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114th Congress    }                                       {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                       {      114-64

======================================================================



 
                    FAIR TREATMENT FOR ALL GIFTS ACT

                                _______
                                

 April 13, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 1104]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1104) to amend the Internal Revenue Code of 1986 to 
provide a deduction from the gift tax for gifts made to certain 
exempt organizations, 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. Deduction from Gift Tax for Gifts Made to Certain 
            Exempt Organizations (sec. 2 of the bill and sec. 
            2522(a) of the Code).................................     3
III.VOTES OF THE COMMITTEE............................................6

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...............................................     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.     8
        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.......................     9
        H. Disclosure of Directed Rule Makings...................     9
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............9
        A. Text of Existing Law Amended or Repealed by the Bill, 
            as Reported..........................................     9
        B. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................    13

    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 ``Fair Treatment for All Gifts Act''.

SEC. 2. DEDUCTION FROM GIFT TAX FOR GIFTS MADE TO CERTAIN EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Section 2522(a) of the Internal Revenue Code of 1986 
is amended by striking the period at the end of paragraph (4) and 
inserting a semicolon and by inserting after paragraph (4) the 
following new paragraph:
          ``(5) an organization described in paragraph (4), (5), or (6) 
        of section 501(c) and exempt from tax under section 501(a).''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to gifts made after the date of the enactment of this Act.
  (c) No Inference.--Nothing in the amendments made by subsection (a) 
shall be construed to create any inference with respect to whether any 
transfer of property (whether made before, on, or after the date of the 
enactment of this Act) to an organization described in paragraph (4), 
(5), or (6) of section 501(c) of the Internal Revenue Code of 1986 is a 
transfer of property by gift for purposes of chapter 12 of such Code.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    H.R. 1104, reported by the Committee on Ways and Means, 
provides that donations to organizations exempt from tax under 
sections 501(c)(4), (c)(5), and (c)(6) of the Internal Revenue 
Code (the ``Code'') are treated as gifts for Federal tax 
purposes. However, such gifts are deductible from total gifts 
made and not included as taxable gifts for the calendar year. 
Thus, donations are effectively exempt from the Federal gift 
tax. The legislation applies to gifts made after the date of 
enactment. The bill further provides that no inference is to be 
made with regard to any transfer of property made before, on or 
after the date of enactment.

                 B. Background and Need for Legislation

    The Committee believes that it is important to clarify the 
treatment of donations to organizations exempt from tax under 
Code section 501(c)(4) (social welfare organizations), (c)(5) 
(unions), or (c)(6) (trade associations). While these donations 
are not eligible for a charitable deduction, it has been 
unclear under current law whether such transfers should be 
treated as gifts, which would make the donor liable for the 
gift tax. In 2011, the IRS began to audit taxpayers for failure 
to file a gift tax return on transfers to section 501(c)(4) 
organizations, although it later abandoned such audits. The 
Committee believes that transfers to organizations exempt from 
tax under Code section 501(c)(4) (social welfare 
organizations), (c)(5) (unions), or (c)(6) (trade associations) 
should be treated as gifts. However, such transfers should be 
deducted from total gifts made for the year when determining 
the amount of taxable gifts. Thus, such transfers would not be 
subject to the gift tax. The bill clarifies this area of tax 
law and provides certainty to taxpayers.

                         C. Legislative History


Background

    H.R. 1104 was introduced on February 26, 2015, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 1104, the 
``Fair Treatment for All Gifts Act,'' on March 25, 2015, and 
ordered the bill, as amended, favorably reported (with a quorum 
being present).

Committee hearings

    The need for clarification of the treatment of non-
deductible donations to certain tax-exempt organizations was 
discussed during multiple Committee hearings during the 113th 
Congress:
     Full Committee Hearing on IRS Targeting 
Conservative Groups (May 17, 2013).
     Full Committee Hearing Organizations Targeted by 
Internal Revenue Service for Their Personal Beliefs (June 4, 
2013).
     Full Committee Hearing on the Status of Internal 
Revenue Service's Review of Taxpayer Targeting Practices (June 
27, 2013).

