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Release: March 14, 2001

Coleman testifies before U.S. Senate Finance Committee on tax-free charitable gifts

IOWA CITY, Iowa – University of Iowa President Mary Sue Coleman testified today (Wednesday, March 14) before the U.S. Senate Finance Committee about how universities could benefit from allowing contributors to roll over Individual Retirement Accounts (IRAs) into a tax-free donation.

President George W. Bush has proposed as part of his overall tax plan to allow tax-free charitable gifts from IRAs to encourage giving. The Senate Finance Committee, chaired by Sen. Charles Grassley (R-Iowa), is reviewing this proposal made in the IRA Charitable Rollover Incentive Act, which was recently reintroduced by Sen. Kay Bailey Hutchison of Texas.

Coleman explained that while she was representing the UI, the American Council on Education (ACE) and the Association of American Universities (AAU), many other programs and services in the nonprofit sector would also be strengthened by this proposal.

"The future of the charitable sector and of the public services it provides depends upon securing the financial resources to meet our pressing social needs. This proposal would allow individuals, who have assets in excess of requirements for their retirement, to make penalty-free donations of IRA funds to support the charitable sector and its public-service mission," she said.

In her testimony, Coleman noted that the UI is a comprehensive public research university providing higher education to 28,000 students, serving as a vital resource to Iowans. The university’s 11 colleges graduate 50 percent of Iowa's physicians, 80 percent of its dentists, 60 percent of its pharmacists, and 50 percent of its baccalaureate trained nurses.

"The UI has trained K-12 teachers for all of Iowa's school districts as well as a high percentage of the state’s leaders and employees in business, industry and other critical areas. In addition, we provide a broad range of services to Iowans, including more than 700,000 patient visits per year to our academic health center and community-based clinics," she added.

Coleman explained that while state support is the foundation upon which the UI is built, it provides only 21 percent of the university's $1.5 billion budget. "A crucial part of the remainder comes through donations from loyal friends and alumni. These funds provide support for facilities, equipment, student aid, the recruitment and retention of outstanding professionals and for centers and programs that would not be possible otherwise," she said.

While tax implications are not the only motivation donors have for private giving, Coleman said they may be influenced by the tax code as to the timing and amounts of their giving.

She gave two examples of UI donors to illustrate the dilemma many potential donors face: Both people are professionals who are longstanding friends of the university and have given substantial gifts to the university over many years, Coleman explained. They say they want to give their IRAs as a final substantial gift to the UI, and that they have provided for their families and will not need their IRAs for retirement purposes. However, the IRAs are the only asset left that would provide a gift of the magnitude that they would like. Both have indicated that they probably will not make this contribution unless current law is changed, she said.

"Some may incorrectly characterize this act as a tax break for the wealthy. The plain fact is that many middle-class Americans, including teachers, nurses, sales persons, retired military, and librarians, frequently express their desire to make gifts using IRA funds. These donors want the removal of a tax disincentive, not a tax break, in order to complete their charitable objectives," Coleman said.