[House Report 105-146]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 105-146
_______________________________________________________________________
CHARITABLE DONATION ANTITRUST IMMUNITY ACT OF 1997
_______________________________________________________________________
June 23, 1997.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hyde, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany H.R. 1902]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1902) to immunize donations made in the form of
charitable gift annuities and charitable remainder trusts from
the antitrust laws and State laws similar to the antitrust
laws, having considered the same, reports favorably thereon
without amendment and recommends that the bill do pass.
TABLE OF CONTENTS
Page
Purpose and Summary........................................ 1
Background and Need for the Legislation.................... 2
Committee Consideration.................................... 3
Committee Oversight Findings............................... 3
Committee on Government Reform and Oversight Findings...... 4
New Budget Authority and Tax Expenditures.................. 4
Congressional Budget Office Cost Estimate.................. 4
Congressional Authority Statement.......................... 5
Section-by-Section Analysis and Discussion................. 5
Changes in Existing Law Made by the Bill, as Reported...... 7
Purpose and Summary
The ``Charitable Donation Antitrust Immunity Act of 1997''
provides antitrust immunity to those involved in raising
charitable do-
nations in the form of charitable gift annuities and charitable
remainder trusts. The exemption extends to both federal and
state law, although a state would have until 1998 to expressly
override application of the Act to its state antitrust laws.
Background and Need for the Legislation
Charitable gift annuities and charitable remainder trusts
are fundraising instruments defined and regulated under
sections 501(m)(5) and 664(d) of the Internal Revenue Code. A
person who enters into a gift annuity or charitable remainder
trust agreement with a religious, charitable or educational
institution makes a gift to the institution and receives a
fixed income for life. Since the value of the gift received is
more than the property transferred to the donor, a bargain sale
has occurred, and the difference in values is deductible to the
donor. See 26 U.S.C. Sec. 1011(b).
The annuity rate applied to the value of the gift is the
critical element in ensuring that the transaction will result
in a meaningful gift to the charity. The American Council on
Gift Annuities, a non-profit organization representing more
than 1,500 charitable organizations and institutions, provides
technical assistance to its members in determining appropriate
annuity rates. The rates recommended by the Council are based
on actuarial studies of mortality experience among annuitants
and a conservative projection of the rate of income to be
earned on invested reserve funds. They are computed to produce
an average ``residuum'' or gift to the organization of between
40 and 60 percent of the amount originally donated under the
agreement. Consequently, the rates are lower than and are not
in competition with any rates offered commercially.
The Council promotes the use of its rates for two reasons.
First, it protects the fiscal integrity of the charity.
Offering gift annuities at rates higher than the recommended
rates may jeopardize the gift that is to be available to the
charity. If the rate is too high, other funds or the general
assets of the organization may be required to carry out the
terms of the agreement. Second, it ensures that donative intent
rather than financial gain motivates the choice of recipient.
Use of consistent annuity rates, and thus equal rates of
return, assure a ``level playing field'' for charities, so that
a donor's choice of the charitable beneficiary of a gift
annuity will depend on the relative merits of the institutions
under consideration in the subjective judgment of the donor.
Charitable giving through gift annuities and charitable
trusts continues to be threatened by a lawsuit currently
pending in the United States District Court for the Northern
District of Texas. Richie v. American Council on Gift
Annuities, Inc. (Civ. No. 7:94-CV-128-X). The Richie suit, as
originally filed, alleged that the use of the same annuity rate
by the various charities constituted price fixing, and thus a
violation of the antitrust laws. The complaint sought to enjoin
the charities from offering gift annuities using the Council's
tables, to obtain a refund, and to recover treble damages.
In recognition of the potential impact of this litigation
on charitable giving, Congress enacted (by a vote of 427-0 in
the House, and by voice vote in the Senate) the ``Charitable
Gift Annuity Antitrust Relief Act of 1995'' (15 U.S.C. Sec. 37,
et seq.), which grants antitrust protection to entities
described in section 501(c)(3) of the Internal Revenue Code and
exempt from taxation, and which issue charitable gift
annuities. It specifies that agreeing to use, or using the same
annuity rate for the purpose of issuing one or more charitable
gift annuity is not unlawful under the antitrust laws. The
exemption extends to both Federal and State law, although a
state would have three years after enactment to expressly
override application of the bill to its state antitrust laws.
Enactment of the 1995 Act was anticipated to provide a
complete defense to the antitrust portions of Richie, as well
as protection from future suits based on the use of agreed-
upon annuity rates. Unfortunately, that has not proven to be
the case. A recent decision by the United States Court of
Appeals for the Fifth Circuit, Ozee v. American Council on Gift
Annuities, Inc., 110 F.3d 1082 (5th Cir. 1997), upheld the
denial of a motion to dismiss based on an assertion of the new
antitrust exemption. This decision, and the ruling of the
District Court, indicates that the Charitable Gift Annuity
Antitrust Relief Act of 1995 is not being interpreted as
broadly as it was intended by Congress.