                      II. EXPLANATION OF THE BILL


      A. Deduction From Gift Tax for Gifts Made to Certain Exempt 
    Organizations (sec. 2 of the bill and sec. 2522(a) of the Code)


                              PRESENT LAW

Overview

    The Code imposes a tax for each calendar year on the 
transfer of property by gift during such year by any 
individual, whether a resident or nonresident of the United 
States.\1\ The amount of taxable gifts for a calendar year is 
determined by subtracting from the total amount of gifts made 
during the year: (1) the gift tax annual exclusion (described 
below); and (2) allowable deductions.
---------------------------------------------------------------------------
    \1\Sec. 2501(a).
---------------------------------------------------------------------------
    Gift tax for the current taxable year is determined by: (1) 
computing a tentative tax on the combined amount of all taxable 
gifts for the current and all prior calendar years using the 
common gift tax and estate tax rate table; (2) computing a 
tentative tax only on all prior-year gifts; (3) subtracting the 
tentative tax on prior-year gifts from the tentative tax 
computed for all years to arrive at the portion of the total 
tentative tax attributable to current-year gifts; and, finally, 
(4) subtracting the amount of unified credit not consumed by 
prior-year gifts.

Unified credit (exemption) and tax rates

            Unified credit
    A unified credit is available with respect to taxable 
transfers by gift and at death.\2\ The unified credit offsets 
tax, computed using the applicable estate and gift tax rates, 
on a specified amount of transfers, referred to as the 
applicable exclusion amount, or exemption amount. The exemption 
amount was set at $5 million for 2011 and is indexed for 
inflation for later years.\3\ For 2015, the inflation-indexed 
exemption amount is $5.43 million.\4\ Exemption used during 
life to offset taxable gifts reduces the amount of exemption 
that remains at death to offset the value of a decedent's 
estate. An election is available under which exemption that is 
not used by a decedent may be used by the decedent's surviving 
spouse (exemption portability).
---------------------------------------------------------------------------
    \2\Sec. 2010.
    \3\For 2011 and later years, the gift and estate taxes were 
reunified, meaning that the gift tax exemption amount was increased to 
equal the estate tax exemption amount.
    \4\For 2015, the $5.43 exemption amount results in a unified credit 
of $2,117,800, after applying the applicable rates set forth in section 
2001(c).
---------------------------------------------------------------------------
            Common tax rate table
    A common tax-rate table with a top marginal tax rate of 40 
percent is used to compute gift tax and estate tax. The 40 
percent rate applies to transfers in excess of $1 million (to 
the extent not exempt). Because the exemption amount currently 
shields the first $5.43 million in gifts and bequests from tax, 
transfers in excess of the exemption amount generally are 
subject to tax at the highest marginal 40-percent rate.

Transfers by gift

    The gift tax applies to a transfer by gift regardless of 
whether: (1) the transfer is made outright or in trust; (2) the 
gift is direct or indirect; or (3) the property is real or 
personal, tangible or intangible.\5\ For gift tax purposes, the 
value of a gift of property is the fair market value of the 
property at the time of the gift.\6\ Where property is 
transferred for less than full consideration, the amount by 
which the value of the property exceeds the value of the 
consideration is considered a gift and is included in computing 
the total amount of a taxpayer's gifts for a calendar year.\7\
---------------------------------------------------------------------------
    \5\Sec. 2511(a).
    \6\Sec. 2512(a).
    \7\Sec. 2512(b).
---------------------------------------------------------------------------
    For a gift to occur, a donor generally must relinquish 
dominion and control over donated property. For example, if a 
taxpayer transfers assets to a trust established for the 
benefit of his or her children, but retains the right to revoke 
the trust, the taxpayer may not have made a completed gift, 
because the taxpayer has retained dominion and control over the 
transferred assets. A completed gift made in trust, on the 
other hand, often is treated as a gift to the trust 
beneficiaries.
    By reason of statute, certain transfers are not treated as 
transfers by gift for gift tax purposes. These include, for 
example, certain transfers for educational and medical 
purposes\8\ and transfers to section 527 political 
organizations.\9\
---------------------------------------------------------------------------
    \8\Sec. 2503(e).
    \9\Sec. 2501(a)(4).
---------------------------------------------------------------------------
    Under present law, there is no explicit exception from the 
gift tax for a transfer to a tax-exempt organization described 
in section 501(c)(4) (generally, social welfare organizations), 
501(c)(5) (generally, labor and certain other organizations), 
or section 501(c)(6) (generally, trade associations and 
business leagues).

