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S 1924 IS
107th CONGRESS
2d Session
S. 1924
To promote charitable giving, and for other purposes.

IN THE SENATE OF THE UNITED STATES
February 8, 2002
Mr. LIEBERMAN (for himself, Mr. SANTORUM, Mr. BAYH, Mr. BROWNBACK, Mr. NELSON of Florida, Mr. COCHRAN, Mrs. CARNAHAN, Mr. LUGAR, Mrs. CLINTON, and Mr. HATCH) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL
To promote charitable giving, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Charity Aid, Recovery, and Empowerment Act of 2002' or the `CARE Act of 2002'.

(b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE

Sec. 101. Deduction for portion of charitable contributions to be allowed to individuals who do not itemize deductions.

Sec. 102. Tax-free distributions from individual retirement accounts for charitable purposes.

Sec. 103. Increase in cap on corporate charitable contributions.

Sec. 104. Charitable deduction for contributions of food and book inventories and bonds.

Sec. 105. Reform of excise tax on net investment income of private foundations.

Sec. 106. Excise tax on unrelated business taxable income of charitable remainder trusts.

Sec. 107. Expansion of charitable contribution allowed for scientific property used for research and for computer technology and equipment used for educational purposes.

Sec. 108. Adjustment to basis of S corporation stock for certain charitable contributions.

TITLE I--CHARITABLE GIVING INCENTIVES PACKAGE
SEC. 101. DEDUCTION FOR PORTION OF CHARITABLE CONTRIBUTIONS TO BE ALLOWED TO INDIVIDUALS WHO DO NOT ITEMIZE DEDUCTIONS.

(a) IN GENERAL- Section 170 of the Internal Revenue Code of 1986 (relating to charitable, etc., contributions and gifts) is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

`(m) DEDUCTION FOR INDIVIDUALS NOT ITEMIZING DEDUCTIONS- In the case of an individual who does not itemize his deductions for any taxable year beginning after December 31, 2001, and before January 1, 2004, there shall be taken into account as a direct charitable deduction under section 63 an amount equal to the lesser of--

`(1) the amount allowable under subsection (a) for the taxable year for cash contributions, or
`(2) $400 ($800 in the case of a joint return).'.

(b) DIRECT CHARITABLE DEDUCTION-

(1) IN GENERAL- Subsection (b) of section 63 of the Internal Revenue Code of 1986 (defining taxable income) is amended by striking `and' at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting `, and', and by adding at the end thereof the following new paragraph:
`(3) the direct charitable deduction.'.
(2) DEFINITION- Section 63 of such Code is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

`(g) DIRECT CHARITABLE DEDUCTION- For purposes of this section, the term `direct charitable deduction' means that portion of the amount allowable under section 170(a) which is taken as a direct charitable deduction for the taxable year under section 170(m).'.

(3) CONFORMING AMENDMENT- Subsection (d) of section 63 of such Code is amended by striking `and' at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting `, and', and by adding at the end thereof the following new paragraph:
`(3) the direct charitable deduction.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 102. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS FOR CHARITABLE PURPOSES.

(a) IN GENERAL- Subsection (d) of section 408 of the Internal Revenue Code of 1986 (relating to individual retirement accounts) is amended by adding at the end the following new paragraph:

`(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES-

`(A) IN GENERAL- No amount shall be includible in gross income by reason of a qualified charitable distribution.
`(B) QUALIFIED CHARITABLE DISTRIBUTION- For purposes of this paragraph, the term `qualified charitable distribution' means any distribution from an individual retirement account--

`(i) which is made directly by the trustee--

`(I) to an organization described in section 170(c), or
`(II) to a split-interest entity, and

`(ii) which is made on or after the date that the individual for whose benefit the account is maintained has attained age 67.

