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The Tax Law of Charitable Giving, Fourth Edition is completely revised, revamped, and updated. Written in plain English, it can help lawyers, managers, and development directors in tax-exempt organizations make sure they are up to date on all current regulations pertaining to charitable gifts. Detailed documentations and citations are provided. As well, references to regulations, rulings, cases, and tax literature are included. Nonprofit lawyers, accountants, and fundraising professionals can ensure they are well prepared to make decisions about their organization’s fund-development program.
Although it may sound like a horrendous conceit, I marvel at this book. The very title suggests a subject that ought to be confined to a pamphlet: The Tax Law of Charitable Giving. The principal reason for my amazement: How can something as simple and innocent as charitable giving generate so much law? It is, I suppose, a hallmark of our society; matters are quite complicated in the United States these days, and so too is the matter of transferring money and property to charity.
There is another reason, one much more personal. In the early 1990's, this book had been on my mind for a long time. It had been written, in fits and starts, many times over the years, with the manuscript pages ending up accumulating in this storage box and that file. It took some gentle prodding by the wonderful people at John Wiley & Sons—specifically, for this project, Jeffrey Brown (long since promoted to Wiley's higher echelons) and Marla Bobowick (now working in the charitable sector)—to get me going on the writing of the book. The first edition appeared in 1993. Martha Cooley skillfully continued in the fashion of her predecessors; the second edition has arrived.
It is not that I did not want to write this book; that is certainly not the case. In fact, I long dreamed of—it seems rather immodest to say it—a trilogy. This idea reflects what is now over 30 years of law practice entirely in the realm of nonprofit organizations. I have come to see the law uniquely affecting these organizations as falling into three fields: the law of tax-exempt organizations, the law of fund-raising, and the law of charitable giving.
By the time the pressure was mounting to write a book on charitable giving, the books on tax-exempt organizations law and fund-raising law had been published (by Wiley, of course). Certainly, the time had come to begin (or re-begin) the writing of the third book. But I found my writing time diverted to other subjects (such as book supplements and other books); postponement of the charitable giving book had become the order of the day.
I have been writing books for Wiley for over 20 years. (The first book, the third edition of The Law of Tax-Exempt Organizations, was published in 1979. The predecessor to The Law of Fund-Raising was published in 1980.) These and other Wiley books I have been involved with entail the writing of annual supplements. As the 1980s unfolded, I discovered something unusual about myself: I enjoy writing supplements. (There is something perversely challenging about simultaneously correcting prior mistakes, and capturing and integrating subsequent developments.)
Thus, while writing supplements to the tax-exempt organizations and fund-raising books, I found myself wanting to write supplements for a book on the law of charitable giving. This was (and is) because of the immense swirl of developments in the law taking place in all three arenas. The problem, however, was obvious: One cannot supplement a book that does not exist—or exists only in the author's mind.
So, I set about to write what became the first edition of this book. This is not to imply that I wrote it just so I could justify the writing of supplements for it (although a case can be made that that is a partial reason). I wrote the book because I was impressed with the volume of law being generated in the field, and I wanted readers to have a book that explains the basics and new developments in a complete and comprehensive manner.
The law on the subject of charitable giving has become intricate, and there is no let up in sight. Those who need to keep up with the law in this area deserve a single place to go to find both the fundamentals and recent developments. With the trilogy now firmly in place (all three books being annually supplemented), the law of charitable giving can also be placed in an appropriate context.
The first edition captured the state of the law of charitable giving as of the close of 1992. Not surprisingly, the field exploded into new realms even as the book was being published. The Omnibus Budget Reconciliation Act of 1993 introduced law that significantly added to the administrative burdens of charitable organizations: more stringent substantiation rules and disclosure rules in the case of quid pro quo gifts. This legislation brought other revisions of the law of charitable giving, as did the Small Business Job Protection Act of 1996, the Tax-payer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998. Other major tax bills are unavoidable. In recent years, Congress has also revised the antitrust and securities laws in the context of charitable giving.
The Treasury Department and the IRS have also been quite busy in our field, promulgating much in the way of regulations, private letter rulings, and technical advice memoranda. Rest assured that much more is coming. The courts as well continue to churn out opinions that shape and reshape the law of charitable giving. Overall, then, much more law is on the way, keeping this field alive and sometimes confusing.