Taxable gifts

    As stated above, the amount of a taxpayer's taxable gifts 
for the year is determined by subtracting from the total amount 
of the taxpayer's gifts for the year the gift tax annual 
exclusion and any available deductions.
            Gift tax annual exclusion
    Under present law, donors of lifetime gifts are provided an 
annual exclusion of $14,000 per donee in 2015 (indexed for 
inflation from the 1997 annual exclusion amount of $10,000) for 
gifts of present interests in property during the taxable 
year.\10\ If the non-donor spouse consents to split the gift 
with the donor spouse, then the annual exclusion is $28,000 per 
donee in 2015. In general, unlimited transfers between spouses 
are permitted without imposition of a gift tax. Special rules 
apply to the contributions to a qualified tuition program 
(``529 Plan'') including an election to treat a contribution 
that exceeds the annual exclusion as a contribution made 
ratably over a five-year period beginning with the year of the 
contribution.\11\
---------------------------------------------------------------------------
    \10\Sec. 2503(b).
    \11\Sec. 529(c)(2).
---------------------------------------------------------------------------
            Transfers between spouses
    A 100-percent marital deduction generally is permitted for 
the value of property transferred between spouses.\12\
---------------------------------------------------------------------------
    \12\Sec. 2523.
---------------------------------------------------------------------------
            Transfers to charity
    Contributions to section 501(c)(3) charitable organizations 
and certain other organizations may be deducted from the value 
of a gift for Federal gift tax purposes.\13\ The effect of the 
deduction generally is to remove the full fair market value of 
assets transferred to charity from the gift tax base; unlike 
the income tax charitable deduction, there are no percentage 
limits on the deductible amount. A charitable contribution of a 
partial interest in property, such as a remainder or future 
interest, generally is not deductible for gift tax 
purposes.\14\
---------------------------------------------------------------------------
    \13\Sec. 2522.
    \14\Sec. 2522(c)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Until recently, the IRS had not attempt to impose gift tax 
on transfers to organizations that are exempt from tax under 
section 501(c)(4), (5), or (6) of the Code. In 2011, the 
Committee found that certain donors to section 501(c)(4) 
organizations had received notices from the IRS that they would 
be audited for potential gift tax liability. After the 
Committee commenced oversight of this action, the IRS announced 
that it was suspending this practice. The Committee is 
concerned that the threat of an audit or imposition of gift tax 
could have a chilling effect on the making of contributions 
that are used to support legitimate exempt purposes. The 
Committee therefore believes it is necessary to clarify that 
payments to section 501(c)(4), (5), and (6) organizations are 
not subject to gift tax.

                        EXPLANATION OF PROVISION

    Under the provision, a transfer to a tax-exempt 
organization described in section 501(c)(4), 501(c)(5), or 
501(c)(6) is deductible in computing taxable gifts for a 
calendar year.

                             EFFECTIVE DATE

    The provision is effective for gifts made after the date of 
enactment. The provision shall not be construed to create an 
inference with respect to whether any transfer of property to 
such an organization, whether made before, on or after the date 
of enactment, is a transfer by gift for gift tax purposes.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 1104, the ``Fair Treatment for All Gifts 
Act'' on March 25, 2015.
    The Chairman's amendment in the nature of a substitute was 
adopted by a voice vote (with a quorum being present).
    The bill, H.R. 1104, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     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. 1104, as 
reported.
    The bill, as reported, is estimated to have no effect on 
Federal budget receipts for fiscal years 2015-2025.
    Pursuant to clause 8 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 gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

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 there are no new or increased tax 
expenditures.

      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, April 2, 2015.
Hon. Paul Ryan,
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. 1104, the Fair 
Treatment for All Gifts Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 1104--Fair Treatment for All Gifts Act

    H.R. 1104 would amend the Internal Revenue Code to 
explicitly provide that donations to certain tax-exempt 
organizations would be deductible in computing taxable gifts 
for purposes of estate and gift taxation. The tax-exempt 
organizations include social welfare and other organizations 
described in the Internal Revenue Code under section 501(c)(4), 
labor and other organizations described under section 
501(c)(5), and trade associations and similar organizations 
described under section 501(c)(6). The bill would codify the 
existing practices of the Internal Revenue Service in 
administering the tax law applicable to such donations.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 1104 would have no budgetary 
effect. Because enacting H.R. 1104 would not affect direct 
spending or revenues, pay-as-you-go procedures do not apply.
    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.

     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. 1104 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

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 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 Internal Revenue 
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(g)(2) of H. Res. 5 (114th 
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(i) of H. Res. 5 (114th 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


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

   Text of Existing Law Amended or Repealed by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



Subtitle B--Estate and Gift Taxes

           *       *       *       *       *       *       *


CHAPTER 12--GIFT TAX

           *       *       *       *       *       *       *


Subchapter C--Deductions

           *       *       *       *       *       *       *


SEC. 2522. CHARITABLE AND SIMILAR GIFTS.

