Proposal for Above-the-Line Charitable Contributions

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By Annette Nellen, Co-Editor of the South-Western Federal Taxation series

On June 22, 2020, a bipartisan group of senators introduced the Universal Giving Pandemic Response Act (press release of Senator Lankford). This bill would expand the above-the-line maximum $300 charitable contribution deduction temporarily added by the CARES Act (P.L. 116-136, 3/27/20). As with the CARES Act change, this deduction is for those individuals who do not itemize their deductions. Unlike the CARES Act provision, S. ____ does not limit the donation to only cash.

S. ____ would increase the deduction amount to one-third of the taxpayer’s standard deduction amount and be effective for 2019 and 2020. In addition, individuals may elect to treat a charitable donation made after December 31, 2019 and before July 15, 2020 as made in calendar year 2019. Similar proposals have been made before. The likely reason for this is that an individual might want to make a charitable contribution once they have prepared their tax return and can more readily see what the tax effect is of making the donation.

CLASS ASSIGNMENTS

Prepare a table of the maximum above-the-line donation amounts for 2020 for each filing status.
Have students critique this proposal using principles of good tax policy as laid out in Chapter 1 and here. How can they use the results to support a position for and against S. ____?
Given the name of the bill, do you think it should only apply to donations made for COVID-19 relief? Explain.
What complications will arise for taxpayers donating non-cash items rather than cash?
What due diligence procedures should a tax practitioner have in place to ensure donations made between 12/31/19 and 7/15/20 that the taxpayer elects to deduct on their 2019 return are not also deducted on the 2020 return?
What documentation is needed for an individual who donates $300 of cash to the Red Cross?
Draft a letter to your individual clients explaining S. ____ and what they should consider in taking advantage of this proposed new tax break.