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Nonprofits Face Old Foe If Grassley Takes Senate Finance Helm

Nov. 8, 2018, 6:04 PM

The nonprofit sector could be in the crosshairs if Sen. Chuck Grassley (R-Iowa) returns to lead the Senate’s powerful tax-writing committee.

Grassley is next in line to lead the Finance Committee after current Chairman Orrin G. Hatch (R-Utah) retires at the end of the session. Grassley—who led the committee in 2001 and from 2003 to 2007—has regularly turned his stern gaze toward tax-exempt organizations. He is likely to announce whether he’ll take the chairman position next week, once the Senate returns, a spokesman said.

A Grassley-led committee could choose to conduct intensive investigations of nonprofits or shepherd legislation to rein in the benefits they receive. The spokesman declined to comment on whether the senator would focus on nonprofit tax policy as chairman.

Grassley was the force behind the Affordable Care Act’s annual reporting requirements for charitable hospitals, and has investigated charitable hospitals for aggressive collection practices. He is also a vocal critic of wealthy colleges that sit on massive endowments, and in his last stint as chairman he went after tax deductions tied to incremental art donations.

His decision on the chairmanship comes at an already fragile time for the nonprofit sector. About 30 wealthy universities will pay 1.4 percent on their investment returns to the federal government starting this year, a measure added in the 2017 tax overhaul.

Charities also fear donations will decline after the 2017 tax law increased the standard deduction and lowered income tax rates—two measures that could discourage giving.

Nonprofits are already nervous about the possibility of a Grassley-led Finance Committee, a tax lobbyist said Nov. 8. One area Grassley could focus on is donor-advised funds—charitable-giving vehicles that effectively are middlemen between donors and the charities that receive the money.

Individuals who use the structures receive an immediate tax benefit even if the money is paid out over a period of years. There is some concern that the optics of the funds could draw scrutiny, the lobbyist said.

Some Protection?

Still, because Democrats will control the House, a Republican majority in the Senate won’t go unchecked, the lobbyist said.

Nonprofit industry representatives are already planning to work with lawmakers on both sides of the Capitol next year.

Grassley’s previous stint as chairman led to productive conversations about creating more accountability and transparency, Allison Grayson, director of policy development and analysis at Independent Sector, told Bloomberg Tax Nov. 8. This time, the sector wants to be ahead of the curve and initiate those discussions, she said.

“We want to show that they don’t need to threaten us with regulations in order to have conversations about accountability and transparency,” Grayson said.

Two focus areas will include the unrelated business income tax that tax-exempt groups are subject to and protection of the Johnson Amendment, Hadar Susskind, senior vice president of government relations for the Council on Foundations, told Bloomberg Tax in a Nov. 7 email.

Republicans have over the last year taken aim at the Johnson Amendment, a tax code section that prohibits exempt groups from endorsing or opposing political candidates.

To contact the reporter on this story: Robert Lee in Washington at rlee@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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