Plan to limit deductions worries nonprofits

Tucked in the proposed revenue bill in Albany is a proposal to limit the amount of tax deductions that households with eight-figure incomes can take on charitable donations - an idea that Long Island's nonprofit community is viewing with dismay.

Nonprofits fear that the plan to reduce the state tax deduction to 25 percent of a charitable donation, down from 50 percent, for families with incomes of more than $10 million would cause wealthy people to curb donations, hurting charities during a particularly difficult economic time. Larger nonprofits such as hospitals and universities, which rely on gifts from major donors, appear likely to be most affected by the proposal.

"I think it's crazy," said Ralph Nappi, president of the North Shore-LIJ Health System Foundation. North Shore-LIJ has 15 hospitals on Long Island. "It just doesn't make any sense, particularly at this time with the difficult time that all the not-for-profits are having."

Lawmakers estimate the provision would bring the state $100 million a year.

Tax experts say that deductions are an important factor for wealthy donors when they're deciding if and how much to give to charity.

Nathaniel Corwin, a trust and estates attorney in Garden City, said major donors considering a contribution often tailor it to maximize their own tax benefits.

"People who donate to charity have two goals: to benefit the charity, but also they do have an eye toward saving on taxes," Corwin said.

Doug Sauer, chief executive of the New York Council of Nonprofits in Albany, said that most smaller nonprofits likely won't feel an effect, since they don't typically rely on such wealthy donors.

"The vast majority of nonprofits would love to have someone who had $10 million or more give," Sauer said. "To the average nonprofit, that's not even on the horizon of their reality."

But, he said, the plan could set a troubling precedent of lawmakers looking to charitable donations as a potential revenue stream.

"Once you start doing it, it's like a cigarette tax - you tax it, then you tax it more and again, and you keep going back to that well," Sauer said. "That's really the concern here."