The Senate Finance Committee recently approved a trio of bills that could affect a broad spectrum of tax work done by accounting firms today. The first bill (H.R.7) would provide tax breaks for charitable donations to help ease the tough times faced by many American charities due to the events of September 11th. These tax incentives would be partially funded by the other two bills, which include one on tax shelters (S.2498) and another on corporate inversions, a way to avoid taxes by reincorporating in an offshore tax haven (S.2119). The second and third bills take away tax-advantageous treatments seen as abusive or unpatriotic.
Highlights of the three bills:
- Among other things, H.R.7 would allow nonitemizers to deduct more charitable donations, permit IRA owners age 59 and older to roll IRA assets directly into a charity without any income tax consequences, expand the contribution allowed for donations of computer technology and equipment, modify the charitable contribution by C corporations for book contributions, make adjustments to the basis of S corporation stock for some charitable contributions, and enhance the deduction for donations of literary, musical, artistic and scholarly compositions. It would also make some changes to the disclosure laws for tax-exempt organizations.
- The REPO (Reversing the Expatriation of Profits Offshore) Act, S.2119, would subject reincorporating corporations to a stockholder threshold test. Companies would lose the intended tax breaks if the former shareholders of the U.S. corporation hold 80% or more of the value of the foreign-incorporated entity after the transaction occurs. A new set of rules would apply if the former shareholders hold between 50% and 80% of the company stock.
- The Tax Shelter Transparency Act, S.2498, would require corporations to disclose transactions with a potential of tax avoidance or evasion, and it would impose significant penalties for failure to do so.
The fate of the three bills is uncertain. Although President Bush strongly supports the added tax incentives for donations, the takeaways needed to partially fund the bill are more controversial. Some favor a moratorium on corporate inversions until the subject can be studied more thoroughly.