A distribution shall be treated as a qualified charitable distribution only to the extent that the distribution would be includible in gross income without regard to subparagraph (A) and, in the case of a distribution to a split-interest entity, only if no person holds an income interest in the amounts in the split-interest entity attributable to such distribution other than one or more of the following: the individual for whose benefit such account is maintained, the spouse of such individual, or any organization described in section 170(c).
`(C) CONTRIBUTIONS MUST BE OTHERWISE DEDUCTIBLE- For purposes of this paragraph--

`(i) DIRECT CONTRIBUTIONS- A distribution to an organization described in section 170(c) shall be treated as a qualified charitable distribution only if a deduction for the entire distribution would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
`(ii) SPLIT-INTEREST GIFTS- A distribution to a split-interest entity shall be treated as a qualified charitable distribution only if a deduction for the entire value of the interest in the distribution for the use of an organization described in section 170(c) would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).

`(D) APPLICATION OF SECTION 72- Notwithstanding section 72, in determining the extent to which a distribution is a qualified charitable distribution, the entire amount of the distribution shall be treated as includible in gross income without regard to subparagraph (A) to the extent that such amount does not exceed the aggregate amount which would be so includible if all amounts were distributed from all individual retirement accounts otherwise taken into account in determining the inclusion on such distribution under section 72. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
`(E) SPECIAL RULES FOR SPLIT-INTEREST ENTITIES-

`(i) CHARITABLE REMAINDER TRUSTS- Notwithstanding section 664(b), distributions made from a trust described in subparagraph (G)(i) shall be treated as ordinary income in the hands of the recipient of the annuity described in section 664(d)(1)(A) or the payment described in section 664(d)(2)(A).
`(ii) POOLED INCOME FUNDS- No amount shall be includible in the gross income of a pooled income fund (as defined in subparagraph (G)(ii)) by reason of a qualified charitable distribution to such fund, and all distributions from the fund which are attributable to qualified charitable distributions shall be treated as ordinary income to the recipient.
`(iii) CHARITABLE GIFT ANNUITIES- Qualified charitable distributions made for a charitable gift annuity shall not be treated as an investment in the contract.

`(F) DENIAL OF DEDUCTION- Qualified charitable distributions shall not be taken into account in determining the deduction under section 170.
`(G) SPLIT-INTEREST ENTITY DEFINED- For purposes of this paragraph, the term `split-interest entity' means--

`(i) a charitable remainder annuity trust or a charitable remainder unitrust (as such terms are defined in section 664(d)) which is funded exclusively by qualified charitable distributions,
`(ii) a pooled income fund (as defined in section 642(c)(5)), but only if the fund accounts separately for amounts attributable to qualified charitable distributions, and
`(iii) a charitable gift annuity (as defined in section 501(m)(5)).'.

(b) MODIFICATIONS RELATING TO INFORMATION RETURNS BY CERTAIN TRUSTS-

(1) RETURNS- Section 6034 of the Internal Revenue Code of 1986 (relating to returns by trusts described in section 4947(a)(2) or claiming charitable deductions under section 642(c)) is amended to read as follows:

`SEC. 6034. RETURNS BY TRUSTS DESCRIBED IN SECTION 4947(a)(2) OR CLAIMING CHARITABLE DEDUCTIONS UNDER SECTION 642(c).

`(a) TRUSTS DESCRIBED IN SECTION 4947(a)(2)- Every trust described in section 4947(a)(2) shall furnish such information with respect to the taxable year as the Secretary may by forms or regulations require.
`(b) TRUSTS CLAIMING A CHARITABLE DEDUCTION UNDER SECTION 642(c)-

`(1) IN GENERAL- Every trust not required to file a return under subsection (a) but claiming a charitable, etc., deduction under section 642(c) for the taxable year shall furnish such information with respect to such taxable year as the Secretary may by forms or regulations prescribe, including:

`(A) the amount of the charitable, etc., deduction taken under section 642(c) within such year,
`(B) the amount paid out within such year which represents amounts for which charitable, etc., deductions under section 642(c) have been taken in prior years,
`(C) the amount for which charitable, etc., deductions have been taken in prior years but which has not been paid out at the beginning of such year,
`(D) the amount paid out of principal in the current and prior years for charitable, etc., purposes,
`(E) the total income of the trust within such year and the expenses attributable thereto, and
`(F) a balance sheet showing the assets, liabilities, and net worth of the trust as of the beginning of such year.

