I was there—practicing charity and estate-planning law. I worked with charities informing the Congress—Ways & Means and Senate Finance Committee members and their staffs and the staff of the Joint Committee on Taxation—on the importance of private giving for the public good. And as a young lawyer, I was excited to go to the White House together with a college president to meet with a presidential advisor.
Rallying the Troops
I tried to get support of charities and donors. Of the 15 legislative alerts I sent out in 1969, one stands out:
Prerau & Teitell had a small office in New York City’s Chanin Building. It was a sweltering summer Saturday—no office-wide air-conditioning. I had to get out a legislative alert to over 1,000 charities.
This was well before faxes and emails. My wife, Adele, and I—working with a balky copy machine—made copies of the alert. The mail house was closed. So, we placed labels on the envelopes and inserted and sealed the alerts in the envelopes. We then placed 6¢ First Class postage stamps on the envelopes (the equivalent of a 1969 6¢ stamp is 42¢ in 2019 dollars).
I’ve already told you it was sweltering. So, Adele and I were stripped to our underwear.
The building’s security guard noticed a light through the smoked-glass transom over the front door. He entered and saw us in our underwear. Despite the heat, I kept my cool and told him, “We’re getting out a legislative alert.”
The Senate Finance Committee Hearing
After the third witness opposing provisions harmful to charities said, “Don’t throw out the baby with the bath water,” Senator Al Gore, Sr. (father of the later senator and vice president) bellowed: “Gentlemen, the charitable deduction is no BABY; it’s a MATURE LOOPHOLE!”
- I met with the Massachusetts Congressional delegation together with presidents and other officers of Massachusetts’ colleges, hospitals and other charities: They gave examples of vital gifts that were encouraged by tax incentives; I told about the tax proposals that would discourage charitable gifts, the unintended consequences and offered solutions.
- I attended a one-hour meeting scheduled with Senate Finance Committee Chairman Russell Long (son of Huey Long). I was to lead off for 15 minutes talking about charities’ concerns about the tax proposals—to be followed by representatives of a number of charities. The Senator had just returned from lunch. After I spoke for less than a minute, he leaned back in his office chair and fell asleep. I then ended by loudly saying, the charities will now tell their concerns. He awakened but appeared drowsy. The charities spoke for about 10 minutes, thanked the senator—and we were out of there.
House of Representatives Passed Bill
The standard charitable remainder unitrust (STAN-CRUT) and charitable remainder annuity trust (CRAT) were the only allowable charitable remainder gifts; no authorization for make-up charitable remainder unitrust and net-income charitable remainder unitrusts, no charitable gift annuities, nor charitable remainders in personal residences and farms. Tax benefits for outright gifts were diminished.
Senate Passed Bill
Overall, favorable (although complicated) to donors—and charities.
New Law Announced
Here’s the brief summary of TRA ‘69 from the first few pages of my newsletter’s January 1970 issue.
NEW TAX LAW CONTINUES TAX INCENTIVES TO CHARITABLE GIVING
Happy donors are here again. Tax incentives to charitable giving are firmly woven into the just-enacted Tax Reform Act. With very few exceptions the House-Senate Conference Committee adopted the Senate bill's more liberal provisions on charitable deductions. Although many of the new provisions are complicated and will require thorough knowledge and skill by development officers to present to donors, the new rules still provide strong stimulants to philanthropic support.
Dr. Lawrence Woodworth, Chief of Staff, Joint Committee on Taxation, played a major role in the House-Senate Conference Committee’s accepting the favorable provisions in the Senate’s bill. Indeed, he was instrumental in placing the favorable provisions in the Senate bill. [Dr. Woodworth went on to be Assistant Secretary of the Treasury for Tax Policy].
Philanthropic motivation remains foremost. Donors contribute to your institution because they believe in its work and goals. As always, the emphasis should be on the merits of your institution. Only after the donor decides to support your institution do tax savings become important.
Appreciated property gifts. Deduction for fair market value with no capital gains tax (direct or indirect) for most gifts (outright and deferred). [Deferred gifts are now called planned gifts.]
Life income trusts. Viable unitrust and annuity trusts substituted for classic charitable remainder trust. [TRA ‘69 in addition to STAN-CRUTs authorizes NIM-CRUTs and NICRUTs. FLIP-CRUTs were added by Treasury Regulations in the 1990's.]
Life income contracts. Tax benefits continue for pooled life income contract gifts meeting specific requirements; however, many existing pooled funds will require immediate and extensive modification.
Gift annuities. Charitable deduction allowed, but unclear whether bargain sale provisions apply if funded with appreciated property. [Subsequent law clarified that the bargain sale rules apply.]
Bargain sales. Benefits diminished.
Tangible personal property (e.g., works of art). Benefits diminished in some cases.
Short-term and ordinary income property. Benefits diminished.
Increase in contribution deduction ceiling. Fifty percent of adjusted gross income for cash gifts; thirty percent ceiling for appreciated property gifts (but 50 percent if donor elects to take the unrealized appreciation in value into account for tax purposes).
Gifts of real property with retained life estate. Charitable deduction available if personal residence or farm, but amount computed new way.
Foundations. Four percent tax on net investment income. Requirement that foundation annually contribute all income, but no less than six percent of value of assets.
Churches. Tax on unrelated business income.
The road ahead. The new law provides many tax incentives to charitable giving and charitable institutions can prosper under them. But benefits will be achieved and adverse tax consequences avoided only if the law's complex requirements are meticulously met. IRS is expanding its audit of charitable deductions and charitable institutions.
As with any new law, some areas are uncharted or unclear. Judgements will have to be made and potential pitfalls avoided. Omission of a few essential words in a life income contract or charitable remainder unitrust, for example, will result in denial of the charitable deduction and imposition of capital gains tax.
Continual vigilance. Charitable institutions can rejoice that almost all the harsh and restrictive provisions of the House-passed tax bill were not enacted and the new law continues the long-established government policy of encouraging private support through tax incentives.
To retain the full benefits of the new law: Concerned institutions are urged to prepare now to make their views known to the Treasury when it holds hearings on proposed regulations. Restrictive Treasury regulations (interpreting the new law) can diminish benefits intended by Congress.
Before Treasury issues regulations, it announces proposed regulations and holds public hearings. Treasury hearings are usually held on very short notice. Accordingly, we suggest you now obtain necessary board of trustee approval to make your institution's views known at any Treasury hearings on the charitable contribution deduction and tax-exempt institutions. Your institution should be ready to send its request to be heard at Treasury hearings on one day's notice. [Still good advice.]
Exempt organizations (other than private foundations) are not required to disclose the names and addresses of substantial donors to the public.
Severe penalties are imposed for failure to file. Effective: January 1, 1970.
CLAY BROWN. The new law taxes exempt organizations on debt-financed income.
CHURCHES. Unrelated business income of churches is no longer tax-exempt. New businesses will be taxed immediately. Presently owned businesses will be taxed after five years.
And that’s the way it was.
© Conrad Teitell 2019. This is not intended as legal, tax, financial or other advice. So check with your adviser on how the rules apply to you.