The U.S. Congress is making significant strides in tax reform, with a focus on digital assets and nonprofit organizations. Two major legislative proposals aim to close tax loopholes and enhance transparency in these sectors. These initiatives highlight the government’s commitment to modernizing tax policies and ensuring accountability.
The first proposal targets the digital asset market, while the second focuses on nonprofit organizations. Both aim to address specific issues within their respective sectors, potentially reshaping the tax landscape for years to come.
Extending Wash Sale Rules to Digital Assets
In a move to modernize tax policies, Republican Congressman Jodey Arrington introduced the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act in June. This bill seeks to extend the wash sale rule to digital assets, a change that could have significant implications for investors.
The U.S. Treasury estimates that closing this tax loophole could generate nearly $24 billion in additional tax revenue over 10 years. This substantial figure underscores the potential impact of the proposed legislation. Experts believe the proposal indicates a possible bipartisan cooperation in tax reform, although the likelihood of passing legislation in the short term remains low.
Enhancing Transparency in Nonprofit Funding
The House Ways and Means Committee has advanced several bills aimed at increasing transparency in nonprofit funding. These proposals come in response to concerns about foreign influence and the misuse of tax-exempt benefits. The committee marked up four pieces of legislation, each addressing different aspects of nonprofit transparency.
The Foreign Funding Transparency Act
One of the key bills is the Foreign Funding Transparency Act introduced by House Ways and Means Oversight Subcommittee chairman David Schweikert. This legislation requires tax-exempt organizations to publicly report information on foreign donations they receive, while maintaining privacy protections for Americans.
Tax-exempt organizations would be required to collect and report to the IRS the aggregate amount of donations received from foreign nationals. Additionally, they must identify the aggregate amount of donations specifically from foreign nationals who come from so-called countries of concern including China, North Korea, Russia, and Iran. The bill passed by a vote of 23 to 18, indicating strong support within the committee.
The Stopping Foreign Election Interference Act
Another significant bill is the Stopping Foreign Election Interference Act introduced by Rep. Nicole Malliotakis. This legislation aims to levy penalties against large tax-exempt organizations that receive contributions from foreign nationals and then donate to political committees or 501(c)(4) organizations.
The penalty would be double the amount of the contribution given to the entity. The bill also establishes a secondary excise tax on tax-exempt organizations that contribute to a political committee or 501(c)(4) organization if they have received a contribution or gift from a foreign national within the last two years. The bill passed by a vote of 23 to 16.
The Fiscal Sponsorship Reporting Act
The Fiscal Sponsorship reporting Act introduced by Rep. Lloyd Smucker, pertains to formal arrangements in which an established 501(c) tax-exempt organization extends its legal and tax-exempt status to an unincorporated project or group. This allows the project to solicit tax-deductible donations without having to incorporate or apply for its own tax-exempt status.
The bill requires tax-exempt organizations to disclose specific information about fiscally sponsored projects, including the name of each party involved, the aggregate amount of funds made available, a description of the activities related to the funds, and the name of the individual managing the arrangement. It also imposes excise taxes on organizations acting merely as conduits for non-tax-exempt third parties. The bill passed by a vote of 23 to 15.
The Fair Treatment of Religious Organizations Act
The Fair Treatment of Religious Organizations Act introduced by Rep. Blake Moore, aims to amend Section 501 of the Internal Revenue Code. This legislation prohibits the IRS from considering a religious organization’s beliefs or practices concerning marriage, sexuality, or gender identity when making tax-related determinations.
The protections extend to tax-exempt status under 501(c), eligibility to receive tax-deductible charitable contributions, and any other federal benefit or privilege tied to tax-exempt charitable status. The bill also prohibits federal agencies from discriminating against religious employers in grants, contracts, or cooperative agreements based on the organization’s religiously motivated employment decisions. This legislation underscores the government’s commitment to protecting religious freedoms.
