H. Rept. 113-430 - 113th Congress (2013-2014)
May 02, 2014, As Reported by the Ways and Means Committee

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House Report 113-430 - PERMANENT S CORPORATION CHARITABLE CONTRIBUTIONS ACT OF 2014




[House Report 113-430]
[From the U.S. Government Publishing Office]


113th Congress  }                                            {   Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                            {  113-430

======================================================================
 
      PERMANENT S CORPORATION CHARITABLE CONTRIBUTIONS ACT OF 2014

                                _______
                                

  May 2, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4454]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4454) to amend the Internal Revenue Code of 1986 to 
make permanent certain rules regarding basis adjustments to 
stock of S corporations making charitable contributions of 
property, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     2
          C. Legislative History.................................     3
 II. EXPLANATION OF THE BILL..........................................3
          A. Permanent Rule Regarding Basis Adjustment to Stock 
              of S Corporations Making Charitable Contributions 
              of Property (sec. 1367 of the Code)................     3
III. VOTES OF THE COMMITTEE...........................................5
 IV. BUDGET EFFECTS OF THE BILL.......................................6
          A. Committee Estimate of Budgetary Effects.............     6
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     6
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     6
          D. Macroeconomic Impact Analysis.......................     7
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......7
          A. Committee Oversight Findings and Recommendations....     7
          B. Statement of General Performance Goals and 
              Objectives.........................................     7
          C. Information Relating to Unfunded Mandates...........     8
          D. Applicability of House Rule XXI 5(b)................     8
          E. Tax Complexity Analysis.............................     8
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................     8
          G. Duplication of Federal Programs.....................     8
          H. Disclosure of Directed Rule Makings.................     9
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............9
VII. DISSENTING VIEWS................................................10

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Permanent S Corporation Charitable 
Contributions Act of 2014''.

SEC. 2. PERMANENT RULE REGARDING BASIS ADJUSTMENT TO STOCK OF S 
                    CORPORATIONS MAKING CHARITABLE CONTRIBUTIONS OF 
                    PROPERTY.

  (a) In General.--Section 1367(a)(2) of the Internal Revenue Code of 
1986 is amended by striking the last sentence.
  (b) Effective Date.--The amendment made by this section shall apply 
to contributions made in taxable years beginning after December 31, 
2013.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    Identical to a provision contained in the discussion draft 
of the ``Tax Reform Act of 2014'' released on February 26, 
2014, the bill, H.R. 4454, reported by the Committee on Ways 
and Means, provides that a shareholder's basis in his S 
corporation stock is decreased by his pro rata share of the 
adjusted basis of any charitable contributions made by the S 
corporation, rather than the fair market value. An identical, 
temporary provision expired for taxable years beginning after 
December 31, 2013.

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide small businesses permanent, 
immediate tax relief to help encourage economic growth and job 
creation. By providing small businesses with a permanent rule 
for adjusting the shareholders' basis in stock of an S 
corporation making charitable contributions, H.R. 4454 corrects 
a disparity between the treatment of charitable contributions 
made by S corporations and partnerships, which can result in a 
future tax liability for shareholders of an S corporation that 
donates appreciated property. H.R. 4454 will level the playing 
field between S corporations and other types of businesses and 
provide S corporations with greater certainty so they can plan 
for charitable giving that is in the best interest of the 
company, its shareholders, and the charitable organizations 
receiving such donations.

                         C. Legislative History


                               BACKGROUND

    H.R. 4454 was introduced on April 10, 2014, and was 
referred to the Committee on Ways and Means.

                            COMMITTEE ACTION

    The Committee on Ways and Means marked up H.R. 4454, the 
Permanent S Corporation Charitable Contributions Act of 2014, 
on April 29, 2014, and ordered the bill, as amended, favorably 
reported (with a quorum being present).

                           COMMITTEE HEARINGS

    The need for permanent rules regarding basis adjustments to 
stock of S corporations making charitable contributions of 
property was discussed at no fewer than four hearings during 
the 112th and 113th Congresses:
      
  Full Committee hearing on Fundamental Tax 
Reform (January 20, 2011);
      
  Full Committee hearing on the Treatment of 
Closely-Held Businesses in the Context of Tax Reform (March 7, 
2012);
      
  Select Revenue Measures Subcommittee hearing on 
the Small Business and Pass-Through Entity Tax Reform 
Discussion Draft (May 15, 2013); and
      
  Full Committee hearing on the Benefits of 
Permanent Tax Policy for America's Job Creators (April 8, 
2014).

                      II. EXPLANATION OF THE BILL


A. Permanent Rule Regarding Basis Adjustment to Stock of S Corporations 
  Making Charitable Contributions of Property (sec. 1367 of the Code)


                              PRESENT LAW

    Under present law, if an S corporation makes a charitable 
contribution of money or other property, each shareholder takes 
into account the shareholder's pro rata share of the 
contribution in determining its own income tax liability.\1\ A 
shareholder of an S corporation reduces the basis in the stock 
of the S corporation by the shareholder's pro rata share of the 
S corporation's charitable contributions.\2\
---------------------------------------------------------------------------
    \1\Sec. 1366(a)(1)(A).
    \2\Sec. 1367(a)(2)(B). See also the last sentence of section 
1366(a)(1) referencing sec. 702(a)(4).
---------------------------------------------------------------------------
    In the case of contributions made in taxable years 
beginning before January 1, 2014, the amount of a shareholder's 
basis reduction in the stock of an S corporation on account of 
a charitable contribution made by the corporation is the 
shareholder's pro rata share of the adjusted basis of the 
contributed property. For contributions made in taxable years 
beginning after December 31, 2013, the amount of the reduction 
is the shareholder's pro rata share of the fair market value of 
the contributed property.

