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American Taxpayer Relief Act of 2012
Impact on Nonprofit Organizations, Individuals, and Small Business

By: Nancy Ortmeyer Kuhn

The American Taxpayer Relief Act of 2012 ("ATRA") was passed by Congress on January 1st and signed into law by the President on January 2, 2013. Income tax rates remained the same as 2012 rates for the majority of Americans, with rates increasing on higher income taxpayers to a maximum of 39.6 percent for amounts over $400,000/$450,000 for singles and married filing joint respectively. Capital gain tax rates also increased for those higher income taxpayers from 15% to 20%. Employee payroll taxes will increase from 4.2% to 6.2% on the first $113,700 of income since the 2009 stimulus tax cut for payroll taxes was not extended. The IRS issued a revised withholding table on January 3, 2013. IRS Notice 1036.

Many provisions that had expired on December 31, 2011, were extended retroactively to be continuous from prior to January 1, 2012 through December 31, 2013. Of interest to nonprofit organizations are the following:

  • IRA Rollovers to Public Charities: Taxpayers who are age 70 ½ or older may donate up to $100,000 from traditional IRAs to section 501(c)(3) public charities without including the amount of those IRA withdrawals in gross income. Taxpayers can elect to treat rollovers made in January 2013 as if they were made in 2012 and take the deductions on their 2012 tax returns. Correspondingly, any IRA distribution made in December 2012 may be contributed to a charity in January 2013 and be treated as an eligible charitable rollover. IRC § 408(d)(8)
  • Conservation Contributions: The deduction limitation of 30% of the donor's contribution base is increased to 50% for qualified conservation contributions. IRC § 170(b)(1)(E)
  • Food Inventory Contributions: The charitable deduction for contributions of wholesome food from any trade or business is not limited to the adjusted basis of the food. Total deductions are limited to 10% of the taxpayer's aggregate net income. IRC § 170(e)(3)(C)
  • Certain Payments to Controlling Organization Not Subject to Unrelated Tax: The exception from UBIT in IRC § 512(b)(13) for controlled organizations is extended for payments of exempt passive income paid to a controlling organization from a controlled organization as long as the payments are not in excess of fair market value and made pursuant to a binding contract that was in effect on August 17, 2006, or renewed from that date.
  • S Corporation Stock: Charitable contributions of S Corporation stock are valued by reference to the adjusted basis of the stock reduced by the pro-rata share of the adjusted basis of the contributed property (rather than the shareholder's pro rata share of the contribution). IRC § 1367(a)(2)

    Additional provisions that were extended include the New Markets Tax Credit, Research Tax Credit, certain Low-Income Housing Tax Credits, Work Opportunity Tax Credit, and Empowerment Zone Tax Incentives. Bonus depreciation rules were extended to allow businesses to more quickly recover the cost of capital expenditures.

The 2008 Farm Bill was extended until September 30, 2013 for all currently funded programs. The automatic across-the- board cuts in government agencies and programs, also known as "sequestration" was delayed by two months, and will take effect on March 1, 2013, without further congressional action.

The only budget provision designed to raise revenue is actually a timing issue. Individuals with Section 401(k) retirement plans can convert their pre-tax retirement account to a post-tax Roth IRA account without penalty. While the conversion would not be classified as a distribution and thus not be subject to penalties, the amount converted would be subject to ordinary income tax rates in the year of the conversion. The amounts ultimately eligible to be withdrawn from the Roth account would then be tax-free. This provision is estimated to raise $12.186 billion over the next ten years.

Please contact a member of Jackson & Campbell's Tax Group if you have any questions.

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