[Senate Report 114-19]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 42
                                                        
114th Congress        }                        {     Report
                                 SENATE
 1st Session          }                        {      114-19
====================================================================
 
                  CHARITABLE AGRICULTURAL RESEARCH ACT

                                _______
                                

                 April 14, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 908]

    The Committee on Finance, having considered an original 
bill, S. 908, to amend the Internal Revenue Code of 1986 to 
provide for the deductibility of charitable contributions to 
agricultural research organizations, and for other purposes, 
having considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. LEGISLATIVE BACKGROUND...........................................1
 II. EXPLANATION OF THE BILL..........................................2
        A. Provide Special Rules Concerning Charitable 
            Contributions to, and Public Charity Status of, 
            Agricultural Research Organizations (sec. 2 of the 
            bill and secs. 170(b) and 501(h) of the Code)........     2
        B. Increase Continuous Levy Authority on Payments to 
            Medicare Providers and Suppliers (sec. 3 of the bill 
            and sec. 6331(h) of the Code)........................     5
III. BUDGET EFFECTS OF THE BILL.......................................7
 IV. VOTES OF THE COMMITTEE...........................................9
  V. REGULATORY IMPACT AND OTHER MATTERS..............................9
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 908, the 
``Charitable Agricultural Research Act,'' to amend the Internal 
Revenue Code of 1986 to provide for the deductibility of 
charitable contributions to agricultural research 
organizations, and for other purposes, reports favorably 
thereon without amendment and recommends that the bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Senators 
Thune and Stabenow, and on S. 1280 (113th Cong., 1st Sess.), 
co-sponsored by Senators Stabenow, Thune, Blunt, Cantwell, 
Cochran, Coons, Inhofe, Klobuchar and Wyden, the Committee on 
Finance marked up original legislation (the ``Charitable 
Agricultural Research Act'') on February 11, 2015, and, with a 
majority present, ordered the bill favorably reported.
    Need for legislative action.--The production agriculture's 
current economic strength is a direct result of research that, 
among other things, has increased crop yields, made livestock 
healthier, and made food safer. Recognizing the need for 
additional funding for agricultural research in a growing 
global market, the Committee believes it is appropriate to 
encourage research affiliations between private charitable 
organizations and institutions of higher education. To 
stimulate private funding of these arrangements, the provision 
includes rules designed to ensure that an agricultural research 
organization that collaborates with a college or university of 
agriculture will be treated as a public charity and that 
charitable contributions to the organization will qualify for 
the more preferential charitable contribution percentage 
limits.
    In addition, it has been reported that many thousands of 
Medicare providers and suppliers have outstanding Federal 
employment and income tax liability, which contribute to the 
tax gap. The permissible percentage of payments to a Medicare 
provider subject to levy should be increased.

                      II. EXPLANATION OF THE BILL


 A. Provide Special Rules Concerning Charitable Contributions to, and 
 Public Charity Status of, Agricultural Research Organizations (sec. 2 
          of the bill and secs. 170(b) and 501(h) of the Code)


