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Legislative Status: January 24, 2007
The deadline for public comment is July 31, 2007. We would encourage any interested parties to comment. If you have any questions, please do not hesitate to contact us at chris@acreform.com. It appears the planned hearings in the Chairman Lewis’s subcommittee on the tax-exempt community will take place after the deadline for these comments. We thus expect hearings to take place in September or October. While no specific topic for these hearings has been made public, it is conceivable that the topic could be related to the comments the subcommittee receives.
As you know, many U.S. tax-exempts, such as university endowments and pension funds, invest in hedge funds as an investment diversification strategy. Because of the structure of U.S. hedge funds, when tax-exempts invest in U.S. hedge funds, a portion of the fund’s debt is attributed to the tax-exempt, which could lead to the tax-exempt having unrelated business taxable income or debt-financed income. In order to avoid being subject to UBIT, tax-exempts frequently choose to invest in U.S. funds’ non-U.S. affiliated funds which are organized as corporations as opposed to partnerships. Because of the organizational structure of the funds, tax-exempts realize dividends which are not subject to unrelated business income tax. The proposed revenue raiser would subject all such tax-exempt investments to UBIT. On Friday, Rep. Sander Levin (D-MI) introduced legislation which would affect hedge funds by taxing carried interest as ordinary income at the 35 percent rate. As you may know, hedge funds make their money in two ways. The first is a 2% management fee of assets they manage, and the second is a 20% cut of profits realized by the fund. Under current law, carried interest is taxed at the 15-percent capital gains tax rate. Several hearings are expected in both the Senate Finance Committee and House Ways and Means Committee before the August recess. Rep. Levin’s legislation has taken the focus off of the UBIT issue in the short-term, but the MFA maintains that the UBIT provision is still very much "in play". The potential vehicles for the UBIT provision may include an amendment to Rep. Levin’s bill, or as a part of the education tax bill that the Senate Finance Committee plans to take up shortly after the July 4th recess, following consideration of S-CHIP legislation. MFA has been working to finalize a letter that will be circulated in order to highlight the impact this proposal will have on the tax-exempt community. We will circulate the letter as soon we receive the finalized version.
ADVISORY FOR IMMEDIATE RELEASE CONTACT: (202) 225-5522 Chairman Lewis Announces Request for Written Comments on House Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) announced today that the Subcommittee is requesting written comments for the record on the provisions relating to tax-exempt organizations contained in the Pension Protection Act of 2006 (P.L. 109-280). BACKGROUND: On August 17, 2006, the Pension Protection Act of 2006 (Act) was enacted into law. The Act contains over thirty provisions relating to tax-exempt organizations, including charitable giving incentives and exempt organization reforms. Certain provisions were intended to improve accountability among donor advised funds and supporting organizations. Most of the provisions were never discussed on a bipartisan basis, nor the subject of Committee hearings, during the 109th Congress. The Subcommittee is interested in the tax-exempt community's views on the impact of these recently-enacted provisions on charities and foundations. The Subcommittee is particularly interested in how these new rules affect, or will affect, charitable efforts and the difficulties that have arisen in implementing these provisions. Further, the Subcommittee requests comments on the provisions scheduled to expire on December 31, 2007. The deadline to submit written comments is Tuesday, July 31, 2007.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: Please Note: Any person(s) and/or organization(s) wishing to submit for the record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, select "110th Congress" from the menu entitled, "Committee Hearings." Select the request for written comments for which you would like to submit, and click on the link entitled, "Click here to provide a submission for the record." Once you have followed the online instructions, completing all informational forms and clicking "submit" on the final page, an email will be sent to the address which you supply confirming your interest in providing a submission for the record. You MUST REPLY to the email and ATTACH your submission as a Word or WordPerfect document, in compliance with the formatting requirements listed below, by close of business Tuesday, July 31, 2007. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-1721. FORMATTING REQUIREMENTS: The Committee relies on electronic submissions for printing the official record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, but we reserve the right to format it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
Note: All Committee advisories and news releases are available on the World Wide Web at http://waysandmeans.house.gov.
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Update from the House Ways and Means Committee: As you may know, on June 12th, the Chairman of the House Ways & Means Subcommittee on Oversight, John Lewis, issued an advisory (see attached) requesting written comments from the tax-exempt community on provisions relating to tax-exempt organizations in the Pension Protection Act of 2006 (PPA). The Subcommittee is soliciting input about how those provisions have impacted charities and foundations and “how these new rules affect, or will affect, charitable efforts and the difficulties that have arisen in implementing these provisions.” 
Update from the Senate. We understand that, within the next couple of weeks, there may be an announcement about a Senate Caucus on Philanthropy. For now we do not have an y details on the Chair or Co-Chair for this caucus. As you may recall, the House of Representatives, at the urging of the Council of Foundations, formed a similar caucus earlier this year and is currently co-chaired by Reps. Robin Hayes (R-NC) and Stephanie Tubbs-Jones (D-OH). In recent meetings with Reps. Hays and Tubbs-Jones offices, they made clear that the Caucus looked forward to working with the community to actively promote philanthropy. 
UBIT Update. The Managed Funds Association (MFA) continues to monitor the House and Senate for updates on issues affecting hedge funds, including the status of a potential revenue raiser in the Senate Finance Committee that would subject certain offshore investments to unrelated business income tax (UBIT). | Legislative Updates |
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