Administration Announces Bipartisan Agreement on Charitable Giving

Administration Announces Bipartisan Agreement on Charitable Giving

News story posted in Executive on 8 February 2002| comments
audience: National Publication | last updated: 18 May 2011


The Bush administration has announced in a bipartisan charitable giving compromise bill, the Charity Aid, Relief, and Empowerment Act of 2002 (CARE), cosponsored by Sens. Joseph I. Lieberman, D-Conn., and Rick Santorum, R-Pa., that includes some of the administration's tax incentives and faith-based initiatives. The bill would give the charitable contribution deduction to nonitemizers, allow tax-free distributions from IRAs for charitable purposes, increase the percentage limit for corporate charitable contributions, and allow some eligible lower-income Americans to set up individual development accounts (IDAs).
Full Text:

February 7, 2002

[1] Today, President Bush, Treasury Secretary Paul O'Neill and Senators Lieberman and Santorum announced a compromise bill, "The Charity Aid, Relief, and Empowerment Act of 2002" ("CARE") that includes many of the charitable giving tax incentives sought by the Administration, as well as elements of the Administration's faith- based initiative that provide direct support to groups aiding the poor and the needy.

[2] "In the aftermath of September 11(th), many Americans have eagerly reached out to support their favorite charities and non- profits. At the same time, the recent decline in the economy has pinched many hardworking Americans' pocketbooksmaking it more difficult to contribute those precious dollars that charities rely on to continue their good works," said Secretary Paul O'Neill. "As the economy begins to rebound, we must seize this window of opportunity to provide incentives to encourage all Americans to support charities."

[3] Currently, approximately two-thirds of tax filers who make charitable contributions do not get the benefit of a charitable contribution deduction because they don't itemize. This bipartisan CARE Act will allow taxpayers that don't itemize to deduct charitable contributions in addition to claiming the standard deduction.

[4] "The CARE Act makes it easier for those who already give, to continue giving, and it will encourage people who don't currently make charitable contributions, to start," O'Neill continued.

[5] The CARE Act will allow tax-free withdrawals from IRAs for charitable contributions for individuals over the age of 67. Rather than the individual making the withdrawal, including it as taxable income, and then claiming the charitable deduction, the individual can just make the tax-free withdrawal contribution directly to the charity.

[6] "This vastly simplifies the complexity these donors face today," said Secretary O'Neill.

[7] Many charities also rely on the support of corporate charitable contributions. To encourage corporations to increase their amount of support, the CARE Act increases the limit for corporate charitable contributions from 10% to 13% in 2002 and 15% in 2003.

[8] "I want to thank Senators Santorum and Lieberman for their work and I look forward to working with Congress to get this CARE Act passed into law to help Americans give and to help charities grow," O'Neill concluded.


[9] Many of the provisions in the CARE Act are in effect for two years -- the changes aren't permanent, but they are a step in the right direction and will provide relief to charities at a time when the need for their services is great.

1. Charitable contribution deduction for nonitemizers. The CARE bill would allow nonitemizers to deduct their charitable contributions up to $400 for single taxpayers ($800 for married taxpayers filing joint returns) during 2002 and 2003.

Allowing nonitemizers to deduct charitable contributions would provide an incentive for all taxpayers to give to charity (compared to current law, which only rewards giving by itemizers). Currently, only one-third of taxpayers can deduct their charitable contributions.

2. Tax-free distributions from IRAs for charitable purposes. The CARE bill would provide tax-free treatment of distributions made from IRAs for charitable purposes after the beneficiary reaches age 67. Tax-free treatment would apply to distributions made (in 2002 and 2003) directly to charitable organizations or "indirectly" through charitable remainder trusts, pooled income funds, or the purchase of charitable gift annuities.

[10] This proposal would encourage donations of otherwise taxable IRA assets to charity, by eliminating the need for taxpayers first to include the taxable amounts in income, and then claim an offsetting charitable contribution deduction. Because not all taxpayers can deduct the full amount of their charitable contributions, current law effectively discourages some taxpayers from donating IRA assets to charity.

3. An increase in the percentage limit for corporate charitable contributions. The CARE bill would raise the deduction limit (currently 10% of taxable income) to 13% for 2002 and 15% for 2003.

Raising the limit on corporate charitable contributions would provide an incentive for corporations to increase their support for charitable organizations.

An expanded and increased enhanced deduction for donations of food inventory. For 2002-2003, the CARE bill would allow all businesses (not just C corporations) to claim an enhanced deduction for donated food equal to the lesser of FMV or two times basis. (Certain cash method taxpayers could assume a basis in the donated food equal to 25 percent of FMV.) Special rules are provided for valuing surplus food for which there is no ready market. This provision would assist charities in combatting hunger.

4. Individual Development Accounts. After 2002 and before 2008, the CARE bill would allow up to 900,000 eligible lower income Americans to create individual development accounts (IDAs). For each account, the financial institutions sponsoring the IDA program would match up to $500 per year in account- holder contributions. Neither the matching amounts nor earnings on those amounts would be subject to income tax. Withdrawals of these matching amounts and earnings would have to be for higher education expenses, first-time home purchase expenses, and business capitalization expenses. A withdrawal from the main account for other purposes may result in a forfeit of some or all of the matching account. The program would be funded through 2009 by allowing the sponsors both an income tax credit for the matching amounts and an annual $50 per account credit to cover the costs of administration and participant education.

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