`(2) EXCEPTIONS- Paragraph (1) shall not apply in the case of a taxable year if all the net income for such year, determined under the applicable principles of the law of trusts, is required to be distributed currently to the beneficiaries. Paragraph (1) shall not apply in the case of a trust described in section 4947(a)(1).'.
(2) INCREASE IN PENALTY RELATING TO FILING OF INFORMATION RETURN BY SPLIT-INTEREST TRUSTS- Paragraph (2) of section 6652(c) of such Code (relating to returns by exempt organizations and by certain trusts) is amended by adding at the end the following new subparagraph:

`(C) SPLIT-INTEREST TRUSTS- In the case of a trust which is required to file a return under section 6034(a), subparagraphs (A) and (B) of this paragraph shall not apply and paragraph (1) shall apply in the same manner as if such return were required under section 6033, except that--

`(i) the 5 percent limitation in the second sentence of paragraph (1)(A) shall not apply,
`(ii) in the case of any trust with gross income in excess of $250,000, the first sentence of paragraph (1)(A) shall be applied by substituting `$100' for `$20', and the second sentence thereof shall be applied by substituting `$50,000' for `$10,000', and
`(iii) the third sentence of paragraph (1)(A) shall be disregarded.

If the person required to file such return knowingly fails to file the return, such person shall be personally liable for the penalty imposed pursuant to this subparagraph.'.

(3) CONFIDENTIALITY OF NONCHARITABLE BENEFICIARIES- Subsection (b) of section 6104 of such Code (relating to inspection of annual information returns) is amended by adding at the end the following new sentence: `In the case of a trust which is required to file a return under section 6034(a), this subsection shall not apply to information regarding beneficiaries which are not organizations described in section 170(c).'.

(c) EFFECTIVE DATES-

(1) SUBSECTION (a)- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2001, and before January 1, 2004.
(2) SUBSECTION (b)- The amendments made by subsection (b) shall apply to returns for taxable years beginning after December 31, 2001.

SEC. 103. INCREASE IN CAP ON CORPORATE CHARITABLE CONTRIBUTIONS.

(a) IN GENERAL- Paragraph (2) of section 170(b) of the Internal Revenue Code of 1986 (relating to corporations) is amended by striking `10 percent' and inserting `the applicable percentage'.
(b) APPLICABLE PERCENTAGE- Subsection (b) of section 170 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

`(3) APPLICABLE PERCENTAGE DEFINED- For purposes of paragraph (2), the applicable percentage shall be determined in accordance with the following table:

`For taxable years beginning in calendar year	The applicable percentage is
2002	--13
2003	--15
2004 and thereafter	--10

(c) CONFORMING AMENDMENTS-

(1) Sections 512(b)(10) and 805(b)(2)(A) of the Internal Revenue Code of 1986 are each amended by striking `10 percent' each place it occurs and inserting `the applicable percentage (determined under section 170(b)(3))'.
(2) Sections 545(b)(2) and 556(b)(2) of such Code are each amended by striking `10-percent limitation' and inserting `applicable percentage limitation'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 104. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD AND BOOK INVENTORIES AND BONDS.

(a) FOOD INVENTORY- Subsection (e) of section 170 of the Internal Revenue Code of 1986 (relating to certain contributions of ordinary income and capital gain property) is amended by adding at the end the following new paragraph:

`(7) SPECIAL RULE FOR CONTRIBUTIONS OF FOOD INVENTORY- For purposes of this section--

`(A) IN GENERAL- In the case of a charitable contribution of apparently wholesome food by a taxpayer--

`(i) paragraph (3)(A) shall be applied without regard to whether or not the contribution is made by a C corporation, and
`(ii) in the case of a taxpayer other than a C corporation, the total deductions under subsection (a) with respect to such contributions for any taxable year shall not exceed the applicable percentage under subsection (b)(2) of the taxpayer's net income from the trade or business, computed without regard to this section.

