The legislative branch of our government is the Congress. Congress is the only branch that can create laws. The Congress consists of two bodies: the Senate and the House of Representatives. Although essentially equal in their legislative powers, there are significant differences between the two. There are 100 Senators, two from each state, who are elected for six-year terms, with one-third of the Senators standing for election in each even-numbered year. There are 435 Members of the House of Representatives, apportioned among the states according to population, all of whom are elected for two-year terms in each even-numbered year.

The Congress meets at least once a year and has been doing so since 1789. Over the years, Congress has met in only three locations: Federal Hall, New York, NY (1789-1790); Congress Hall, Philadelphia, PA (1790-1799); and at the Capitol in Washington, DC (since 1800). A Congress lasts for two years, beginning in January of the year following the election and is divided into two sessions. For example, the 107th Congress began in January 2001 and will end late this year, therefore, we are now in the second session of the 107th Congress. Since all Representatives must stand for re-election every two years while two-thirds of Senators return to the new Congress without having to be re-elected, the Senate enjoys continuity between Congresses while the House of Representatives is new elected at the start of each new Congress.

With certain exceptions, both the Senate and the House have equal legislative functions and powers; therefore, it is never proper to address either as “upper” or “lower.” The Constitution provides that only the House of Representatives can originate revenue bills, including most tax bills, which often contain provisions interest to charitable gift planners. By tradition, the House also originates appropriation bills. The Senate, in addition to making laws, also advises and consents to treaties and certain nominations by the President.

Congress often gives certain bills a privileged status over others and some business, such as a conference report on tax relief, commands immediate consideration. This is because a bill that has reached the conference stage has been moved a long way toward enactment and should be privileged compared to other bills that have only been reported. For example, the 2001 tax bill, which is popularly known as the “Economic Growth and Tax Relief Reconciliation Act of 2001,” was initially introduced as a bill (H.R. 1836), but in the end, House of Representatives did not actually vote on this bill, rather they voted on a House Resolution (H.Res. 153) accepting a report of a conference committee.

The Legislative Process

The legislative process can be summed up in 14 basic steps.

Step 1: Drafting a Bill. Anyone may draft a bill, however, only members of Congress (i.e., a Senator or a Member of the House of Representatives) can introduce or sponsor legislation. There are four basic types of legislation: 1) bills and 2) joint resolutions, both of which make law; and 3) concurrent resolutions and 4) simple resolutions, neither of which makes law. The official legislative process begins when a bill or resolution is numbered: “H.R.” signifies a House bill and “S.” signifies a Senate bill.

The first two, bills and joint resolutions, must go to the President for review and signature before they become law. While there is no technical requirement to do so, the tradition is that joint resolutions are used for amending the Constitution, for continuing appropriations, or for disapproving of executive or Federal agency actions.

Concurrent resolutions must pass both the House and the Senate in order to be enacted, but do not go to the President. They are used to give a “sense of Congress,” but without the full force of law. Examples of concurrent resolutions would be to create a new joint committee of the Congress, to establish a congressional budget or to authorize use of the Capitol rotunda for a ceremony. Simple resolutions are used to give a “sense of the Senate or the House.” They do not go to the other body of Congress, or to the President. They are used to create a new committee or to propose changes in the rules of procedure.

Although the Executive branch cannot make laws, the President can originate legislation either by personally addressing a joint session of the two chambers or by sending messages in writing to Congress. Bills to carry out the recommendations of the President are usually introduced “by request” by the chair of the appropriate committee. This is why Chairman Thomas of the House Ways & Means Committee introduced the Economic Growth and Tax Relief Reconciliation Act of 2001.

Bills are often introduced that appear quite similar. When this happens, the committee considering them may add the best features from each of the bills to create one bill or may draft an entirely new bill. There can be only one prime sponsor of a bill or resolution, but commonly other Members are included as co-sponsors.

Step 2: Referral to Committee. With very few exceptions, all bills are referred to standing committees in the House or Senate. Senate and House committees are appointed by resolution at the beginning of each Congress. Currently, there are 16 standing committees in the Senate and 20 standing committees in the House of Representatives. Select and special committees have varying powers and obligations, and increasingly have been given legislative jurisdiction. In current practice, the committee chair is a member of the Majority party. He or she is chosen by order of the Senate or the House, and is usually, but not always, the senior Member of the Majority Members of the committee.

