Implications of OBRA '93.

How you and your association are affected by the new act.

Without question the most significant provisions of the Omnibus Budget Reconciliation Act of 1993 for associations concern lobbying, and these provisions have been the focus of numerous updates, summaries, and alerts generated since OBRA '93 was signed into law in August. There are, however, other provisions that affect associations and executives. Several of these were discussed in the September issue of ASSOCIATION MANAGEMENT, in the "This Just In ..." column. The rest are summarized here. The effective date of the provisions is Jan. 1, 1994.

Tax rates. The tax rate for individuals will increase from 31 percent to 36 percent on taxable income in excess of $140,000 on a joint return and $115,000 on a single return. Also, taxable income in excess of $250,000 will be subject to a 10 percent "success tax." The tax rate for corporations will increase from 34 percent to 35 percent on taxable income of more than $10 million for years beginning after 1992. The top estate and gift tax rate, which was scheduled to come down to 50 percent, will remain at 53 percent for transfers of more than $2.5 million and 55 percent for transfers of more than $3 million.

Charitable contributions. Two main provisions in OBRA '93 affect charitable contributions. These are relevant to associations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code, as well as associations that have established charitable or educational foundations.

The first provision requires a charitable donor to have written verification of any donation of $250 or more, in order to take a charitable deduction. A canceled check no longer will be sufficient proof of a donation; a receipt, thank-you letter, or similar document from the donee organization will be necessary. Organizations receiving charitable donations should be sure to provide such verification as a service to donors.

Note that, as a general rule, contributions made in a single year will not be aggregated. For example, a person who contributes $100 and then contributes another $150 six months later will not need this independent written verification for either or both donations. However, the Internal Revenue Service will not condone the splitting of contributions with the obvious intent of avoiding this new provision.

The second OBRA '93 provision affecting charitable contributions relates to events for which a fee is imposed, such as a dinner. A long-standing rule requires that a person who purchases a ticket to a charitable event may not deduct the portion of the ticket price attributable to anything of value received by the donor. For example, if an association foundation sponsors a fund-raising dinner with an admission price of $100 and provides dinner at a per-person cost of $35, each attendee may deduct as a charitable contribution only $65. Under OBRA '93, for such quid pro quo contributions in excess of $75, the charitable organization must provide the donor a written statement, including the following information:

* The donor must be informed that the amount of the contribution that is deductible for federal income tax purposes is limited. It's limited to the excess of the amount of any money (and the value of any other property) contributed by the donor over the value of the goods or services provided by the organization.

* The donor must be given an estimate of the value of goods or services furnished to the donor by the organization.

The disclosure requirement does not apply if only de minimis, token goods or services are given to a donor--key chains, bumper stickers, or mugs, for example.

Club dues. Amounts paid by an association for club dues for an executive will be included in his or her taxable income under OBRA '93. This rule applies to all types of clubs, including business, social, athletic, luncheon, and sporting clubs, as well as airline and hotel clubs. Specific business expenses--meals, for example--incurred at a club will be deductible only to the extent that they otherwise satisfy the standards for deductibility.

Medicare tax. As part of the Federal Insurance Contributions Act (FICA), a tax is imposed on employees and employers up to a maximum amount of employee wages. The tax is composed of two parts: old-age, survivor, and disability insurance and medicare hospital insurance. For wages paid in 1993 to covered employees, the hospital insurance tax rate is 1.45 percent on both the employer and the employee on the first $135,000. Under the new act, the medicare tax will apply to all earnings, not just the first $135,000.

Donations of appreciated property. Presently, when a person donates property to a charity, he or she can take a deduction; but if the value of the property appreciates between the time of purchase and the time of donation, the appreciation amount is considered income. Under OBRA '93, the amount of appreciation no longer must be claimed as income.

This provision is effective for contributions of tangible personal property made after June 30, 1992, and contributions of other property made after Dec. 31, 1992.

Social Security. The portion of Social Security payments subject to income tax will rise from 50 percent to 85 percent for couples with other income of $44,000 or more and singles with other income of $34,000 or more.

George D. Webster is general counsel to ASAE and a partner in Webster, Chamberlain & Bean. This Washington, D.C., law firm is counsel to more than 200 nonprofit organizations.