Inflation Reduction Act Needs Fix to Protect Tax-Free Carried Interest Donation 

The newly unveiled reconciliation bill, the Inflation Reduction Act (IRA) introduced by Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va., includes a provision targeting carried interest. The Philanthropy Roundtable opposes this provision due to the potential chilling effect this will have on charitable contributions.  

Elizabeth McGuigan, senior director of policy and government affairs for Philanthropy Roundtable explains: 

“One provision in the Inflation Reduction Act is a huge concern for the charitable sector as it could lead to income tax on certain charitable donations; the good news is Congress still has time to correct it and preserve tax-free charitable contributions for applicable partnership interests. We believe Congress supports charity and does not intend to apply this tax on philanthropy, so we respectfully request that Congress draft a legislative fix to protect the direct impact on charitable giving

“A gift of an applicable partnership interest to charity is a nontaxable transfer under the tax code because it is a gift. This is a long-standing principle in the tax code and is sound policy: a gratuitous transfer should not be treated as a realization event because the donor, having parted ways with the asset, has realized no income on which he can be taxed.  

“But, under the literal language proposed in Section 10201, gain arguably would have to be recognized. In other words, even where a donor divests him or herself entirely of an appreciated applicable partnership interest as part of a charitable donation, they could still be required to pay a substantial income tax. This will make transferring applicable partnership interests to charity basically unfeasible.” 

See more background from Philanthropy Roundtable on a carried interest provision here.   

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