The principal source of specific tax reform proposals at the present is the proposed Tax Reform Act of 2014, introduced by the then-Chairman of the House Committee on Ways and Means Dave Camp (who has retired from Congress). This proposal (Camp Proposal) was never introduced as a bill; it was published, on February 26, 2014, as a discussion draft. Tax reform proposals are in the Administration's proposed budget for fiscal year 2016, in tax law revision legislation that is pending in the current (114th) Congress, and in the July 2015 Report of the Business Income Tax Working Group to the Senate Committee on Finance (Working Group Report).

Tax reform proposals directly affecting the tax law pertaining to private foundations and assorted related proposals are inventoried below.

1. Tax Reform Proposals Directly Affecting Private Foundation Law
   1. Tax on Net Investment Income
      1. Present law: Private foundations and certain charitable trusts are subject to a 2-percent excise tax on their net investment income (Internal Revenue Code of 1986, as amended, section (IRC §) 4940(a)). An organization may reduce the excise tax rate to 1 percent by meeting certain requirements regarding distributions to qualifying tax-exempt organizations during a tax year (IRC § 4940(e)).
      2. Proposal: This excise tax on net investment income would be reduced to a single rate of 1 percent (Camp Proposal § 5204).
      3. Proposed America Gives More Act (H.R. 644), which passed House of Representatives on February 12, 2015, would reduce this tax to 1 percent.
      4. Administration's budget for fiscal year 2016 proposes reduction of this tax to a single rate of 1.35 percent (a budget-neutral percentage).
      5. A proposal in the Working Group Report would reduce this tax to 1 percent.
   2. Exempt Operating Foundations Excise Tax Exemption
      1. Present law: Exempt operating foundations (IRC § 4940(d)(2)) are exempt from this excise tax on net investment income (IRC § 4940(d)(1)).
      2. Proposal: This exemption would be repealed (Camp Proposal § 5204).
   3. Expansion of Self-Dealing Tax Regime
      1. Present law: Disqualified persons and managers who engage in self-dealing transactions with private foundations (IRC § 4941(d)) are subject to excise tax (IRC § 4941(a), (b)).
      2. Proposal: An excise tax of 2.5 percent would be imposed on a private foundation when a self-dealing tax is imposed on a disqualified person. This tax rate would be increased to 10 percent in cases where the self-dealing involves the payment of compensation (Camp Proposal § 5202).
   4. Foundation Managers' Reliance on Professional Advice
      1. Present law: A private foundation manager may avoid excise tax for knowingly participating in a self-dealing transaction (IRC § 4941(a)(2)) if the manager relies on advice provided by an appropriate professional, including lawyers, certified public accountants, and independent valuation experts (Treas. Reg. § 53.4941 (a)-1(b)(6)).
      2. Proposal: Foundation managers would no longer be able to rely on this professional advice safe harbor (Camp Proposal § 5202).
   5. Private Operating Foundations' Distribution Exception
      1. Present law: Private foundations generally are required to pay out a minimum amount each year to accomplish one or more exempt purposes or for reasonable and necessary administrative expenses; there are excise tax penalties for failure to distribute (IRC § 4942). Private operating foundations (IRC § 4940(j)(3)) are not subject to these payout requirements; they have a different payout regime.
      2. Proposal: Private operating foundations would be required to distribute income in accordance with rules for private foundations generally or be taxed (Camp Proposal § 5205).
   6. Excess Business Holdings
      1. Present law: A private foundation's ability to own a business—one that is not conducted as an exempt function—is limited by rules concerning “excess business holdings” (IRC § 4943). The basic rule is that the combined ownership, by a private foundation and those who are disqualified persons with respect to it, of a business enterprise may not exceed 20 percent.
      2. Proposal: An exception to these excess business holdings rules would be created for philanthropic business holdings (proposed Philanthropic Enterprise Act of 2015 (§. 909)). This pertains to a business enterprise that meets requirements relating to exclusive ownership, minimum distribution of net operating income for charitable purposes, and independent operation (i.e., not controlled by substantial contributor or family members).