Senate and House Members may also serve on joint committees, whose duties and responsibilities are set forth in the respective resolutions creating them. There are currently four joint committees of the Congress: the Joint Economic Committee, the Joint Committee on the Library, the Joint Committee on Printing, and, most importantly for charitable legislation, the Joint Committee on Taxation.

The Majority party leaders in each chamber decide the number of Majority and Minority seats on each committee after “consultation” with the Minority leaders. In practice, the degree of consultation is minimal in the House and maximum in the Senate. While the Senate approximates the ratio of seats to the Majority and Minority of the membership of the chamber, the House does so for only five of its 20 standing committees.

Step 3: Committee Action. When a bill is sent to a committee, it is placed on the committee’s calendar. A bill can be referred to a subcommittee or considered by the committee as a whole. At this point, a bill is examined carefully and its chances for passage are determined. Committees do not have to act on bills referred to them. A committee can simply not act on a bill, which will result in the death of the bill. In the Senate, a Member can enter a motion to discharge a committee from further consideration of any bill, but this is rarely done. By unanimous consent, some bills can be referred from one committee to another.

Step 4: Subcommittee Review. Bills often are referred to a subcommittee for study and hearings. Hearings provide the opportunity to record the views of the executive branch, experts, public officials, supporters and opponents of the legislation. Testimony can be given in person or submitted as a written statement. Most committees have standing subcommittees, and frequently ad hoc subcommittees are appointed to study and report on particular pieces of legislation or to make a study of a certain subject. A subcommittee makes reports to the full committee, and the latter may adopt such reports without change, amend them, reject them or adopt an entirely different report.

Step 5: Mark Up. When all hearings are completed, the subcommittee may meet to “mark up” the bill, which means making changes and amendments prior to recommending the bill to the full committee. If a subcommittee votes not to report to the full committee, the bill dies. At a committee’s “mark up” session (usually held just prior to reporting a bill or resolution back to the full chamber), the committee makes its final decisions about the content and form of the measure.

Step 6: Committee Action to Report a Bill. After receiving a subcommittee’s report on a bill, the full committee can conduct further study and hearings, or it can vote on the subcommittee’s recommendations and any proposed amendments. The full committee then votes on its recommendation to the House or Senate. This procedure is called “ordering a bill reported.”

Step 7: Publication of a Written Report. After a committee votes to have a bill reported, the committee staff members prepare a written report on the bill. This report describes the intent and scope of the legislation, impact on existing laws and programs, and views of dissenting members of the committee.

Step 8: Scheduling Floor Action. The chair, or a designated member of the committee, reports bills to the chamber, and when reported, the bill is placed on the calendar. The Speaker of the House and the Senate Majority Leader largely determine if, when, and in what order bills come up for consideration on the floor.

Step 9: Debate. This is the step when most of us usually start paying attention to the action. When a bill reaches the floor of the House or the Senate, rules adopted by each body govern the debate including the conditions and amount of time allocated for general debate. The Majority and Minority Leaders, as the spokespeople for their parties, and in consultation with their respective policy committees, implement and direct the legislative schedule and program.

On highly controversial matters, such as the 2001 tax bill, the Senate may resort occasionally to “cloture” to work its will. If three-fifths of the Senators (60) vote in the affirmative, further debate on the question will be limited to no more than one hour for each Senator, and the time for consideration of the matter will be limited to 30 additional hours, unless increased by another three-fifth’s vote.

Step 10: Voting. Once a bill or resolution is before the chamber, it is subject to further amendments. In general, any member may propose amendments to any part of the bill not already amended, and while an amendment is pending, an amendment to the amendment can be made. However, an amendment that is a substitute for a bill (where new language is inserted replacing the entire bill), whether reported by a committee or offered by an individual member, may be considered an original question and therefore amendable.

If you watched the 2001 tax bill debate on television, you know that there are certain special procedures that can limit the amendment process. For example, during the consideration of general appropriation bills in the Senate, amendments are subject to the strictures of “Rule XVI” which prohibits non-germane amendments (such as those proposing new or general legislation) or increasing the amount of an appropriation if that increase has not been previously authorized or estimated in the President's budget, unless approved by three-fifths of the Senate (60). In addition, amendments considered under cloture must have been submitted in writing before the Senate’s vote on cloture.

