help a variety of causes. I ask that my colleagues 
support this legislation and look forward to its being considered by 
the Finance Committee in the near future.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1412

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Charitable Giving Incentive 
     Act''.

     SEC. 2. ELIMINATION OF CORPORATE LEVEL TAX UPON LIQUIDATION 
                   OF CLOSELY HELD CORPORATIONS UNDER CERTAIN 
                   CONDITIONS.

       (a) In General.--Paragraph (2) of section 337(b) of the 
     Internal Revenue Code 1986 (relating to treatment of 
     indebtedness of subsidiary, etc.) is amended--
       (1) by striking ``Except as provided in subparagraph (B)'' 
     in subparagraph (A) and inserting ``Except as provided in 
     subparagraph (B) or (C)'', and
       (2) by adding at the end the following new subparagraph:
       ``(C) Exception in the case of closely-held stock acquired 
     without consideration.--If the 80-percent distributee is an 
     organization described in section 501(c)(3) and acquired 
     stock in a liquidated domestic corporation from either a 
     decedent (within the meaning of section 1014(b)) or the 
     decedent's spouse, subparagraph (A) shall not apply to any 
     distribution of property to the 80-percent distributee. This 
     subparagraph shall apply only if all of the following 
     conditions are met:
       ``(i) 80 percent or more of the stock in the liquidated 
     corporation was acquired by the distributee, solely by a 
     distribution from an estate or trust created by one or more 
     qualified persons. For purposes of this clause, the term 
     `qualified person' means a citizen or individual resident of 
     the United States, an estate (other than a foreign estate 
     within the meaning of section 7701(a)(31)(A)), or any trust 
     described in clause (i), (ii), or (iii) of section 
     1361(c)(2)(A).
       ``(ii) The liquidated corporation adopted its plan of 
     liquidation on or after January 1, 1999.
       ``(iii) The 80-percent distributee is an organization 
     created or organized under the laws of the United States or 
     of any State.
       ``(iv) All of the stock in the liquidated corporation is 
     non-readily-tradable stock (as defined in section 
     6166(b)(7)(B)).

     Nothing in subsection (d) shall be construed to limit the 
     application of this subsection in circumstances in which this 
     subparagraph applies.''.
       (b) Revision of Unrelated Business Income Tax Rules To 
     Exempt Certain Assets.--Subparagrph (B) of section 514(c)(2) 
     of the Internal Revenue Code of 1986 (relating to property 
     acquired subject to mortgage, etc.) is amended by inserting 
     ``or pursuant to a liquidation described in section 
     337(b)(2)9C),'' after ``bequest or devise,''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

  Mrs. FEINSTEIN. Mr. President, I rise today with my colleagues 
Senator Gordon Smith and Ron Wyden of Oregon, as well Senator Max 
Baucus and Senator Slade Gorton to introduce legislation to strengthen 
tax incentives and encourage more charitable giving in America. The 
legislation, based on S. 1121 which I introduced last year, represents 
an important step to encourage greater private sector support for 
important educational, medical, and other goals in local communities 
across the country.
  Americans are among the most caring in the world, contributing 
generously to charities in their communities: American families 
contribute, on average, nearly $650 for each household, or about $130 
billion annually, to charities. Approximately, three out of every four 
households give to nonprofit charitable organizations.
  However, charities are very concerned for the future, as Federal 
efforts to balance the budget will limit funds for social spending for 
urgent needs like children's services, homelessness, job training, and 
health care. While support for charities grew by 3.7 percent in 1994, 
contributions for human services, the area most closely associated with 
poverty programs, dropped by 6 percent. Nonprofit charities are very 
concerned about their ability to maintain their current level of 
services or grow to address unmet needs.
  Nonprofit charities can never replace government programs, but they 
can play a critical role and provide vital social services. The Federal 
Government must ensure we are doing everything we can to encourage 
support for charities, which supplement Federal programs.


