Provisions in the Taxpayer Relief Act that Affect Nonprofits

The American Taxpayer Relief Act of 2012 extended a modification of the tax treatment of payments to controlling exempt organizations to January 1, 2014. The special rule previously applied only to payments received or accrued before January 1, 2012.

Generally, interest, annuities, royalties and rents received by controlling organizations from controlled entities are subject to tax under section 512(b)(13). However, exempt organizations may exclude “qualifying specified payments” from unrelated business income if received or accrued before January 1, 2014. 

The Pension Protection Act of 2006 contained several time-limited provisions for favorable tax treatment of certain contributions. These provisions generally expired at the end of 2007 and have been extended several times for two-year periods, most recently in 2010. Some, but not all, of these provisions are extended by the TRA. Specifically, TRA extends the following through the end of 2013:

• IRA Charity Contribution (Code Section 408(d)(8)(F), permitting a distribution of up to $100,000 tax-free from an IRA to a qualifying charity by those over 70 ½ years old. As in the previous extension, taxpayers have the month of January 2013 to elect to make charitable distributions treated as effective in 2012. See related articleand IRS news release. 
• Contribution of Conservation Easement (Code Section 170(b)(1)(E)(vi)), permitting favorable deductions for donating conservation interests in capital gain real property to charity
• Contribution of Food Inventory (Code Section 170(e)(3)(C)(iv)), permitting enhanced deductions for contributions of food inventories
• Contributions of property by S corporations (Code Section 1367(a)), limiting an S corporation shareholder’s reduction in basis of the S corporation’s stock to a pro rata share of basis (rather than fair market value) of property contributed by the corporation

Two provisions for enhanced charitable deductions – contributions of book inventories to public schools and corporate contributions of computer inventory – were not extended. These were in Code Sections 170(e)(3)(D)(iv) and 170(e)(6)(G), respectively.