A committee amendment (often called a “managers amendment”) in the form of a total substitute (inserting new language for the entire bill) is always voted on last, because once substitute language is agreed to, further amendments are precluded. The only amendments from the floor in order during the consideration of such a committee amendment are amendments to the committee amendment, or sometimes to the part of the bill the committee amendments would affect.

After the approval of any amendments, the bill is passed or defeated by the members voting. The methods are: voice vote, division, and yea and nay. When the yeas and nays are ordered, the names of members are called alphabetically and each member must declare his or her assent or dissent to the question, unless excused from voting. No member is permitted to vote after the Presiding Officer has announced the decision, but may, with unanimous consent, change or withdraw his or her vote.

In the House, most bills require a simple majority vote (218) to pass. However, the rules of the House require a three-fifths vote (261) to pass a bill, joint resolution, amendment, or conference report that contains certain types of Federal income tax rate increases. In the Senate, a bill is passed with a simple majority vote (51) except in the case of filibusters and cloture, which take an affirmative vote of three-fifths (60) of all Senators.

After the passage of a bill by one body, technically it becomes an Act (not yet effective as a law), but nevertheless continues to be referred to generally as a bill.

Step 11: Referral to Other Chamber. When the House or the Senate passes a bill, it is referred to the other chamber where the process starts all over again. This chamber may approve the bill as received, reject it, refer it to committee, change it or simply ignore it.

Step 12: Conference Committee Action. If only minor changes are made to a bill by the other chamber, it is common for the legislation to go back to the first chamber for concurrence. Sometimes, however, the actions of the other chamber significantly alter the bill, as in the case of the 2001 tax bill, where the House bill was for $792 billion and the Senate version was for $1.35 trillion. In this case, a conference committee is formed to reconcile the differences between the House and Senate versions.

Conference committees are composed of Members of both the Senate and House. However, conference committees do not vote as a body, but rather as separate delegations, and only to recommend a resolution to their own chamber. Since the conferees of each chamber vote as a unit, it doesn’t matter how many conferees are chosen from each chamber. This is why, with the 2001 tax bill, it didn’t matter that the Senate had nine conferees and the House had only three conferees.

After deliberation, the conferees usually come to a compromise, but if the conferees are unable to reach agreement, the legislation dies. If agreement is reached, a conference report is prepared describing the committee members’ recommendations for changes. Both the House and the Senate must approve of the conference report.

Step 13: Final Action. When the two chambers reach agreement, the papers are delivered to the Enrolling Clerk of the chamber where the bill originated. The Enrolling Clerk prepares a copy of the final bill and sends it to the Government Printing Office for “enrollment,” which historically means, “written on parchment.”

Upon receipt of an enrolled bill from the Government Printing Office, either the Secretary of the Senate or the Clerk of the House endorses it, certifying where the bill originated. A slip is then attached stating that the bill, identified by number and title, has been examined and found truly enrolled. It is then presented to the Speaker of the House for his signature, which is announced in open session. The bill is then transmitted by messenger to the Senate, where the Vice President signs it.

Step 14: Presidential Action and Veto. After both the House and Senate have approved bills with identical language, the legislation is sent to the President. The President, under the Constitution, has 10 days (Sundays excepted) after the bill has been presented in which to act.

If the President approves of the legislation, he signs it and it becomes law. Or, the President can take no action for 10 days, while Congress is in session, and it automatically becomes law. If the President opposes the bill, he can veto it. If he takes no action after the Congress has adjourned its second session, it is a "pocket veto" and the legislation dies.

If the President vetoes a bill, Congress may attempt to override the veto. This requires a two-thirds roll call vote of the members who are present in sufficient numbers for a quorum. The term “veto-proof” describes those votes with a margin sufficient to override a veto, should it occur. A veto-proof majority is 290 in the House and 67 in the Senate.

How Regulations Get Made

The legislative process is only half of the story. Charitable gift planners should also be concerned with the process that creates the regulations that interpret the laws. Unfortunately, if you thought the legislative process was complex, the formulation of regulations can be positively bewildering. Nevertheless, the regulatory process often has a much more immediate effect on charitable gift planning. Although there are many regulations that can affect charitable gift planning, we will focus here on U.S. Treasury Regulations, which generally interpret and enforce Federal tax law.

Tax law starts with the Internal Revenue Code that is enacted by legislative branch, the Congress. Then the executive branch, through the Internal Revenue Service of the Treasury Department develops and issues regulations to help taxpayers interpret and apply the law. The Code of Federal Regulations (CFR) is a codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government.

