CARE Act of 2003

CARE ACT OF 2003

Mr. GRASSLEY. Mr. President, I ask unanimous consent that the Senate now return to legislative session and proceed to the consideration of S. 476, the CARE Act, as provided under the previous order.

Mr. GRASSLEY. Mr. President, I have a few remarks on the legislation. I am sure my good colleague, Senator Baucus, has remarks as the manager for the Democratic Members. We would also like to take quick action on a managers' amendment that is in order under a unanimous consent agreement. There are a few issues that have to be cleared on the amendment.
I rise to speak on the CARE Act of 2003. I will first talk generally about the charitable provisions in the bill and then talk about those provisions designed to combat corporate tax shelters.

The CARE Act seeks to support that great American tradition—helping a neighbor in need. Our Nation's tradition of caring and charitable support goes back to the founding. When faced with tragedy or hardship in our communities, we have always been a people who have rolled up our sleeves to pitch in, rather than leaning on a shovel waiting for the government to show up.

The charitable tradition in America has certainly been for the common good. Unfortunately, there are not many K Street lobbyists for charities and for the common good.

That is why this legislation is a direct testimony to the leadership of President Bush. There is no question that but for his efforts, this legislation for the common good would not have seen the light of the Senate floor.
Let me note that commentators have rushed to state that the President's efforts to strengthen America's charitable tradition has been watered down. Nothing could be further from the truth. This legislation goes far in meeting the President's ambitious goals for a greater role for charities in assisting those most in need.

And legislation is only part of the story. The President's speeches and visits have done even more to energize the charitable sector of this country. Hardly a week goes by when I am not stopped by someone who runs a charity, or is active in a charity, and they ask me how they can get involved in the President's proposal, how they can help. Clearly, President Bush's words have been heard by America's charities and they are eager to turn his words into deeds of compassion and aid.
In addition to this legislation being a tribute to President Bush's leadership, let me also note the tremendous efforts of Senators SANTORUM and LIEBERMAN to bring this bill to the Senate floor. I commend them for their energy in making the CARE Act a reality. Finally, I'm pleased to have worked with Senator BAUCUS, the ranking member of the Finance Committee. This legislation continues our bipartisan efforts as to tax legislation.

Mr. President, for the benefit of my colleagues let me now highlight some of the major tax provisions of the CARE Act that encourage charitable giving.

First, is the creation of a charitable deduction for nonitemizers. Given that over half of Americans do not itemize their tax return, this provision will encourage taxpayers to give to charities, regardless of income. The legislation allows for charitable deduction of up to $500 for a married couple giving over $500 per year. For an individual filing single, it is a deduction of up to $250 for a person who gives over $250 per year. For example, an individual who doesn't itemize and gives $400 to charity, could deduct $150 from their taxes. This provision was designed to encourage new giving and also limit possible abuses.

Next is a major provision that will provide for tax-free distribution from Individual Retirement Arrangements, IRAs, to charities. This is a provision that is important to many major charities, particularly universities. The Finance Committee heard testimony from the President of the University of Iowa about the importance of this provision in encouraging new giving. The legislation provides that direct distributions are excluded from income at the age of 70A? and distributions to a charitable trust can be excluded after the age of 59A?.

We then have language that encourages donations of food inventory, book inventory and computer technology. I would note that my colleagues, Senator LUGAR, and Senator LINCOLN, a member of the Finance Committee, were strong advocates for the legislation involving food donation. I'm particularly pleased that this legislation will give farmers and ranchers a fairer deal when it comes to donation of food.

Conservation is also a part of this bill. Efforts to conserve our land and limit development benefit our Nation as well as farmers and ranchers who work on the land. The CARE Act contains language I have long supported that will encourage conservation of land through a 25-percent reduction in the capital gains tax of the sale of undeveloped land, or conservation easements. The sale must be to a charitable organization and the land must be dedicated for conservation purposes. I am pleased that President Bush also included this proposal in his budget.

The bill also encourages gifts of land for conservation purposes. This is an issue long advocated by Senator BAUCUS, which I am pleased to support.