             expanding tax incentives for charitable giving

  The Federal Government must provide the leadership and the tools to 
encourage more charitable giving through the Tax Code. One source of 
untapped resources for charitable purposes is closely held corporate 
stock. A closely held business is a corporation, in which stock is 
issued to a small number shareholders, such as family members, but is 
not publicly traded on an exchange. This type of business is very 
popular for family businesses involving different generations.
  However, the tax cost of contributing closely held stock to a charity 
or foundation can be prohibitively high. The tax burden discourages 
families and owners from winding down a business and contributing the 
proceeds to charity. This legislation would permit certain tax-free 
liquidations of closely held corporations into one or more tax exempt 
501(c)(3) organizations.
  Under current law, a corporation may have to be liquidated to 
effectively complete the transfer of assets to a charity, incurring a 
corporate tax at the 35 percent tax rate. In 1986, Congress repealed 
the ``General Utilities'' doctrine, imposing a corporate level tax on 
all corporate transfers, including those to tax exempt charitable 
organizations. A charity may also be subject to taxation on its 
unrelated business income from certain types of donated property.
  These tax costs make contributions of closely held stock a costly and 
ineffective means of giving funds to a charity. If we are going to find 
new ways to strengthen charities, we need to review the tax costs which 
undercut the incentive to give and the value of a charitable gift.
  Volunteers are already hard at work in their communities and 
charitable funding is already stretched dangerously thin. Charities 
need added tools to unlock the public's desire to give generously. We 
need to create appropriate incentives for the private sector to do 
more.
  In California, volunteer and charitable organizations, together, 
perform vital roles in the community and deserve our support. I would 
like to offer some examples, which can be also found throughout the 
country:
  Summer Search: In San Francisco, the Summer Search Foundation is hard 
at work preventing students from dropping out of high school. Summer 
Search helps students successfully complete school and, for 93 percent 
of the participants, go on to college. With increased charitable 
contributions, Summer Search could help keep kids in school and on 
track toward graduation and a more productive contribution to the 
Nation.

  Drew Center for Child Development: I am deeply concerned with 
increases in the number of child abuse and neglect cases, which now 
total nearly 3 million children in the United States. Social services 
block grants cuts will impose new burdens on local communities. The 
Drew Child Development Center, located in the Watts area of Los 
Angeles, works directly with children and families involved in child 
abuse environments. There are thousands of other families that could 
benefit from the Drew Center program if only more resources were 
available. Stronger tax

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incentives to boost charitable giving could provide the Drew Center 
with some of the resources needed to combat this enormous problem.
  The Chrysalis Center: In 1993 I visited the Chrysalis Center, a Los 
Angeles organization dedicated to helping homeless individuals find and 
keep jobs. Chrysalis provides employment assistance, from training in 
jobseeking skills to supervised searches for permanent employment. The 
Center has helped place thousands of people in permanent, full-time 
jobs in the last decade.
  Jobs for the Homeless: Jobs for the Homeless assists with job 
placement services for the homeless in Berkeley and Oakland, supporting 
over 1,400 men and women. However, thousands more need their help. The 
former homeless individuals have landed successful positions in 
manufacturer, retailers, and small and large businesses. Without more 
contributions, Jobs for the Homeless will be unable to provide the 
necessary support and increase their literacy or drug rehabilitation 
programs, critical ingredients in moving people back to work.
  Today, Senators Smith, Wyden, Baucus, Gorton, and I introduce tax 
incentive legislation to encourage stronger support for the Nation's 
vital charities. The proposal: Eliminates the corporate tax upon 
liquidation of a qualifying closely held corporation under certain 
circumstances. The legislation would require 80 percent or more of the 
stock to be dedicated to a charity; and clarifies that a charity can 
receive mortgaged property in a qualified liquidation, without 
triggering unrelated business income tax for 10 years.
  By eliminating the corporate tax upon liquidation, Congress would 
encourage additional, and much needed, charitable gifts. Across 
America, countless thousands have built successful careers and have 
generated substantial wealth in closely held corporations. As the 
individuals age and plan their estates, we should help them channel 
their wealth to philanthropic goals. Individuals who are willing to 
make generous bequests of companies and assets, often companies they 
have spent years building, should not be discouraged by substantially 
reducing the value of their gifts through Federal taxes.
  While the Joint Tax Committee has not yet prepared an official 
revenue cost, previous estimates suggest a cost of about $400 million 
over 5 years. However, as a result of capital gains tax reform adopted 
earlier this year, the cost if likely to be significantly lower. Of 
equal significance, the same revenue estimating assumptions project big 
increases in charitable giving as a result of the legislation, 
stimulating between $3 and 5 billion in charitable contributions. This 
tax proposal may generate as much as seven or eight times its projected 
revenue loss in expanded charitable giving.
  I encourage others to review this legislation and listen to the 
charities in your community. The legislation has been endorsed by the 
Council on Foundations, which represents foundations throughout the 
country, and the Council of Jewish Federations. Since the introduction 
of the legislation last year, the proposal has been revised to sharpen 
the bill's focus and target the legislation in the most effective 
manner. I want to encourage the review process to continue, so we may 
continue to build support and target the bill's impact for the benefit 
of the Nation's nonprofit community.
  With virtually limitless need, we must look at new ways to encourage 
and nurture a strong charitable sector. Private charities cannot 
replace the government, but if the desire to support charitable 
activity exists, we should not impose taxes to decrease the value of 
that support. Tax laws should encourage, rather than impede, charitable 
giving. By inhibiting charitable gifts, Federal tax laws hurt those 
individuals that most need the help of their government and theie 
community.
                                 ______