   7. Electronic Filing
      1. Present law: Private foundations (including split-interest trusts) that file at least 250 returns must file their annual information returns (Form 990-PF) electronically.
      2. Proposal: All private foundations would be required to file Form 990-PF electronically (Camp Proposal § 6004).
      3. A proposal in the Working Group Report would require all tax-exempt organizations to file all returns and the like in Form 990 series electronically.
      4. A proposal in the Working Group Report would require IRS to make all information provided in this series to the public in machine-readable format as soon as practicable.
   8. Executive Compensation (see III)
   9. Harmonization of Deduction Limitations (see IV B)
2. Tax Reform Proposals Affecting Public Charity Law
   1. Type II and Type III Supporting Organizations
      1. Present law: One of the several ways a tax-exempt charitable (IRC § 501(c) (3)) organization can be a public charity (IRC § 509(a)) is to qualify as a supporting organization (IRC § 509(a)(3)). Four basic tests must be satisfied for supporting organization status, one of which is the relationship test. Pursuant to this test, an organization must be (1) operated, supervised, or controlled by one or more qualified supported organizations (usually a form of public charity) (known as a Type I supporting organization); (2) supervised or controlled in connection with one or more qualified supported organizations (Type II supporting organization); or (3) operated in connection with one or more qualified supported organizations (Type III supporting organization). The classification of a supporting organization depends on how close its relationship is to the supported organization(s), with Type I supporting organizations having the closest relationship (being akin to a parent–subsidiary arrangement).
      2. Proposal: Federal tax law authorizing Type II and Type III supporting organizations would be repealed (Camp Proposal § 5304). Thus, these entities would be required to either qualify as a public charity on another basis or be private foundations.
   2. Intermediate Sanctions Rules
      1. Present law: Penalty excise taxes may be imposed on disqualified persons who improperly benefited from excess benefit transactions with applicable tax-exempt organizations and on managers of the organization who participated in the transactions knowing they were improper (IRC § 4958). A rebuttable presumption of reasonableness arises under certain circumstances with respect to these transactions (Reg. § 53.4958-6). Participation of an organization manager in a transaction is ordinarily not considered knowing for these purposes to the extent that, after making full disclosure of the factual situation to an appropriate professional, the organization manager relies on a reasoned written opinion of that professional with respect to elements of the transaction that are within the scope of the professional's expertise (Reg. § 53.4958-1(d)(4)).
      2. Proposal: Rebuttable presumption of reasonableness and professional advice reliance safe harbor rule for managers would be repealed.
   3. Definition of Disqualified Person
      1. Present law: For purposes of the intermediate sanctions rules, the term disqualified person means (1) any person who was, at any time during the five-year period ending on the date of the transaction involved, in a position to exercise substantial influence over the affairs of the organization, (2) a member of the family of an individual in the foregoing category, and (3) an entity in which individuals described in the preceding two categories own more than a 35-percent interest (IRC § 4958(f)(1)(C)).
      2. Proposal: This definition of a disqualified person would be expanded to include athletic coaches and investment advisors (Camp Proposal § 5201).
   4. Donor-Advised Funds
      1. Present law: A donor-advised fund is a fund or account (1) that is separately identified by reference to contributions of one or more donors, (2) that is owned and controlled by a sponsoring organization, and (3) as to which a donor or donor advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund by reason of the donor's status as a donor (IRC § 4966(d)(2)(A)).
      2. Proposal: Donor-advised funds would be required to distribute contributions within five years of receipt; penalty would be imposed for failure to meet this payout rule (Camp Proposal § 5203).
   5. Private Colleges and Universities Investment Income Tax
      1. Present law: No category of public charity is required to pay tax on its net investment income. A few other types of tax-exempt organizations, such as social clubs (IRC § 501(c)(7) entities) and political organizations (IRC § 527 entities) are subject to such a tax, as are private foundations (see III A).