These are the major tax provisions that encourage charitable giving contained in this bill. I would note that I am pleased that the legislation does contain provisions requiring greater sunshine and transparency in the work of charities. It is my belief that just as we are encouraging people to write more checks, we need to ensure that those checks are being cashed for a charitable purpose. In addition, the bill authorizes a serious increase in funding for the Exempt Organizations Office at the IRS to better police the few bad apples among the nonprofits.

My colleagues should also be aware that this legislation addresses the abuse of charities by terrorist organizations, making it easier to shutdown or suspend such organizations.

Let me note also that this bill contains $1.4 billion in new funding for Social Services block grants, SSBG. This is a very important provision that will greatly benefit the States and, more importantly, those in need. I would note that this was a matter of great priority for me, and I am glad to see we have been able to include this funding. The provision also gives States greater flexibility in how to use the SSBG funds.

My colleagues will be pleased to know that this bill is fully paid for. I turn now to discuss those provisions regarding abusive corporate tax shelters that are of great importance.

We have known for many years that abusive tax shelters, which are structured to exploit unintended consequences of our complicated Federal income tax system, erode the Federal tax base and the public's confidence in the tax system. Such transactions are patently unfair to the vast majority of taxpayers who do their best to comply with the letter and spirit of the tax law.

As a result, the Finance Committee has worked exceedingly hard over the past several years to develop several legislative discussion drafts for public review and comment. Thoughtful and well-considered comments on these drafts have been greatly appreciated by the staff and members of the Finance Committee. The collaborative efforts of those involved in the discussion drafts combined with the recent request for legislative assistance from the Treasury Department and IRS formed the basis for our most recent approach to dealing with abusive tax avoidance transactions.

The antitax shelter provisions contained in the CARE Act encourages taxpayer disclosure of potentially abusive tax avoidance transactions. It is surprising and unfortunate that taxpayers, though required to disclose tax shelter transactions under present law, have refused to comply. The Treasury Department and IRS report that the 2001 tax filing season produced a mere 272 tax shelter return disclosures from only 99 corporate taxpayers, a fraction of transactions requiring such disclosure.

Today's bill will curb non-compliance by providing clearer and more objective rules for the reporting of potential tax shelters and by providing strong penalties for anyone who refuses to comply with the revised disclosure requirements.

The legislation has been carefully structured to reward those who are forthcoming with disclosure. I wholeheartedly agree with the remarks offered by a recent Treasury Assistant Secretary for Tax Policy, that "if a taxpayer is comfortable entering into a transaction, a promoter is comfortable selling it, and an advisor is comfortable blessing it, they all should be comfortable disclosing it to the IRS."

Transparency is essential to an evaluation by the IRS and ultimately by the Congress of the United States as to whether the tax benefits generated by complex business transactions are appropriate interpretations of existing tax law.

To the extent such interpretations were unintended, the bill allows Congress to amend or clarify existing tax law. To the extent such interpretations are appropriate, all taxpayers—from the largest U.S. multinational conglomerate to the smallest local feedstore owner in Iowa—will benefit when transactions are publicly sanctioned in the form of an "angel list" of good transactions. This legislation accomplishes both of these objectives.

This year's legislation contains a new provision that would clarify the economic substance doctrine. The economic substance doctrine was created by the courts as a flexible text to determine whether a transaction is a tax scam or valid business deal.
Last year, there were several court rulings that, in my view, misapplied this doctrine. These rulings now stand as legal precedent that can be used to justify abusive schemes in the future. Today's clarification is intended to overturn those rulings. If a court finds that a shelter violates our clarification, the shelter participant would be subject to a strict 40 percent penalty on any tax due. This is a very tough anti-shelter provision.

Mr. President, I appreciate my colleagues' patience as I have reviewed the key provisions of the CARE Act. I think it is legislation that provides needed encouragement for charities and charitable giving in this country. In addition, it takes real steps toward addressing corporate tax shelters. I strongly encourage my colleagues to support this legislation.

I yield the floor and suggest the absence of a quorum.