The CARE Act

Note: Many provisions of the CARE act are now included in H.R. 4 (the Pension Protection Act of 2006).

On Nov 18, 2005 the U.S. Senate passed the Tax Relief Act of 2005, which included charitable reform legislation and giving incentives that were previously part of Senator Rick Santorum's CARE Act. These temporary incentives expired on January 1, 2008. Of the remaining provisions of the CARE Act, some became orphaned, others attached to the Pension Protection Act of 2006.

The original 2003 CARE (Charitable Aid Recovery and Empowerment) Act included provisions that would allow for tax-free distributions from IRAs donated to charities during the donor's lifetime and a charitable deduction for non-itemizing taxpayers, as well as welfare reform and family tax provisions. An outline of the 2003 CARE Act, which is the basis for the 2005 bill, follows.

Title I. Modifies Charitable Giving Incentives This includes an amendment to the IRS code to allow a non-itemizer deduction for individual taxpayers (Single taxpayers would be able to deduct total contributions over $250 up to a ceiling of $500. Joint filing taxpayer amounts are $500 to a ceiling of $1,000.) It also allows for tax-free distributions to charities from individual retirement accounts. (Donors aged 59 ½ or older may rollover amounts from a traditional or Roth IRA to create a life income gift to a charity while donors aged 70 ½ and over may make direct cash contributions to a charity.) Other incentives include: charitable deductions for food and book inventories; expansion of the deduction for scientific property used for research and for computer technology and equipment used for educational purposes; an enhanced deduction for charitable contributions of literary, musical, artistic and scholarly compositions; and mileage reimbursements for charitable volunteers excluded from gross income.

Title II. Proposals Improving the Oversight of Tax-Exempt Organizations Revises provisions concerning the public inspection of documents concerning tax-exempt organizations to make more information available for public inspection.

Title III. Other Charitable and Exempt Organization Provisions Modifies the excise tax on unrelated business taxable income of charitable remainder trusts.

Title V. Individual Development Accounts Defines an Individual Development Account (IDA) as an account established as part of an individual development account program that meets certain specified requirements. Defines Individual Development Parallel Accounts as accounts for matching funds and earnings dedicated to IDA owners at qualified financial institutions. Defines a qualified financial institution as any person authorized to be a trustee of any individual retirement account under the Code. Defines qualified IDA programs as certain programs, established upon approval of the Secretary, under which IDAs and Individual Development Parallel Accounts are held in a trust by a qualified financial institution.

Title VI. Management of Exempt Organizations Authorizes appropriations to carry out the administration of exempt organizations by the IRS. Authorizes appropriations with respect to the administration of provisions concerning political organizations.

Title VII. Revenue Provisions Sets forth rules for use in applying the economic substance doctrine, including defining economic substance.