      2. Proposal: Larger private colleges and universities would be subject to 1 percent excise tax on their net investment income (Camp Proposal § 5206).
   6. Proposed Agricultural Research Organizations
      1. Present law: There is no present law for agricultural research organizations. They would be modeled on the present law providing for medical research organizations (IRC § 170(b)(1)(A)(iii)), and thus would be public charities (IRC § 509(a)(1)) and be eligible for charitable contributions at the higher percentage limitations.
      2. Proposal: Provision for these organizations would be created (proposed Charitable Agriculture Research Act (S. 908)). To qualify, an agricultural research organization would have to be engaged in the continuous active conduct of agricultural research (as defined in the Agricultural Research, Extension, and Teaching Policy Act of 1977) in conjunction with a land-grant college or university or a non-land-grant college or university. For a contribution to this type of 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 this type of research before January 1 of the fifth calendar year which begins after the date of enactment. An agricultural research organization would be permitted to use the expenditure test (IRC § 501(h)) for purposes of determining whether a substantial part of its activities consist of carrying on propaganda, or otherwise attempting to influence legislation.
3. Executive Compensation
   1. Present for-profit law: Deduction allowed to publicly traded C corporations for compensation paid with respect to chief executive officers and certain highly paid officers is limited to $1 million annually. Current law limits deductibility of certain severance-pay arrangements (parachute payments).
   2. Present nonprofit law: Generally, the rule under private inurement doctrine is that compensation paid to insiders must be reasonable; penalty is loss of payor's tax exemption. In private foundation context, generally compensation to disqualified persons must be for personal services and be reasonable (IRC § 4941(d) (1)(D), (2)(E)); penalty is one or more self-dealing taxes (see III C 1). In public charity, social welfare organization, health insurance issuer context, excessive compensation is subject to penalty taxes and other intermediate sanctions rules (IRC § 4958).
   3. Proposal: A tax-exempt organization would be subject to 25-percent excise tax on compensation in excess of $1 million paid to any of its five highest-paid employees for tax year. This tax would apply to all remuneration paid to a covered person for services, including money and cash value of all remuneration (including benefits) paid in a medium other than cash, except for payments to tax-qualified retirement plan and amounts that are excludable from the executive's gross income. Once an employee qualifies as a covered person, excise tax would apply to compensation in excess of $1 million paid to that person as long as exempt organization pays the person compensation (Camp Proposal § 3803).
   4. Proposal: An excise tax would apply to excess parachute payments paid by exempt organizations to covered persons. An excess parachute payment generally would be defined as a payment contingent on the employee's separation from employment with an aggregate present value of three times the employee's base compensation or more (id.).
4. Charitable Giving Rules
   1. Retroactive Deductibility of Charitable Gifts
      1. Present law: An individual may claim an itemized deduction for charitable contributions (IRC § 170(a)(1)). To be eligible for deduction, a contribution must be made by the last day of the tax year for which a return is filed (id.). For a calendar-year taxpayer, a contribution, to be deductible for the gift year, must be made on or before December 31 to be included on a tax return for that tax year, which must be filed by April 15 of the following year (absent one or more extensions).
      2. Proposal: Individuals would be permitted to deduct charitable contributions made after close of a tax year but before April 15 for year covered by return (Camp Proposal § 1403).
   2. Harmonization of Deduction Limitations
      1. Present law: A charitable contribution deduction for a year is limited to a certain percentage of an individual's adjusted gross income (AGI) for that year. (This is the contribution base (IRC § 170(b)(1)(G)).) This AGI limitation varies depending on the type of property contributed and the type of charitable donee. In general, money contributed to public charities, private operating foundations, and certain nonoperating private foundations may be deducted up to an amount equal to 50 percent of the donor's AGI (IRC § 170(b)(1)(A)). Contributions that do not qualify for this limitation (e.g., contributions to private foundations) may be deducted in an amount up to the lesser of 30 percent of AGI or the excess of the 50-percent-of-AGI limitation for the tax year over the amount of charitable contributions subject to the 30-percent limitation (IRC § 170(b)(1)(B)).

