The Next Step Toward Welfare Reform:

A Manual for Enacting Tax Credits

for Charitable Contributions

March 1998

 

6. Model Legislation

Depending on the complexities of the proposed legislation, especially concerning welfare, writing legislation can be an arduous and painstaking process. To make the process easier and more efficient, BHI has crafted a generic tax credit model legislation that any state could use as a starting point. This legislation is a product of ongoing cooperation between BHI and the American Legislative Exchange Council's Health and Human Services Task Force, with input from other institutes.

Section 1. Title.

This act may be cited as the Charity Tax Credit Act.

Section 2. Definition

“Eligible individuals” means all taxpayers, both those who itemize and those who do not itemize deductions on their federal tax returns.

“Credit” means an amount equal to the qualified contributions paid by the taxpayer to one or more qualified charities during the taxable year, up to a maximum credit as provided in Section 3.

“Qualified Charity” means a nonprofit organization that meets the following conditions:

  1. The organization must qualify for nonprofit status under section 501(c)(3) of the Internal Revenue Code, and must be tax-exempt under section 501(a).
  2. Contributions to the organization are deductible as charitable contributions for federal income tax purposes.
  3. The organization is certified by the {insert appropriate state department or nonprofit organization} as primarily assisting the poor, as provided in Section 4.

“Qualified Charitable Contribution” means a charitable contribution made in cash to a qualified charity.

Section 3. Charitable Contributions.

  1. Eligible individuals can contribute to one or more qualified charities during the taxable year, and will be given a {amount}% credit of the maximum amount of {amount} for single filers and {amount} for joint filers.
  2. Contributions must be made in cash.
  3. Contributions to be eligible for a tax credit must be made by April 15th of the following year.

Section 4. Tax Credit Carryover.

If the allowable tax credit exceeds the taxes otherwise due on the claimant's income, or if there are no taxes due, the taxpayer may carry the amount of the unused claim to offset the taxes forward for not more than five consecutive taxable years' income tax liability.

Section 5. Contributions to Qualifying Charitable Organizations.

The credit should apply only to contributions to qualifying charitable organizations that exceed the total amount deducted pursuant to Section 170 of the Internal Revenue Code in the taxpayer's baseline year or ${amount}, whichever is greater. The taxpayer's baseline is the 1997 taxable year if the taxpayer deducted charitable contributions pursuant to Section 170 of the Internal Revenue Code in the 1997 taxable year.

Section 6. Eligibility of Qualified Charity.

  1. A nonprofit organization must receive certification by the {insert appropriate state department} that its predominant activity is the provision of services to individuals who {definition of poverty}.
  2. Organizations and programs that qualify for the tax credit include those providing the following means-tested programs: clothing; foster-care and guardianship organizations; emergency shelter for psychiatric emergencies; housing and employment for the elderly; employment and job training services, placement and counseling, but not schools or colleges; public food assistance (in kind and food stamps), food pantries, and soup kitchens; fuel assistance; housing subsidies, housing in kind, and housing counseling and mediation; emergency shelters and emergency housing; cash aid such as AFDC and SSI; child care; alcohol and substance abuse counseling and care; child abuse and neglect; youth development for the disadvantaged.
  3. These services will be the organization's predominant activity and the organization's annual expenditures for providing these services will be at least {amount}% of the organization's annual aggregate expenditures.
  4. No more than {amount}% of the organization's overall budget can be used for overhead costs which may include: administrative expenses; expenses primarily for the purpose of fund raising; or expenses for legal services on behalf of the organization.
  5. No more than {amount}% of the organization's overall budget may be used to pay for one or more of the following activities: voter registration; political organization, public policy advocacy, public policy research, or other ways of influencing legislation.

Section 7. Certification of Qualified Charity.

  1. The certification of an organization is valid for the calendar year during which the certification is issued.
  2. When applying for certification for a second or subsequent year, the organization shall include with its application a detailed report of its activities for the prior 12-month period, including statistics on the number of individuals served, the location and type of services provided, and any other information required by the {insert appropriate state department}.

Section 8. Taxpayer May Not Have Financial Interest in Charity.

No credit is allowed for a contribution made to an organization if either of the following conditions applies:

  1. The taxpayer or a member of the taxpayer's family is an officer or employee of the organization.
  2. The taxpayer, a member of the taxpayer's family, or a {insert appropriate percentage e.g. thirty-five percent } controlled entity of the taxpayer or a member of the taxpayer's family engages in significant activities with respect to the organization.

Section 9. {Severability clause}

Section 10. {Repealer clause}

Section 11. This act is effective for taxable years beginning on or after {year}.

 

 

 

Table of Contents

Introduction

Implications for Policymakers (FAQ)

Implications for Taxpayers and Donors (FAQ)

Implications for Nonprofit Organizations (FAQ)

Current and Proposed State Tax Credit Legislation (FAQ)

Predicting Giving

Appendix I: Survey Results

Appendix I: BHI Nonprofit Organization Survey Results

 

The Beacon Hill Institute for Public Policy Research focuses on federal, state and local economic policies as they affect Massachusetts citizens and businesses. The institute conducts research and educational programs to provide timely, concise and readable analyses that help voters, policy makers and opinion leaders understand today's leading public policy issues.

© March 1998 Beacon Hill Institute at Suffolk University

ISBN 1-886320-04-7

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