[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
[[Page S11997]]
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
[[Page S11998]]
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.
______