         Capital gain (appreciated) property contributed to public charities, private operating foundations, and certain nonoperating private foundations may be deducted up to 30 percent of AGI (IRC § 170(b)(1)(C)). Capital gain property contributed to nonoperating private foundations and certain other charitable donees may be deducted in an amount up to the lesser of 20 percent of AGI or the excess of the 30-percent-of-AGI limitation over the amount of property subject to the 30-percent limitation for contributions of capital gain property (IRC § 170(b)(1)(D)).

      2. Proposal: 50-percent and 30-percent limitations on deductibility would be harmonized at single limit of 40 percent (Camp Proposal § 1403).
      3. Proposal: 30-percent and 20-percent limitations on deductibility would be harmonized at single limit of 25 percent (id.).
      4. Administration's budget: It is proposed to consolidate all AGI limitations to 30 percent, except that 50 percent limit for gifts of money to public charities would be retained.
   3. Charitable Deduction Floor
      1. Present law: Current law does not include a floor under the charitable contribution deduction.
      2. Two-percent adjusted gross income floor would be imposed under deductible contributions made by individuals, meaning that charitable gifts would be deductible only to the extent they exceed 2 percent of the individual's AGI. This reduction in the deduction would apply to charitable contributions in the following order: first, to contributions subject to the 25-percent-of-AGI limitation; second, to conservation contributions (IRC § 170(h)); third, to contributions subject to the 40-percent limitation (Camp Proposal § 1403).
   4. Contributions of Property
      1. Present law: Generally, gifts of capital gain property give rise to a charitable deduction equal to the fair market value of the property at the time of the gift (Reg. § 1.170A-1(c)(1)).
      2. Proposal: Charitable deduction for most gifts of types of property would be confined to donor's adjusted basis. For the following types of property, however, the deduction would be based on the fair market value of the property less any ordinary gain that would have been realized if the property had been sold by the taxpayer at its fair market value: tangible property related to the purpose of the charitable donee, a qualified conservation contribution (IRC § 170(h)(1)), a qualified inventory contribution (IRC § 170(e)(3)(A)), qualified research property, and publicly traded stock (Camp Proposal § 1403).

         In the case of inventory contributed solely for the care of the ill, needy, or infants, the present-law rule that provides a twice-basis valuation for the charitable deduction (IRC § 170(e)(3)) would be preserved (id.).

   5. Qualified Conservation Contributions
      1. Present law: Qualified conservation contributions (IRC § 170(h)(1)) are deductible, generally subject to the 30-percent-of-AGI limitation. Farmers and ranchers making conservation easements gifts, however, are allowed charitable deductions up to 100 percent of AGI (IRC § 170(b)(1)(E)(iv)(I)), although that law expired at the close of 2014 (IRC § 170(b)(1)(E)(vi)).
      2. Proposal: This percentage limitation as to conservation easement gifts by farmers and ranchers would be made permanent (Camp Proposal § 1403).
      3. This limitation would be made permanent under America Gives More Act (H.R. 644), which passed House of Representatives on February 12, 2015.
      4. Administration's budget: This limitation would be made permanent.
      5. A proposal in the Working Group Report would make these rules permanent.
      6. This Report suggested provision “designed to ensure that conservation easements are properly valued and serve a legitimate conservation purpose.”
   6. Conservation Easements on Golf Courses
      1. Present law: Current statutory law as to the deductibility of gifts of conservation easements (IRC § 170(h)) is silent on the matter of use of the encumbered property as a golf course.
      2. Proposal: A charitable deduction would not be permitted in instances where the eased property is reasonably expected to be used as a golf course (Camp Proposal § 1403).