                              PRESENT LAW

Public charities and private foundations

    An organization qualifying for tax-exempt status under 
section 501(c)(3) of the Internal Revenue Code of 1986, as 
amended (the ``Code'') is further classified as either a public 
charity or a private foundation. An organization may qualify as 
a public charity in several ways.\1\ Certain organizations are 
classified as public charities per se, regardless of their 
sources of support. These include churches, certain schools, 
hospitals and other medical organizations (including medical 
research organizations), certain organizations providing 
assistance to colleges and universities, and governmental 
units.\2\ Other organizations qualify as public charities 
because they are broadly publicly supported. First, a charity 
may qualify as publicly supported if at least one-third of its 
total support is from gifts, grants or other contributions from 
governmental units or the general public.\3\ Alternatively, it 
may qualify as publicly supported if it receives more than one-
third of its total support from a combination of gifts, grants, 
and contributions from governmental units and the public plus 
revenue arising from activities related to its exempt purposes 
(e.g., fee for service income). In addition, this category of 
public charity must not rely excessively on endowment income as 
a source of support.\4\ A supporting organization, i.e., an 
organization that provides support to another section 501(c)(3) 
entity that is not a private foundation and meets certain other 
requirements of the Code, also is classified as a public 
charity.\5\
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    \1\The Code does not expressly define the term ``public charity,'' 
but rather provides exceptions to those entities that are treated as 
private foundations.
    \2\Sec. 509(a)(1) (referring to sections 170(b)(1)(A)(i) through 
(iv) for a description of these organizations).
    \3\Treas. Reg. sec. 1.170A-9(f)(2). Failing this mechanical test, 
the organization may qualify as a public charity if it passes a ``facts 
and circumstances'' test. Treas. Reg. sec. 1.170A-9(f)(3).
    \4\To meet this requirement, the organization must normally receive 
more than one-third of its support from a combination of (1) gifts, 
grants, contributions, or membership fees and (2) certain gross 
receipts from admissions, sales of merchandise, performance of 
services, and furnishing of facilities in connection with activities 
that are related to the organization's exempt purposes. Sec. 
509(a)(2)(A). In addition, the organization must not normally receive 
more than one-third of its public support in each taxable year from the 
sum of (1) gross investment income and (2) the excess of unrelated 
business taxable income as determined under section 512 over the amount 
of unrelated business income tax imposed by section 511. Sec. 
509(a)(2)(B).
    \5\Sec. 509(a)(3). Organizations organized and operated exclusively 
for testing for public safety also are classified as public charities. 
Sec. 509(a)(4). Such organizations, however, are not eligible to 
receive deductible charitable contributions under section 170.
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    A section 501(c)(3) organization that does not fit within 
any of the above categories is a private foundation. In 
general, private foundations receive funding from a limited 
number of sources (e.g., an individual, a family, or a 
corporation).
    The deduction for charitable contributions to private 
foundations is in some instances less generous than the 
deduction for charitable contributions to public charities. For 
example, an individual taxpayer who makes a cash charitable 
contribution may deduct the contribution up to 50 percent of 
her contribution base (generally, adjusted gross income, with 
modifications) if the contribution is made to a public charity, 
but only up to 30 percent of her contribution base if the 
contribution is made to a non-operating private foundation.\6\
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    \6\Secs. 170(b)(1)(A) and (B).
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    In addition, private foundations are subject to a number of 
operational rules and restrictions that do not apply to public 
charities, as well as a tax on their net investment income.\7\
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    \7\Unlike public charities, private foundations are subject to tax 
on their net investment income at a rate of two percent (one percent in 
some cases). Sec. 4940. Private foundations also are subject to more 
restrictions on their activities than are public charities. For 
example, private foundations are prohibited from engaging in self-
dealing transactions (sec. 4941), are required to make a minimum amount 
of charitable distributions each year (sec. 4942), are limited in the 
extent to which they may control a business (sec. 4943), may not make 
speculative investments (sec. 4944), and may not make certain 
expenditures (sec. 4945). Violations of these rules result in excise 
taxes on the foundation and, in some cases, may result in excise taxes 
on the managers of the foundation.
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Medical research organizations

    A medical research organization is treated as a public 
charity per se, regardless of its sources of financial support, 
and charitable contributions to a medical research organization 
may qualify for the more preferential 50-percent limitation.\8\
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    \8\Secs. 170(b)(1)(A)(iii) and 509(a)(1).
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    To qualify as a medical research organization, an 
organization's principal purpose or functions must be medical 
research, and it must be directly engaged in the continuous 
active conduct of medical research in conjunction with a 
hospital.\9\ For a contribution to a medical research 
organization to qualify for the more preferential 50-percent 
limitation of section 170(b)(1)(A), during the calendar year in 
which the contribution is made, the organization must be 
committed to spend such contribution for the active conduct of 
medical research before January 1 of the fifth calendar year 
beginning after the date such contribution is made.\10\
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    \9\Treas. Reg. sec. 1.170A-9(d)(2)(i).
    \10\Ibid.
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Lobbying activities of section 501(c)(3) organizations

    Charitable organizations face limits on the amount of 
permissible lobbying activity. An organization does not qualify 
for tax-exempt status as a charitable organization unless ``no 
substantial part'' of its activities constitutes ``carrying on 
propaganda, or otherwise attempting, to influence legislation'' 
(commonly referred to as ``lobbying'').\11\ Public charities 
may engage in limited lobbying activities, provided that such 
activities are not substantial, without losing their tax-exempt 
status and generally without being subject to tax. In contrast, 
private foundations are subject to a restriction that lobbying 
activities, even if insubstantial, may result in the foundation 
being subject to penalty excise taxes.\12\
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    \11\Sec. 501(c)(3).
    \12\Sec. 4945(d)(1).
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    For purposes of determining whether lobbying activities are 
a substantial part of a public charity's overall functions, a 
public charity may choose between two standards, the 
``substantial part'' test or the ``expenditure'' test.\13\ The 
substantial part test derives from the statutory language 
quoted above and uses a facts and circumstances approach to 
measure the permissible level of lobbying activities. The 
expenditure test sets specific dollar limits, calculated as a 
percentage of a charity's total exempt purpose expenditures, on 
the amount a charity may spend to influence legislation.\14\
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    \13\Secs. 501(c)(3), 501(h), and 4911. Churches and certain church-
related entities may not choose the expenditure test. Sec. 501(h)(5).
    \14\Secs. 501(h) and 4911.
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                           REASONS FOR CHANGE

    The Committee believes that production agriculture's 
current economic strength is a direct result of research that, 
among other things, has increased crop yields, made livestock 
healthier, and made food safer. Recognizing the need for 
additional funding for agricultural research in a growing 
global market, the Committee believes it is appropriate to 
encourage research affiliations between private charitable 
organizations and institutions of higher education in the same 
manner as the Code encourages research affiliations between 
medical research organizations and hospitals. To stimulate 
private funding of these arrangements, the provision includes 
rules designed to ensure that an agricultural research 
organization that collaborates with a college or university of 
agriculture will be treated as a public charity and that 
charitable contributions to the organization will qualify for 
the more preferential charitable contribution percentage 
limits.