The Treasury Department

The Treasury Department is part of the executive branch of the Federal government. The Secretary of the Treasury is appointed by the President. The responsibilities of the Department of the Treasury are very broad and include:

·      Managing Federal finances.

·      Collecting taxes and other monies paid to the United States and paying all bills of the United States.

·      Producing all postage stamps, currency and coinage.

·      Managing government accounts and the public debt.

·      Supervising national banks and thrift institutions.

·      Advising on domestic and international financial, monetary, economic, trade and tax policy.

·      Enforcing Federal finance and tax laws.

·      Investigating and prosecuting tax evaders, counterfeiters, forgers, smugglers, illicit spirits distillers and gun law violators.

·      Protecting the President, Vice President, their families, candidates for those offices, foreign mission residents in Washington and visiting foreign dignitaries.

The Internal Revenue Service

The Internal Revenue Service (IRS) is a division of the Treasury Department. It is responsible for collecting taxes by administering and enforcing the tax laws. The mission of the IRS is, “to help taxpayers understand and meet their tax responsibilities and to apply the tax law with integrity and fairness to all.” The IRS deals directly with more Americans than any other institution, public or private, collecting more than $2 trillion in revenue and processing 226 million tax returns (in 2000).

The IRS has a long history, with roots going back to 1862 when President Lincoln created the Commissioner of Internal Revenue and enacted an income tax to pay war expenses. In the early 1950s, the agency underwent a substantial reorganization replacing the old patronage system with career, professional employees. Today, only the IRS commissioner and chief counsel are selected by the President and confirmed by the Senate. Most issues affecting charitable gift planning fall under the Exempt Organizations segment of the Tax Exempt/Government Entities Operating Division of the Internal Revenue Service.

U.S. Treasury Regulations

Regulations are created to define and explain the IRS position on various laws and to set rules for complying with those laws. There are generally three kinds of regulations.

·      Legislative regulations are issued by the IRS because it is specifically directed to do so by law. For example, the law requires the IRS to provide regulations regarding charitable remainder trusts. Legislative regulations, generally, are considered to have the weight of law.

·      Interpretative regulations are issued by the IRS to describe its position on a specific law or issue. Since they are not issued under specific legislative authority, interpretative regulations are usually not binding in court but they bind the IRS to the interpretation given in the regulation.

·      Procedural regulations are issued to create and explain rules and create for taxpayers to follow. With a few exceptions, the IRS is bound by procedural regulations.

The Process of Creating New Regulations

Usually, the creation of a regulation begins with a period of study and drafting inside the IRS. Depending upon the circumstances, the IRS may spend a considerable amount of time developing a regulation. For example, it is known that many years of research and development are behind the new regulations governing charitable remainder trusts that were issued in 1998.

Once the proposal is ready, the promulgation of regulations generally follows a four-step process.

1)    Notice of Proposed Rule Making. The first step in the development of new regulations is usually the release of a proposed regulation that is issued in a “Notice of Proposed Rule Making,” published in the Federal Register. In addition to providing the text of the proposed regulation, the Notice explains how and when interested parties may comment on the proposal and sets forth the effective dates (usually after the issuance of final regulations).

2)    Public Comment. Interested parties are invited to provide written comments and suggestions on the proposed regulations. Most often a public hearing is scheduled to provide an additional opportunity for input.

3)    Review. Once the period for comment has ended, the IRS staff responsible for the proposed regulation reviews and considers all of the comments and may make changes in the proposed regulations, issue a new proposal for additional comment, or withdraw the proposed regulations.

4)    Final Regulations. At some point after the comments have been received, the IRS will usually issue a final regulation to replace the proposed regulation.

NOTE: For most purposes, a taxpayer may not rely on a proposed regulation. However, the IRS may also issue a “Temporary Regulation” and sometimes will issue a “Temporary and Proposed Regulation.” Temporary or a Temporary and Proposed Regulations generally must be followed by taxpayers even though final regulations have not yet been issued. Temporary Regulations also usually contain an expiration date, but in any case must expire within three years of the date they are issued.

Charitable gift planners can have a significant impact on the regulatory process by submitting comments and suggestions in response to proposed regulations. The National Committee on Planned Giving monitors Notices of Proposed Rule Making and has frequently offered comments on proposed regulations.