US changes to tax code could mean big problems for US charities

November 30, 2017 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, What's New from the Charities Directorate of CRA, Canadian Charity Law, Planned Giving and Canadian Charities, Ethics and Canadian Charities, Avoiding 'Charity' Scams

The US House and Senate are looking at major changes to the tax code that could have a significant impact on US donors and whether they receive any tax incentives for their donations.  Now, 1 in 3 US donors may get a tax incentive when they donate to charity; with the proposed changes, only 1 in 20 US donors will receive a tax incentive for their donations.  A number of US charity umbrella groups have been lobbying hard to prevent certain changes.  We will know shortly whether the charity sector will be blindsided or if last minute amendments will occur.  There are lots of lessons here for Canada.

Some of the highlights that Canadians can learn from the debacle playing out in the US:

One year you think that charitable incentives are secure and the next year you are fighting for your life.  The Liberal government has already removed a number of tax incentives in the Income Tax Act that existed or were proposed. Some were major and some minor.  Instead of the charitable sector working hard to maintain its current tax incentives, there are a number of efforts by certain groups to increase certain niche donation incentives.   If the US loses many of their donation tax incentives, we may see pressure to adjust our tax system to be more similar to the US system.  Instead of highlighting the already very generous tax incentives provided, we should focus more on talking about the important work of the sector.     

The US has very weak enforcement of charities by the IRS. Also, there is a patchwork of state attorney general regulation which is very bureaucratic and lacks resources to properly monitor charities, especially large charities that transcend state boundaries.  It is not surprising that with such lax regulation there is a growing constituency that thinks that US charities are a 'wild west' and not so deserving of donation tax incentives.  We need to maintain and strengthen our oversight in Canada or we will face growing problems down the road.  The US is increasingly registering 501(c)3 organizations through a simplified procedure with almost no information provided to the IRS and many organizations have been registered that are probably not really eligible or appropriate.  This, along with other gaps in the US system, is resulting in lots of problematic groups being considered as 501(c)3s.  

The US, and to a much greater extent the UK, have media that are very critical of charities which leads to lessened public trust.  I deal with the media frequently in their attempts to understand the Canadian charity sector.  Almost all journalists I deal with have a real desire to know whether there is a story and to get the story right.   The charity sector should have better organized and broader outreach to media to make sure they understand the sector, its challenges and complexities.  If not, we can expect more coverage of the sector in the future - but necessarily better coverage - and unfortunately the charity sector and its reputation will suffer. 

Some of the recent information on the US tax changes and how they affect charities include:

Nonprofits and Tax Reform: 2017 Senate GOP Plan by Gene Takagi 

The Independent Sector 

Association of Fundraising Professionals 

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

mark@blumbergs.ca
416.361.1982
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