`(B) LIMIT ON REDUCTION- In the case of a charitable contribution of apparently wholesome food which is a qualified contribution (within the meaning of paragraph (3)(A), as modified by subparagraph (A) of this paragraph), the amount of the reduction determined under paragraph (3)(B) shall not exceed the amount determined under clause (ii) thereof (computed without taking into account the amount determined under clause (i) thereof).
`(C) DETERMINATION OF BASIS- For purposes of this paragraph, if a taxpayer--

`(i) does not account for inventories under section 471, and
`(ii) is not required to capitalize indirect costs under section 263A, the taxpayer may elect, solely for purposes of paragraph (3)(B)(ii), to treat the basis of any qualified contribution of such taxpayer as being equal to 25 percent of the fair market value of such contribution.

`(D) DETERMINATION OF FAIR MARKET VALUE- In the case of a charitable contribution of apparently wholesome food which is a qualified contribution (within the meaning of paragraph (3), as modified by subparagraphs (A) and (B) of this paragraph) and which, solely by reason of internal standards of the taxpayer or lack of market, cannot or will not be sold, the fair market value of such contribution shall be determined--

`(i) without regard to such internal standards or such lack of market and
`(ii) by taking into account the price at which the same or substantially the same food items are sold by the taxpayer at the time of the contribution (or, if not so sold at such time, in the recent past).

`(E) APPARENTLY WHOLESOME FOOD- For purposes of this paragraph, the term `apparently wholesome food' has the meaning given such term by section 22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act (42 U.S.C. 1791(b)(2)), as in effect on the date of the enactment of this paragraph.

(b) BOOK INVENTORY- Section 170(e)(3) of the Internal Revenue Code of 1986 (relating to certain contributions of ordinary income and capital gain property) is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph:

`(D) SPECIAL RULE FOR CONTRIBUTIONS OF BOOK INVENTORY FOR EDUCATIONAL PURPOSES-

`(i) CONTRIBUTIONS OF BOOK INVENTORY- In determining whether a qualified book contribution is a qualified contribution, subparagraph (A) shall be applied without regard to whether or not--

`(I) the donee is an organization described in the matter preceding clause (i) of subparagraph (A), and
`(II) the property is to be used by the donee solely for the care of the ill, the needy, or infants.

`(ii) QUALIFIED BOOK CONTRIBUTION- For purposes of this paragraph, the term `qualified book contribution' means a charitable contribution of books, but only if the requirements of clauses (iii) and (iv) are met.
`(iii) IDENTITY OF DONEE- The requirement of this clause is met if the contribution is to an organization--

`(I) described in subclause (I) or (III) of paragraph (6)(B)(i), or
`(II) described in section 501(c)(3) and exempt from tax under section 501(a) (other than a private foundation (as defined in section 509(a)) which is not an operating foundation defined in section 4942(j)(3)) which is organized primarily to make books available to the general public at no cost or to operate a literacy program.

`(iv) CERTIFICATION BY DONEE- The requirement of this clause is met if the donee certifies in writing that--

`(I) the books are suitable, in terms of currency, content, and quantity, for use in the donee's educational programs, and
`(II) the donee will use the books in its educational programs and will not transfer the books in exchange for money, property, or services.'.