H.R. 1902 replaces current law with language drafted in
broader terms, so as to ensure that the provision will be
interpreted by the courts in a manner which will achieve the
goals of the 1995 Act. Enactment of the Act is intended to
obviate the need for further litigation over the antitrust
portions of the Richie case, in that it extends complete
immunity to all defendants being sued for participation in the
issuance of a charitable gift annuity or charitable remainder
trust.
The Committee believes that given the valuable role our
charities serve in our communities, the importance of gift
annuities and charitable remainder trusts as a source of
funding for them, and the tremendous legal and financial
uncertainty caused by pending and possibly future antitrust
challenges, H.R. 1902 is well justified. The legislation is
narrowly crafted and the Antitrust Division of the Department
of Justice has voiced no objections to it.
Committee Consideration
Chairman Hyde introduced H.R. 1902 on June 17, 1997.
Original co-sponsors of the bipartisan measure included Ranking
Minority Member Conyers, as well as Mr. Sensenbrenner, Mr.
Schiff, Mr. Goodlatte, Mr. Chabot, Mr. Schumer, Mr. Berman, Ms.
Lofgren, and Mr. Rothman. On June 18, 1997, the Committee met
in open session and ordered the bill reported favorably by
voice vote, a quorum being present.
Committee Oversight Findings
In compliance with clause 2(1)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(1)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(1)(3)(B) of House Rule XI is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 20, 1997.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Office has prepared
the enclosed cost estimate for H.R. 1902, the Charitable
Donation Antitrust Immunity Act of 1997.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Susanne S.
Mehlman (for federal costs), who can be reached at 226-2860,
and Leo Lex (for the state and local impact), who can be
reached at 225-3220.
Sincerely,
June E. O'Neill, Director.
Enclosure.
H.R. 1902--Charitable Donation Antitrust Immunity Act of 1997
CBO estimates that enacting H.R. 1902 would result in no
significant cost or savings to the federal government. Because
enactment of H.R. 1902 would not affect direct spending or
receipts, pay-as-you-go procedures would not apply to the bill.
H.R. 1902 may contain an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act of 1995 (UMRA), but CBO
estimates that any resulting compliance costs would be minimal.
The bill would impose no new private-sector mandates as defined
in UMRA.
H.R. 1902 would provide antitrust protection to charitable
gift annuities or charitable remainder trusts, and to persons
who assist in the issuance of such annuities or trusts. Under
current law, it is unclear whether it is a violation of the
antitrust laws for two or more charitable organizations to use
or agree to use the same annuity rate for the purpose of
issuing one or more charitable gift annuities. According to the
Department of Justice (DOJ), only one lawsuit between two
private parties alleging such a violation is currently pending
in federal court. Based on information from DOJ, CBO estimates
that while enacting this bill could preclude certain antitrust
cases from being litigated, any reduction in future cases would
not be significant. Thus, enacting H.R. 1902 could result in
some savings to the federal court system, but the amount of
such savings would not be significant.
In addition, enacting H.R. 1902 would require the Attorney
General to conduct a study to determine the effect of this Act
on markets for noncharitable annuities, charitable gift
annuities, and charitable remainder trusts. Based on
information from DOJ, CBO does not expect that the cost to
conduct such a study would exceed $500,000.
H.R. 1902 would exempt from state antitrust laws specific
charitable organizations and entities involved in establishing
charitable remainder trusts and charitable gift annuities. Such
a preemption would constitute a mandate under UMRA. However,
states are given the authority to enact legislation which would
reestablish state antitrust laws governing these entities
(assuming the legislation is passed before December 8, 1998).
Even in the absence of state legislation that would overturn
this preemption and mandate, CBO estimates that the cost of the
provisions in H.R. 1902 to state governments would be minimal.
The CBO staff contacts for this estimate are Susanne S.
Mehlman (for federal costs), who can be reached at 226-2860,
and Leo Lex (for the state and local impact), who can be
reached at 225-3220. This estimate was approved by Paul N. Van
de Water, Assistant Director for Budget Analysis.
Congressional Authority Statement
Pursuant to rule XI, clause 2(l)(4) of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article 1, section 8, clause 3 of the
United States Constitution.
Section-by-Section Analysis
Section 1.--Short Title
The Act may be cited as the ``Charitable Donation Antitrust
Immunity Act of 1997.''