  (a) Citizens or Residents.--In computing taxable gifts for 
the calendar year, there shall be allowed as a deduction in the 
case of a citizen or resident the amount of all gifts made 
during such year to or for the use of--
          (1) the United States, any State, or any political 
        subdivision thereof, or the District of Columbia, for 
        exclusively public purposes;
          (2) a corporation, or trust, or community chest, 
        fund, or foundation, organized and operated exclusively 
        for religious, charitable, scientific, literary, or 
        educational purposes, or to foster national or 
        international amateur sports competition (but only if 
        no part of its activities involve the provision of 
        athletic facilities or equipment), including the 
        encouragement of art and the prevention of cruelty to 
        children or animals, no part of the net earnings of 
        which inures to the benefit of any private shareholder 
        or individual, which is not disqualified for tax 
        exemption under section 501(c)(3) by reason of 
        attempting to influence legislation, and which does not 
        participate in, or intervene in (including the 
        publishing or distributing of statements), any 
        political campaign on behalf of (or in opposition to) 
        any candidate for public office;
          (3) a fraternal society, order, or association, 
        operating under the lodge system, but only if such 
        gifts are to be used exclusively for religious, 
        charitable, scientific, literary, or educational 
        purposes, including the encouragement of art and the 
        prevention of cruelty to children or animals;
          (4) posts or organizations of war veterans, or 
        auxiliary units or societies of any such posts or 
        organizations, if such posts, organizations, units, or 
        societies are organized in the United States or any of 
        its possessions, and if no part of their net earnings 
        insures to the benefit of any private shareholder or 
        individual.
Rules similar to the rules of section 501(j) shall apply for 
purposes of paragraph (2).
  (b) Nonresidents.--In the case of a nonresident not a citizen 
of the United States, there shall be allowed as a deduction the 
amount of all gifts made during such year to or for the use 
of--
          (1) the United States, any State, or any political 
        subdivision thereof, or the District of Columbia, for 
        exclusively public purposes;
          (2) a domestic corporation organized and operated 
        exclusively for religious, charitable, scientific, 
        literary, or educational purposes, including the 
        encouragement of art and the prevention of cruelty to 
        children or animals, no part of the net earnings of 
        which inures to the benefit of any private shareholder 
        or individual, which is not disqualified for tax 
        exemption under section 501(c)(3) by reason of 
        attempting to influence legislation, and which does not 
        participate in, or intervene in (including the 
        publishing or distributing of statements), any 
        political campaign on behalf of (or in opposition to) 
        any candidate for public office;
          (3) a trust, or community chest, fund, or foundation, 
        organized and operated exclusively for religious, 
        charitable, scientific, literary, or educational 
        purposes, including the encouragement of art and the 
        prevention of cruelty to children or animals, no 
        substantial part of the activities of which is carrying 
        on propaganda, or otherwise attempting, to influence 
        legislation, and which does not participate in, or 
        intervene in (including the publishing or distributing 
        of statements), any political campaign on behalf of (or 
        in opposition to) any candidate for public office; but 
        only if such gifts are to be used within the United 
        States exclusively for such purposes;
          (4) a fraternal society, order, or association, 
        operating under the lodge system, but only if such 
        gifts are to be used within the United States 
        exclusively for religious, charitable, scientific, 
        literary, or educational purposes, including the 
        encouragement of art and the prevention of cruelty to 
        children or animals;
          (5) posts or organizations of war veterans, or 
        auxiliary units or societies of any such posts or 
        organizations, if such posts, organizations, units, or 
        societies are organized in the United States or any of 
        its possessions, and if no part of their net earnings 
        inures to the benefit of any private shareholder or 
        individual.
  (c) Disallowance of Deductions in Certain Cases.--
          (1) No deduction shall be allowed under this section 
        for a gift to of for the use of an organization or 
        trust described in section 508(d) or 4948(c)(4) subject 
        to the conditions specified in such sections.
          (2) Where a donor transfers an interest in property 
        (other than an interest described in section 
        170(f)(3)(B)) to a person, or for a use, described in 
        subsection (a) or (b) and an interest in the same 
        property is retained by the donor, or is transferred or 
        has been transferred (for less than an adequate and 
        full consideration in money or money's worth) from the 
        donor to a person, or for a use, not described in 
        subsection (a) or (b), no deduction shall be allowed 
        under this section for the interest which is, or has 
        been transferred to the person, or for the use, 
        described in subsection (a) or (b), unless--
                  (A) in the case of a remainder interest, such 
                interest is in a trust which is a charitable 
                remainder annuity trust or a charitable 
                remainder unitrust (described in section 664) 
                or a pooled income fund (described in section 
                642(c)(5)), or
                  (B) in the case of any other interest, such 
                interest is in the form of a guaranteed annuity 
                or is a fixed percentage distributed yearly of 