                           REASONS FOR CHANGE

    The Committee believes that the provision regarding basis 
adjustments to S corporation stock should be made permanent to 
prevent S corporation shareholders from losing the tax benefit 
of the deduction for charitable contributions of appreciated 
property when the shareholders sell their stock. Under the 
provision, S corporation shareholders will be treated in the 
same manner as other persons owning an interest in a business 
making charitable contributions, including partnerships and 
limited liability companies. The Committee also believes that 
this provision will encourage charitable giving.

                        EXPLANATION OF PROVISION

    The provision makes permanent the basis reduction rule 
applicable for contributions made in taxable years beginning 
before January 1, 2014.

                             EFFECTIVE DATE

    The provision applies to charitable contributions made in 
taxable years beginning after December 31, 2013.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 4454, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal budget receipts for fiscal years 2014-2024:

                                       Fiscal years, billions of dollars--
----------------------------------------------------------------------------------------------------------------
  2014     2015     2016     2017     2018     2019    2020    2021    2022    2023    2024    2014-19   2014-24
----------------------------------------------------------------------------------------------------------------
  - - -     -0.1     -0.1     -0.1     -0.1     -0.1    -0.1    -0.1    -0.1    -0.1    -0.1      -0.3     -0.7
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4454, the 
Permanent S Corporation Charitable Contributions Act of 2014.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4454--Permanent S Corporation Charitable Contributions Act of 2014

    H.R. 4454 would amend the Internal Revenue Code to make 
permanent a rule that expired at the end of 2013 that defines 
how a shareholder in an S corporation adjusts the basis of that 
S corporation stock to account for that corporation's 
contributions of property to charity. This legislation would 
permanently provide that a shareholder reduces S corporation 
stock basis by an amount equal to the shareholder's pro rata 
share of the adjusted basis of the contributed property, 
instead of the pro rata share of the fair market value of the 
contributed property.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 4454 would reduce revenues, thus 
increasing federal deficits, by $662 million over the 2014-2024 
period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 4454 would result 
in revenue losses in each year beginning in 2015. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

           CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4454, AS ORDERED REPORTED BY THE HOUSE COMMITTE ON WAYS AND MEANS ON APRIL 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, in millions of dollars--
                                            ------------------------------------------------------------------------------------------------------------
                                              2014   2015    2016    2017    2018    2019    2020    2021    2022    2023    2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects............      0      74      53      56      60      63      66      68      71      74      77       306       662
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 4454 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code and has widespread applicability to 
individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

           SECTION 1367 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

  (a) General Rule.--
          (1) * * *
          (2) Decreases in basis.--The basis of each 
        shareholder's stock in an S corporation shall be 
        decreased for any period (but not below zero) by the 
        sum of the following items determined with respect to 
        the shareholder for such period:
                  (A) * * *

           *       *       *       *       *       *       *

        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 pro rata share of the adjusted basis of 
        such property. [The preceding sentence shall not apply 
        to contributions made in taxable years beginning after 
        December 31, 2013.]

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    These bills would add a combined $310 billion to the 
deficit. Even though these bills were introduced individually 
with some bipartisan support, the opposition to these bills was 
based on the position that these tax provisions should not be 
made permanent by adding to the deficit without any revenue 
offset.
    To put the combined cost ($310 billion) into context, this 
total represents more than one-half of the entire federal 
deficit this year--the lowest it has been since President Obama 
took office. It represents nearly two-thirds of all non-defense 
domestic discretionary spending in 2014. It is more than three 
times what we spend annually on education, job training, and 
social services. It is five times more than we spend on 
veterans. And, it is five times more than we spend on medical 
research and public health.
    We also opposed the manner in which Republicans were 
proceeding--selecting six to make permanent without any offset 
from the approximately 60 tax provisions that expired last 
year. This approach was both fiscally irresponsible and 
fundamentally hypocritical.
    We found it hypocritical that, four months ago, Republicans 
let emergency unemployment insurance expire for more than 1.3 
million Americans by arguing that an adequate offset had yet to 
be proposed. In early April, the Senate came to a bipartisan 
agreement on an offset after months of painstaking 
negotiations. Yet House Republicans still refuse to act.
    Further, we found it also hypocritical that the Republicans 
were in favor of passing these six tax bills at a cost of $310 
billion without an offset at the same time that they were 
requiring an offset for a provision stripped from another bill 
under consideration at the markup that helped foster children 
at a cost of $12 million.
    The consideration of these six tax bills should have been 
part of the consideration of all the expired tax provisions 
commonly referred to as ``tax extenders.'' The Republicans did 
not take up other tax extenders that also are important to 
Democratic Committee Members. Left to an uncertain fate are 
provisions like the Work Opportunity Tax Credit, the New 
Markets Tax Credit, and the renewable energy tax credits, as 
well as the long-term status of the Earned Income Tax Credit, 
the Child Tax Credit, and the American Opportunity Tax Credit.

            Sincerely,
                                           Sander M. Levin,
                                                    Ranking Member.