[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)).
          * * * * * * *