                the fair market value of the property (to be 
                determined yearly).
          (3) Rules similar to the rules of section 2055(e)(4) 
        shall apply for purposes of paragraph (2).
          (4) Reformations to comply with paragraph (2)
                  (A) In general.--A deduction shall be allowed 
                under subsection (a) in respect of any 
                qualified reformation (within the meaning of 
                section 2055(e)(3)(B)).
                  (B) Rules similar to section 2055(e)(3) to 
                apply.--For purposes of this paragraph, rules 
                similar to the rules of section 2055(e)(3) 
                shall apply.
          (5) Contributions to donor advised funds.--A 
        deduction otherwise allowed under subsection (a) for 
        any contribution to a donor advised fund (as defined in 
        section 4966(d)(2)) shall only be allowed if--
                  (A) the sponsoring organization (as defined 
                in section 4966(d)(1)) with respect to such 
                donor advised fund is not--
                          (i) described in paragraph (3) or (4) 
                        of subsection (a), or
                          (ii) a type III supporting 
                        organization (as defined in section 
                        4943(f)(5)(A)) which is not a 
                        functionally integrated type III 
                        supporting organization (as defined in 
                        section 4943(f)(5)(B)), and
                  (B) the taxpayer obtains a contemporaneous 
                written acknowledgment (determined under rules 
                similar to the rules of section 170(f)(8)(C)) 
                from the sponsoring organization (as so 
                defined) of such donor advised fund that such 
                organization has exclusive legal control over 
                the assets contributed.
  (d) Special Rule for Irrevocable Transfers of Easements in 
Real Property.--A deduction shall be allowed under subsection 
(a) in respect of any transfer of a qualified real property 
interest (as defined in section 170(h)(2)(C)) which meets the 
requirements of section 170(h) (without regard to paragraph 
(4)(A) thereof).
  (e) Special Rules for Fractional Gifts.--
          (1) Denial of deduction in certain cases.--
                  (A) In general.--No deduction shall be 
                allowed for a contribution of an undivided 
                portion of a taxpayer's entire interest in 
                tangible personal property unless all interests 
                in the property are held immediately before 
                such contribution by--
                          (i) the taxpayer, or
                          (ii) the taxpayer and the donee.
                  (B) Exceptions.--The Secretary may, by 
                regulation, provide for exceptions to 
                subparagraph (A) in cases where all persons who 
                hold an interest in the property make 
                proportional contributions of an undivided 
                portion of the entire interest held by such 
                persons.
          (2) Recapture of deduction in certain cases; addition 
        to tax.--
                  (A) In general.--The Secretary shall provide 
                for the recapture of an amount equal to any 
                deduction allowed under this section (plus 
                interest) with respect to any contribution of 
                an undivided portion of a taxpayer's entire 
                interest in tangible personal property--
                          (i) in any case in which the donor 
                        does not contribute all of the 
                        remaining interests in such property to 
                        the donee (or, if such donee is no 
                        longer in existence, to any person 
                        described in section 170(c)) on or 
                        before the earlier of--
                                  (I) the date that is 10 years 
                                after the date of the initial 
                                fractional contribution, or
                                  (II) the date of the death of 
                                the donor, and (ii) in any case 
                                in which the donee has not, 
                                during the period beginning on 
                                the date of the initial 
                                fractional contribution and 
                                ending on the date described in 
                                clause (i)--
                                  (I) had substantial physical 
                                possession of the property, and
                                  (II) used the property in a 
                                use which is related to a 
                                purpose or function 
                                constituting the basis for the 
                                organizations' exemption under 
                                section 501.
                  (B) Addition to tax.--The tax imposed under 
                this chapter for any taxable year for which 
                there is a recapture under subparagraph (A) 
                shall be increased by 10 percent of the amount 
                so recaptured.
                  (C) Initial fractional contribution.--For 
                purposes of this paragraph, the term ``initial 
                fractional contribution'' means, with respect 
                to any donor, the first gift of an undivided 
                portion of the donor's entire interest in any 
                tangible personal property for which a 
                deduction is allowed under subsection (a) or 
                (b).
  (f) Cross References.--
          (1) For treatment of certain organizations providing 
        child care, see section 501(k).
          (2) For exemption of certain gifts to or for the 
        benefit of the United States and for rules of 
        construction with respect to certain bequests, see 
        section 2055(f).
          (3) For treatment of gifts to or for the use of 
        Indian tribal governments (or their subdivisions), see 
        section 7871.

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