What Is At Stake

Enlightened tax policy has been critically important to the development and sustained vitality of the nonprofit performing arts. In 1913, when Congress initiated the Federal income tax, it recognized the important public purposes of nonprofit performing arts organizations by exempting them from paying the tax. The tax deduction for charitable gifts was enacted in 1917, acknowledging the important educational, literary and charitable roles that the nonprofit performing arts sector plays in American society.

Policies that encourage charitable giving, such as a deduction for contributions to charities for taxpayers who do not itemize, enabling individuals to roll over IRA funds to charities without penalty, and allowing artists to take a fair-market value deduction for giving their own works to charities are important to the continuing vitality of the nonprofit performing arts sector.

Policies that aim to reform charitable governance, such as a limiting the number of people who may serve on a charity’s board or limiting the deductibility of in-kind gifts, can have unintended consequences for the performing arts world.

The PAA works with the larger nonprofit community to support policies that increase charitable giving and oppose policies that are unduly burdensome on the sector.

Qualified Performing Artist Tax Benefit
Performing artists who satisfy three tests are allowed to deduct their expenses “above the line” on their tax returns, which is more advantageous than treating such expenses as itemized deductions. This tax benefit was originally enacted in 1986 and reflected the fact that many performing artists were poorly paid and that, absent some kind of help, they were unable to maintain themselves as working artists. It further recognized that artists faced significant expenses connected with gaining employment. One of the three tests mentioned above limits their allowable adjusted gross income to no greater than $16,000. This cap has been static since it was first enacted.

IRA Rollover
The IRA Rollover would allow individuals to transfer Individual Retirement Account (IRA) funds directly to a charity without incurring income tax on the transfer. This change to the tax code would encourage charitable giving to nonprofit organizations because donors would would no longer have to pay tax on a charitable contribution from their IRA funds.

Artist Deduction
The Artist Deduction bill would allow artists to take a fair-market value deduction for works given to and retained by nonprofit institutions. Living writers, musicians, artists and scholars who donate their work to a charitable cause would earn a tax deduction based on full fair market value. Currently such work receives only a deduction based on the cost of materials unless it is donated posthumously by the estates.

Estate Tax
Repealing the estate tax would remove a strong incentive for charitable bequests. A 2004 report from the Congressional Budget concluded that eliminating the estate tax would result in an estimated 22 percent decline in charitable bequests. A report issued by the Brookings Institution indicates that a repeal of the estate tax would result in a total loss of about $10 billion in charitable giving each year.

What We Are Asking Right Now

We urge Members of Congress to:

Enact legislation to reinstate the IRA Charitable Rollover provision, allowing individuals to roll funds from their Individual Retirement Accounts to charity.
Cosponsor S. 405 or H.R. 1126, the Artist-Museum Partnership Act, which allows artists, writers, and composers to take a fair-market value deduction for contributions of their own works to arts organizations.
Support efforts to amend the Pension Protection Act fractional gifts provision and to fix the out-of-date Qualified Performing Artist benefit.

Recent Activity

Senate Taking up IRA Rollover

June 18, 2008
The Senate is expected to take up an “extenders” package of tax-related measures that includes the IRA Rollover provision. The IRA Rollover provision allows donors age 70 ½ and older to make tax-free charitable donations directly from their IRAs, up to an annual ceiling of $100,000. During its brief period of enactment, the IRA Rollover spurred millions of dollars in new charitable gifts to nonprofit organizations. In May, the U.S. House of Representatives passed a similar package of tax-related measures, including a provision reinstating the IRA Rollover.

Independent Sector Files Comment on Form 990 Draft Instructions

June 18, 2008
In early June, Independent Sector filed detailed comments with the IRS on its draft instructions to the revised Form 990. The Form 990, the primary annual information return form for nonprofit organizations, was overhauled by the IRS last fall and will require nonprofits of all kinds to report their financial and operational information in significantly different ways than previously required. Independent Sector's comments offered suggestions to the IRS to clarify definitions and highlight opportunities where the agency can continue its commitment to educating the nonprofit sector on how to use the new Form 990. For more detailed information on the new Form 990 and its draft instructions, please visit the Independent Sector website.

Senate to Take Up IRA Rollover in the Next 60 days

April 1, 2008
The U.S. Senate will soon be introducing a package of tax-related measures, including a provision to reinstate the IRA Rollover. The provision, which allowed donors to make tax-free charitable contributions directly from their Individual Retirement Accounts (IRA), was enacted in August 2006, but expired in December 2007. The provision allows donors age 70 ½ and older to make tax-free charitable donations directly from their IRAs, up to an annual ceiling of $100,000. During its brief period of enactment, the IRA Rollover spurred millions of dollars in new charitable gifts to nonprofit organizations.

The PAA is encouraged that during the debate over the non-binding budget resolution, the Senate called for the reinstating of the IRA Rollover provision. The President also included it in his annual budget request. With this momentum, the legislation is expected to move through the Senate on a fast track in the next 60 days.

President’s FY 2009 Budget Request Includes IRA Rollover

February 4, 2008
President Bush released his FY 2009 budget request which serves as a starting point for the Congressional Appropriations process. The President’s FY09 budget requests a permanent enactment of the IRA Charitable Rollover provision which expired in December 2007.

New IRS Form 990

January 10, 2008
The Internal Revenue Service (IRS) released its new Form 990, which includes many changes requested by the nonprofit community. The IRS announced it will phase in implementation of the new form over four years to allow smaller organizations to prepare for new requirements. Beginning in May 2009, organizations with gross annual receipts over $1 million or total assets over $2.5 million will be required to file the new Form 990 to report on FY08 activity. The transition for smaller-budget organizations will be phased in more gradually. The core form was rearranged to put nonprofit organizations' operations in context and major changes were made to the summary page, governance and compensation sections. For more detailed information on the IRS Form 990, please visit the Independent Sector website.