Section 2.--Immunity From Antitrust Laws
Section 2 of the bill replaces subsection (a) and (b) in 15
U.S.C. Sec. 37 with four new subsections. It also deletes the
definition of ``annuity rate'' in paragraph (1) of 15 U.S.C.
Sec. 37a, and adds to that section the definitions of
``charitable remainder trust'' and ``final determination.''
New subsection (a) of 15 U.S.C. Sec. 37 provides that the
antitrust laws, or state laws similar to the antitrust laws,
shall not apply to charitable gift annuities or charitable
remainder trusts.
New subsection (b) provides immunity from suit under the
antitrust laws for any person subject to legal proceedings
where the alleged conduct involves a charitable gift annuity or
a charitable remainder trust. This immunity will protect
defendants from the cost, burden, and risk of having to
participate in discovery and trial. A defendant unsuccessful in
obtaining dismissal or summary judgment based on the immunity
granted by this subsection will have the right to interlocutory
appeal of that ruling. See Behrens v. Pelletier, 116 S.Ct. 834
(1996).
New subsection (c) creates a conclusive presumption that a
particular annuity or trust is a charitable gift annuity or
charitable remainder trust, and is thus excluded from coverage
of the antitrust laws under subsection (a). This conclusive
presumption can be satisfied in two ways. The first is by a
showing that the annuity or trust was treated as a charitable
gift annuity or charitable remainder trust in any filing by the
donor with the Internal Revenue Service. This would include
having claimed the annuity or trust as a charitable deduction
on a tax return. The second is by a showing that the annuity or
trust was treated as a charitable gift annuity or charitable
remainder trust in any schedule, form, or written document
provided by or on behalf of the donee to the donor. However, a
litigant would not be entitled to a conclusive presumption
under this subsection if the Internal Revenue Service has made
a final determination that the annuity or trust at issue did
not qualify as a charitable gift annuity or charitable
remainder trust.
The antitrust protection granted under subsection (a) is
limited to charitable gift annuities and charitable remainder
trusts, instruments which are described and governed by
Internal Revenue Service statutes and regulations. The
Committee firmly believes that the determination as to whether
an annuity or trust meets those rules should be made by the
agency of competence, the Internal Revenue Service. That agency
is best situated to analyze, for example, whether the donee
organization met the criteria for designation as a section
501(c)(3) organization, or whether the annuity or trust met the
criteria established by the Internal Revenue Service for
treatment as a tax-deductible instrument.
The Committee recognizes that the Richie amended complaint
alleges that, despite having obtained a section 501(c)(3)
determination letter from the Internal Revenue Service, certain
defendants are not qualified under section 501(c)(3). If this
were the case, any annuity or trust issued by that defendant
would not qualify as a charitable gift annuity or charitable
remainder trust. The Committee has no views on the accuracy of
these allegations, but believes that the proper forum for
resolving the issue is before the Internal Revenue Service, not
in an antitrust suit. The requirement that the Internal Revenue
Service be the arbiter of these issues of fact will not
preclude a donor from bringing suit under the antitrust laws
where the annuity or trust was invalid. In the event that the
Internal Revenue Service were to find that a particular donee
was not properly qualified, it would issue a final
determination to that effect. Upon issuance of that final
determination, the annuities and trusts issued by that donee
would no longer be entitled to the conclusive presumption
granted under subsection (c).
New subsection (d) would allow each of the states to
override the provisions of H.R. 1902 as to its state antitrust
laws by enacting legislation to that effect on or before
December 8, 1998.
The definition of ``final determination'' is added to make
it clear that the term includes a determination of the Internal
Revenue Service disallowing the donor's charitable deduction
for the year in which the initial contribution was made, on the
grounds that the annuity or trust did not qualify as a
charitable gift annuity or a charitable remainder trust at that
time. This determination becomes final when all administrative
remedies are exhausted as to the disallowance.
Section 3.--Application of Act
The Act, and any amendments made by the Act, shall apply
with respect to all conduct occurring before, on, or after the
date of the enactment of this Act and shall apply in all
administrative and judicial actions pending on or commenced
after the date of enactment of this Act.
Section 4.--Study and Report
Section 4 requires the Attorney General to undertake a
study to determine the effect of the Act on markets for non-
charitable annuities, charitable gift annuities, and charitable
remainder trusts. The use of the term ``market'' for charitable
gift annuities and charitable gift annuities should not be
interpreted as dispositive of the Committee's view on whether
these instruments constitute ``pure charity'' or ``commercial
transactions with a public service aspect.'' See DELTA v.
Humane Society, 50 F.3d 710 (9th Cir. 1995). As the Committee
noted in its report on the Charitable Gift Annuity Antitrust
Relief Act of 1995, ``[w]hether the issuance of a charitable
gift annuity will be deemed `pure charity' or a `commercial
transaction with a public service aspect' is unclear.'' H.R.
