[Senate Report 114-19]
[From the U.S. Government Publishing Office]
Calendar No. 42
114th Congress } { Report
SENATE
1st Session } { 114-19
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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).
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