Effects of the RRA on exempt organizations.

• Author: Huismann, Lynne M.
• Position: Revenue Reconciliation Act of 1993

With the passage of the Revenue Reconciliation Act of 1993 (RRA) came a number of tax law changes that will have an impact, both favorable and unfavorable, on tax-exempt organizations.

Higher income tax rates

The RRA created two new income tax brackets for high-income individuals. These 36% and 39.6% brackets, which are retroactive to Jan. 1, 1993, apply to married taxpayers with taxable incomes in excess of $140,000, and all individuals with taxable income in excess of $250,000, respectively. Charitable organizations are hoping that these rate increases (which have the effect of reducing the after-tax cost of making charitable contributions) will result in a substantial increase in contributions in the near future.

Repeal of the AMT tax

preference on contributions of

appreciated property

Under prior law, taxpayers were allowed to deduct the fair market value of donations of appreciated capital gain property for regular tax purposes, but would only receive a deduction equal to the property's tax basis for alternative minimum tax (AMT) purposes. For donations of tangible personal property after June 30, 1992, and for other donations after Dec. 31, 1992, this AMT preference item has been repealed. Taxpayers who in the past could not fully use these contribution deductions may now be more likely to make such contributions, as their after-tax cost may be substantially reduced.

Substantiation of

charitable contributions

Beginning Jan. 1, 1994, taxpayers will be required to obtain a written acknowledgment from a charity to support deductions for contributions of $250 or more; canceled checks will no longer be sufficient documentation. The failure to obtain the required information will result in the disallowance of the taxpayer's charitable deduction. Although no particular form is required, the acknowledgment must include the amount of cash and a description (but not the value) of any property contributed, whether the organization provided any goods or services in exchange for the contribution, and, if applicable, a description and good faith estimate of the value of the goods or services provided. It is the donor's responsibility to request (rather than the charity's duty to provide) this information and to obtain it before the due date of the return (including extensions) on which the deduction will be claimed. Charitable organizations may, nevertheless, want to provide the acknowledgment as a matter of courtesy to their donors by, for...