[Congressional Record Volume 143, Number 159 (Wednesday, November 12, 1997)]
[Extensions of Remarks]
[Pages E2328-E2329]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                CHARITABLE INCENTIVE GIVING ACT OF 1997

                                 ______
                                 

                           HON. JENNIFER DUNN

                             of washington

                    in the house of representatives

                      Wednesday, November 12, 1997

  Ms. DUNN. Mr. Speaker, in this time of fiscal constraints, I am 
introducing today legislation that would encourage greater private 
sector support of important social, educational, nutritional, medical, 
and other necessary programs in local communities by restoring 
incentives for charitable giving of closely-held stock.
  Governments on all levels, Federal, State, and local, are reducing 
spending throughout their budgets, including social programs. At the 
same time, society's needs for these programs cannot be overlooked. 
Congress should do all that it can reasonably do to encourage private 
philanthropic efforts at this critical stage in restructuring 
Government and returning responsibility to our local communities. Many 
of these 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. Public charities and private foundations already 
distribute funds to a very diverse, wide-ranging group of social 
support organizations at the community level on a timely basis.
  To meet the resulting deficit in unmet social needs, Government 
cannot merely expect the private sector to fill the gap, but must 
provide the leadership for the use of private sector resources through 
changes in the Tax Code. 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 it discourages families and owners from disposing of 
their businesses in this manner.

[[Page E2329]]

This legislation would 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 closely-held 
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 statutory 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 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 this 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.
  The legislation I introduce today eliminates the corporate tax upon 
liquidation of a qualifying closely-held corporation if 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. This bill also clarifies that the 
charity can receive mortgaged property in a qualified liquidation free 
from the unrelated business income tax for a period of 10 years. This 
change parallels the exemption from the unrelated business income tax 
[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 transfers 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. There will be a 
revenue cost to this legislation, probably in the hundreds of millions 
of dollars based on work the Joint Committee on Taxation has done on 
this concept over the past year. But it is crucial to remember that 
this cost represents charitable giving of many times that amount; by 
the same techniques used to estimate tax cost, it's estimated the 
giving stimulated to be as much as seven times the revenue cost, 
placing its value in the range of $2 to $3 billion. In short, this 
revenue impact represents the expectation of significant transfers to 
charity as a result of the legislation.
  Good tax policy would advocate the broadest support of charitable 
giving. 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. By inhibiting these charitable gifts, the Government not only 
hurts those individuals that most need the help of their Government and 
their community.
  I welcome my colleagues' support and cosponsorship for this 
legislation. I urge each Member to talk to their constituents about it 
and learn for themselves the response received from those individuals 
and families in local communities in a position to make such a 
charitable gift of their business.

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