About three years ago there was a widespread call to abolish tax deductions for charitable donations. In a time of frenetic worry over the national debt, the idea was seized upon as a step in the direction of fiscal responsibility. The government, proponents argued, could no longer afford to be so generous.
Defenders of the deduction argued that such a move would not significantly affect national finances, but would cause unjustified harm to many worthy recipients of the generosity of American taxpayers.
The deduction stayed. But a new government proposal to change the reporting procedure for donations once again threatens the incentive for giving.
The case is that of REG-138344-13. So far, it is only a proposal with a number; it doesn’t have a name yet. Hopefully it will stay that way. For REG-138344-13 proposes that, for charitable donations of $250 or more, nonprofit organizations should be offered the option of collecting donors’ social security numbers and reporting them, along with their taxpayer identification number and donation amount, to the IRS, instead of providing a receipt to the donor.&
The purpose of this rule change is ostensibly to make life easier for donors. The recipient will take care of reporting it to the IRS, the donor need not worry about receipts and all that.
It also solves certain procedural issues for the IRS.
This sounds benign enough. The taxman is on the donor’s side, after all, merely seeking to improve on a good thing.
However, even without putting in any overtime in studying REG-138344-13, the unfortunate consequences are readily apparent. Taking the burden of paperwork off the shoulders of the donors obviously only shifts it onto the shoulders of the nonprofits. Needless to say, they are not eager for another administrative headache. Nor will it relieve them of the work of sending out donation acknowledgments, even if formal receipts are no longer required. Derech eretz and effective fund-raising demand it.
More importantly, opponents of the idea, notably Agudath Israel of America, warn that such a procedure could undermine the long-standing incentive for people to give generously to the non-profit of their choice. Yeshivos, community organizations, hospitals and old age homes all depend heavily on tax-exempt donations and nothing should be done to harm them.
Donors will be put off by the creation of yet another information security concern. They will not be eager to divulge their social security numbers in the course of trying to do something socially useful with their money. Even though the IRS stresses that the nonprofit will not be required to follow the new procedure, and may rely on the old system, if it works well, the next step may well be to do away with the old altogether.
The IRS is aware of the privacy issue and has promised to develop a new form for reporting to safeguard the private data. (Just what we need, a new government form!) How it would do so is unclear. Given the numerous breaches in security of even the most sensitive government files in recent years, despite elaborate security precautions, the private citizen would be right to think twice before making a donation that would increase his exposure to data theft. As the nonprofit Center for Competitive Politics, which has come out against the idea, predicts, it “will have a chilling effect on charitable donations.”
This is something we cannot afford. The incentive of the charitable deduction has demonstrated tremendous value over decades. For example, more than 80 percent of those who itemized their tax returns in 2009 claimed the charitable deduction and were responsible for more than 76 percent of all individual contributions to charitable organizations, according to data published by Independent Sector, a coalition of nonprofits.
Donors themselves say it’s an important incentive. In a recent survey, over two-thirds of high-income donors said they would decrease their giving if the deduction were removed. Experts estimate that even limiting the deduction could bring down available funding by as much as $7 billion in a year.
An incentive of this kind is a delicate thing, and any change in the rules that would even discourage giving should be avoided.
Another compelling reason to drop REG-138344-13 was furnished by the IRS itself: It says on its website that the current system of simply providing a receipt to a donor “works effectively, with minimal burden on donors and donees, and the Treasury Department and the IRS have received few requests … to implement a donee reporting system.”&
It brings to mind the old common-sense saying: If it ain’t broke, don’t fix it.