(c) BONDS- Section 170(e)(5) of the Internal Revenue Code of 1986 (relating to special rule for contributions of stock for which market quotations are readily available) is amended--

(1) by striking `stock.' in subparagraph (A) and inserting `stock or qualified appreciated bonds.',
(2) by adding at the end the following new subparagraph:

`(D) QUALIFIED APPRECIATED BONDS-

`(i) IN GENERAL- For purposes of this paragraph, the term `qualified appreciated bonds' means United States Treasury securities and such other debt instruments as may be prescribed by the Secretary in regulations.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001, and before January 1, 2004.

SEC. 105. REFORM OF EXCISE TAX ON NET INVESTMENT INCOME OF PRIVATE FOUNDATIONS.

(a) IN GENERAL- Subsection (a) of section 4940 of the Internal Revenue Code of 1986 (relating to excise tax based on investment income) is amended by striking `2 percent' and inserting `1 percent (2 percent for any taxable year beginning after December 31, 2003)'.
(b) TEMPORARY REPEAL OF REDUCTION IN TAX WHERE PRIVATE FOUNDATION MEETS CERTAIN DISTRIBUTION REQUIREMENTS- Section 4940(e) of the Internal Revenue Code of 1986 is amended by inserting `beginning after December 31, 2003' after `any taxable year'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 106. EXCISE TAX ON UNRELATED BUSINESS TAXABLE INCOME OF CHARITABLE REMAINDER TRUSTS.

(a) IN GENERAL- Subsection (c) of section 664 of the Internal Revenue Code of 1986 (relating to exemption from income taxes) is amended to read as follows:
`(c) TAXATION OF TRUSTS-

`(1) INCOME TAX- A charitable remainder annuity trust and a charitable remainder unitrust shall, for any taxable year, not be subject to any tax imposed by this subtitle.
`(2) EXCISE TAX-

`(A) IN GENERAL- In the case of a charitable remainder annuity trust or a charitable remainder unitrust that has unrelated business taxable income (within the meaning of section 512, determined as if part III of subchapter F applied to such trust) for a taxable year, there is hereby imposed on such trust or unitrust an excise tax equal to the amount of such unrelated business taxable income.
`(B) CERTAIN RULES TO APPLY- The tax imposed by subparagraph (A) shall be treated as imposed by chapter 42 for purposes of this title other than subchapter E of chapter 42.
`(C) TAX COURT PROCEEDINGS- For purposes of this paragraph, the references in section 6212(c)(1) to section 4940 shall be deemed to include references to this paragraph.'.

(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 107. EXPANSION OF CHARITABLE CONTRIBUTION ALLOWED FOR SCIENTIFIC PROPERTY USED FOR RESEARCH AND FOR COMPUTER TECHNOLOGY AND EQUIPMENT USED FOR EDUCATIONAL PURPOSES.

(a) SCIENTIFIC PROPERTY USED FOR RESEARCH- Clause (ii) of section 170(e)(4)(B) of the Internal Revenue Code of 1986 (defining qualified research contributions) is amended by inserting `or assembled' after `constructed'.
(b) COMPUTER TECHNOLOGY AND EQUIPMENT FOR EDUCATIONAL PURPOSES- Clause (ii) of section 170(e)(6)(B) of the Internal Revenue Code of 1986 is amended by inserting `or assembled' after `constructed' and `or assembling' after `construction'.
(c) CONFORMING AMENDMENT- Subparagraph (D) of section 170(e)(6) of the Internal Revenue Code of 1986 is amended by inserting `or assembled' after `constructed' and `or assembling' after `construction'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001, and before January 1, 2004.

SEC. 108. ADJUSTMENT TO BASIS OF S CORPORATION STOCK FOR CERTAIN CHARITABLE CONTRIBUTIONS.

(a) IN GENERAL- Paragraph (2) of section 1367(a) of the Internal Revenue Code of 1986 (relating to adjustments to basis of stock of shareholders, etc.) is amended by adding at the end the following new flush sentence:
`The decrease under subparagraph (B) by reason of a charitable contribution (as defined in section 170(c)) of property shall be the amount equal to the shareholder's proportionate share of the adjusted basis of such property.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2001.