                        EXPLANATION OF PROVISION

    The provision amends section 170(b)(1)(A) to provide 
special treatment for certain agricultural research 
organizations, consistent with the present-law treatment for 
medical research organizations. The effect of the proposed 
amendment, therefore, is to: (1) allow certain charitable 
contributions to qualifying agricultural research organizations 
to qualify for the 50-percent limitation; and (2) treat 
qualifying agricultural research organizations as public 
charities (i.e., non-private foundations) per se, regardless of 
their sources of financial support.
    To qualify, an agricultural research organization must be 
engaged in the continuous active conduct of agricultural 
research (as defined in section 1404 of the Agricultural 
Research, Extension, and Teaching Policy Act of 1977) in 
conjunction with a land-grant college or university (as defined 
in such section) or a non-land grant college of agriculture (as 
defined in such section). In addition, for a contribution to an 
agricultural research organization to qualify for the 50-
percent limitation, during the calendar year in which a 
contribution is made to the organization it must be committed 
to spend the contribution for such research before January 1 of 
the fifth calendar year which begins after the date of 
enactment. It is intended that the provision be interpreted in 
like manner to and consistent with the rules applicable to 
medical research organizations.
    An agricultural research organization is permitted to use 
the expenditure test of section 501(h) for purposes of 
determining whether a substantial part of its activities 
consist of carrying on propaganda, or otherwise attempting, to 
influence legislation (i.e., lobbying).

                             EFFECTIVE DATE

    The provision is effective for contributions made on or 
after the date of enactment.

B. Increase Continuous Levy Authority on Payments to Medicare Providers 
    and Suppliers (sec. 3 of the bill and sec. 6331(h) of the Code)


                              PRESENT LAW

In general

    Levy is the administrative authority of the IRS to seize a 
taxpayer's property, or rights to property, to pay the 
taxpayer's tax liability.\15\ Generally, the IRS is entitled to 
seize a taxpayer's property by levy if a Federal tax lien has 
attached to such property,\16\ the property is not exempt from 
levy,\17\ and the IRS has provided both notice of intention to 
levy\18\ and notice of the right to an administrative hearing 
(the notice is referred to as a ``collections due process 
notice'' or ``CDP notice'' and the hearing is referred to as 
the ``CDP hearing'')\19\ at least 30 days before the levy is 
made. A levy on salary or wages generally is continuously in 
effect until released.\20\ A Federal tax lien arises 
automatically when: (1) a tax assessment has been made; (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment; and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\21\
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    \15\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \16\Ibid.
    \17\Sec. 6334.
    \18\Sec. 6331(d).
    \19\Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \20\Secs. 6331(e) and 6343.
    \21\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\22\
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    \22\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\23\
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    \23\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\24\ authorized the establishment of 
the Federal Payment Levy Program (``FPLP''), which allows the 
IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\25\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent for 
payments made within 180 days after December 19, 2014. For 
payments made after that date, the levy is up to 30 
percent.\26\
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    \24\Pub. L. No. 105-34.
    \25\Sec. 6331(h)(3).
    \26\Pub. L. No. 113-295, Division B.
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           REASONS FOR CHANGE

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability, which contribute to the tax gap. 
Consequently, the Committee believes that it is appropriate to 
increase the permissible percentage of payments to a Medicare 
provider subject to levy.

                        EXPLANATION OF PROVISION

    The provision provides that the present limitation of 30 
percent of certain specified payments be increased by an amount 
sufficient to offset the estimated revenue loss of the 
provision described in Part A, above.

                             EFFECTIVE DATE

    The provision is effective for payments made after 180 days 
after the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the ``Charitable Agricultural Research Act'' as 
reported.
    The provisions are estimated to have the following effects 
of Federal budget receipts for fiscal years 2015-2025. 


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that certain provisions of the bill as 
reported affect the levels of tax expenditures (see revenue 
table in part A., above).

            C. Consultation With Congressional Budget Office

    In accordance with section 402 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the ``Charitable Agricultural Research Act,'' 
was ordered favorably reported by voice vote on February 11, 
2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

    The bill provides rules regarding charitable contributions 
to, and public charity status of, agricultural research 
organization. It also increases the IRS's continuous levy 
authority on payments to Medicare providers and suppliers. The 
provisions of the bill are not expected to impose additional 
administrative requirements or regulatory burdens on 
individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the tax provisions of the 
reported bill do not contain Federal private sector mandates or 
Federal intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  [all]