Rep. No 104-336 (1995), p. 3.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
CHARITABLE GIFT ANNUITY ANTITRUST RELIEF ACT OF 1995
* * * * * * *
[SEC. 2. MODIFICATION OF ANTITRUST LAWS.
[(a) Exempt Conduct.--Except as provided in subsection (b),
it shall not be unlawful under any of the antitrust laws, or
under a State law similar to any of the antitrust laws, for 2
or more persons described in section 501(c)(3) of the Internal
Revenue Code of 1986 (26 U.S.C. 501(c)(3)) that are exempt from
taxation under section 501(a) of such Code to use, or to agree
to use, the same annuity rate for the purpose of issuing 1 or
more charitable gift annuities.
[(b) Limitation.--Subsection (a) shall not apply with
respect to the enforcement of a State law similar to any of the
antitrust laws, with respect to conduct described in subsection
(a) occurring after the State enacts a statute, not later than
3 years after the date of the enactment of this Act, that
expressly provides that subsection (a) shall not apply with
respect to such conduct.]
SEC. 2. IMMUNITY FROM ANTITRUST LAWS.
(a) Inapplicability of Antitrust Laws.--Except as provided
in subsection (d), the antitrust laws, and any State law
similar to any of the antitrust laws, shall not apply to
charitable gift annuities or charitable remainder trusts.
(b) Immunity.--Except as provided in subsection (d), any
person subjected to any legal proceeding for damages,
injunction, penalties, or other relief of any kind under the
antitrust laws, or any State law similar to any of the
antitrust laws, on account of setting or agreeing to rates of
return or other terms for, negotiating, issuing, participating
in, implementing, or otherwise being involved in the planning,
issuance, or payment of charitable gift annuities or charitable
remainder trusts shall have immunity from suit under the
antitrust laws, including the right not to bear the cost,
burden, and risk of discovery and trial, for the conduct set
forth in this subsection.
(c) Treatment of Certain Annuities and Trusts.--Any annuity
treated as a charitable gift annuity, or any trust treated as a
charitable remainder trust, either--
(1) in any filing by the donor with the Internal
Revenue Service; or
(2) in any schedule, form, or written document
provided by or on behalf of the donee to the donor;
shall be conclusively presumed for the purposes of this Act to
be respectively a charitable gift annuity or a charitable
remainder trust, unless there has been a final determination by
the Internal Revenue Service that, for fraud or otherwise, the
donor's annuity or trust did not qualify respectively as a
charitable gift annuity or charitable remainder trust when
created.
(d) Limitation.--Subsections (a) and (b) shall not apply
with respect to the enforcement of a State law similar to any
of the antitrust laws, with respect to charitable gift
annuities, or charitable remainder trusts, created after the
State enacts a statute, not later than December 8, 1998, that
expressly provides that subsections (a) and (b) shall not apply
with respect to such charitable gift annuities and such
charitable remainder trusts.
SEC. 3. DEFINITIONS.
For purposes of this Act:
[(1) Annuity rate.--The term ``annuity rate'' means
the percentage of the fair market value of a gift
(determined as of the date of the gift) given in
exchange for a charitable gift annuity, that represents
the amount of the annual payment to be made to 1 or 2
annuitants over the life of either or both under the
terms of the agreement to give such gift in exchange
for such annuity.]
[(2)] (1) Antitrust laws.--The term ``antitrust
laws'' has the meaning given it in subsection (a) of
the first section of the Clayton Act (15 U.S.C. 12),
except that such term includes section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) to the extent that
such section 5 applies to unfair methods of
competition.
(2) Charitable remainder trust.--The term
``charitable remainder trust'' has the meaning given it
in section 664(d) of the Internal Revenue Code of 1986
(26 U.S.C. 664(d)).
(3) Charitable gift annuity.--The term ``charitable
gift annuity'' has the meaning given it in section
501(m)(5) of the Internal Revenue Code of 1986 (26
U.S.C. 501(m)(5)).
(4) Final determination.--The term ``final
determination'' includes an Internal Revenue Service
determination, after exhaustion of donor's and donee's
administrative remedies, disallowing the donor's
charitable deduction for the year in which the initial
contribution was made because of the donee's failure to
comply at such time with the requirements of section
501(m)(5) or 664(d), respectively, of the Internal
Revenue Code of 1986 (26 U.S.C. 501(m)(5), 664(d)).
[(4)] (5) Person.--The term ``person'' has the
meaning given it in subsection (a) of the first section
of the Clayton Act (15 U.S.C. 12(a)).
[(5)] (6) State.--The term ``State'' has the
meaning given it in section 4G(2) of the Clayton Act
(15 U.S.C. 15g(2)).
* * * * * * *