      3. Administration's budget proposal also includes proposal denying deductions for gifts of easements on golf courses.
   7. Other Conservation Easement Proposals in Administration Budget
      1. Tighten standards for organizations that are eligible to receive deductible easement gifts.
      2. Donor would be required to provide detailed description of conservation purpose or purposes that are to be furthered.
      3. Definition of eligible conservation purposes would be modified.
      4. Penalties would be imposed on organizations and managers that attest to values they know or should know are substantially overstated or that receive contributions that do not serve eligible conservation purpose.
      5. Additional reporting of information about contributed conservation easements and the fair market values.
      6. Deduction for contributions for gifts of historic preservation easements would be limited.
      7. Piloting of alternative conservation credit which would be allocated to charities eligible to receive easement gifts in their communities; thereafter credits would be allocated to donors. Land trust organizations would select easements with conservation values.
   8. College Athletic Event Seating Rights
      1. Present law: A charitable deduction of 80 percent of the amount paid for the right to purchase tickets for athletic events conducted by tax-exempt educational institutions is available (IRC § 170(l)).
      2. Proposal: This college and university athletic event seating rights charitable deduction rule would be repealed (Camp Proposal § 1403).
      3. Administration's budget proposal would also repeal this law.
   9. Intellectual Property Phantom Deduction Rule
      1. Present law: A maker of a qualified intellectual property contribution (IRC § 170(m)(8)) is allowed a charitable deduction for the gift of the intellectual property and for certain percentages of subsequent qualified donee income that is allocable to the gifted intellectual property (IRC § 170(m)(3)).
      2. Proposal: Income from intellectual property contributed to charity would no longer be deductible as additional contribution(s) (Camp Proposal § 1403).
   10. Charitable Distributions from Individual Retirement Accounts
       1. Present law: An exclusion from gross income is available for otherwise taxable distributions from a traditional or Roth individual retirement account in the case of qualified charitable distributions; this exclusion may not exceed $100,000 per taxpayer per tax year (IRC § 408(d)(8)(A), which expired at close of 2014).
       2. This body of law would be made permanent under America Gives More Act (H.R. 644), which passed House of Representatives on February 12, 2015.
       3. This provision would be extended for two years (through 2016) by tax extenders legislation approved by the Senate Committee on Finance on July 23, 2015.
       4. A proposal in the Working Group Report would make this provision permanent.
       5. The Working Group also addressed the matter of expanding the scope of excludible distributions, such as those to donor-advised funds, supporting organizations, and private foundations, and/or increasing or removing the annual dollar limit on excludable distributions (currently, $100,000).
   11. Charitable Gifts of Food Inventory
       1. Present law: A person engaged in trade or business is eligible to claim an enhanced deduction in the case of certain contributions of food inventory (IRC § 170(e)(3)(ii), which expired at close of 2014).
       2. This law would be made permanent under America Gives More Act (H.R. 644), which passed House of Representatives on February 12, 2015.
       3. This provision would be extended for two years (through 2016) by tax extenders legislation approved by the Senate Committee on Finance on July 23, 2015.
   12. S Corporation Basis Adjustment
       1. Present law: The amount of a shareholder's basis reduction in stock of S corporation, by reason of charitable contribution made by the corporation, is equal to shareholder's pro rata share of adjusted basis of contributed property (IRC § 1367(a)(2), which expired at close of 2014).
       2. This law would be made permanent under America's Small Business Tax Relief Act (H.R. 636), which passed House of Representatives on February 13, 2015.
       3. This provision would be extended for two years (through 2016) by tax extenders legislation approved by the Senate Committee on Finance on July 23, 2015.
5. Other Working Group Reform Proposals
   1. Extension of declaratory judgment procedure (IRC § 7428) to all categories of tax-exempt organizations (IRC § 501(c), (d) entities); modification of rules as to courts' jurisdiction.