This book is offered as a vehicle to survey the law and minimize the confusion.
One of the frustrating aspects about writing books of this nature is the helplessness experienced when interesting and important developments occur once the book is in publication, too late to be included. We were ready to add the many aspects of new law that would have been introduced had the Taxpayer Refund and Relief Act of 1999 (H. R. 2488) been enacted; that legislation was, instead, vetoed on September 23, 1999.
By contrast, the discussion of the tax treatment of distributions to noncharitable beneficiaries from charitable remainder trusts (§ 12.5) does not reflect the issuance of proposed regulations to curb certain abusive uses of these trusts (Reg. 116125-99). These regulations address situations where a remainder trust (dubbed a "chutzpah" trust because of the audacity of the plan) is used to convert appreciated property into money while avoiding tax on the gain from the sale of the assets. In essence, there is borrowing (or a similar transaction) within the trust, so that the distribution to the beneficiary can be regarded as out of the fourth tier, which is nontaxable proceeds. Basically, the trust will be treated having sold, in the year for which the distribution is due, the appropriate portion of the trust assets. These rules, when finalized, will apply to distributions after October 18, 1999.
Likewise, the material about charitable split-interest insurance plans legislation (§ 17.6( c)) needs augmentation: Just before adjournment in November 1999, Congress passed legislation (H. R. 1180), which contains the rules that severely discourages charities' and their supporters' participation in these plans. The effective date of February 8, 1999, was retained.
Then, there is the marvelous case of Herman v. United States, decided by the U. S. district court for the Eastern District of Tennessee, enabling donors to obtain a charitable deduction for a gift of property, where they bought the property in a bankruptcy proceeding, held it for a little over one year, and had their deduction based on the fair market value of the property at the time. The deduction value was 25 times the purchase value. I am really disappointed that a discussion of that decision cannot be in this book. I guess it is time to start working on the supplement.
If readers wonder whether my using these occasions (the writing of prefaces) to praise the outstanding folks at John Wiley & Sons, Inc., is simply a routine courtesy, please believe otherwise. They have been marvelously supportive (and adept at enforcing deadlines). The publisher's devotion to the production of quality publications in the nonprofit field warrants unstinting praise. The Non-profit Law, Finance, and Management Series is an unparalleled collection of books in the area. I am honored to be among those who have been and are contributing to this substantial body of knowledge.
Thus, my sincere thanks to my editor, Martha Cooley, and to Robin Goldstein for their assistance and support in connection with this project.
Bruce R. Hopkins
PART ONE INTRODUCTION TO THE TAX LAW OF CHARITABLE GIVING.
Chapter One Charitable Giving Law: Basic Concepts.
1.1 Introduction to the Charitable Contribution Deduction.
1.2 Defining Tax-Exempt Organizations.
1.3 Principles of Charitable Organizations Law Philosophy.
1.4 Statistical Profile of Charitable Sector.
1.5 Categories of Tax-Exempt Organizations.
Chapter Two The United States Tax System: An Overview.
2.1 Concept of Income.
2.2 Gross Income.
2.3 Exclusions from Income.
2.4 Concept of Adjusted Gross Income.
2.6 Standard Deduction.
2.7 Concept of Taxable Income.
2.8 Taxable and Nontaxable Entities.
2.9 Annual Accounting Period.
2.10 Accounting Methods.
2.15 Taxation of Income.
2.16 Capital Assets, Gains, and Losses.
2.17 Carryovers and Carrybacks.
2.18 Alternative Minimum Tax.
2.20 Capital Gains and Dividends Rates.
2.21 Taxation of Corporate Distributions.
2.22 Accumulated Earnings and Personal Holding Company Taxes.
2.23 Tax Credits.
2.24 Foreign Tax Credits.
PART TWO BASICS OF CHARITABLE GIVING.
Chapter Three Fundamental Concepts.
3.1 Meaning of Gift.
3.2 Meaning of Donor.
3.3 Meaning of Charitable Organization.
3.4 Public Charities and Private Foundations.
3.5 Unrelated Business Rules.
3.6 Factors Affecting Income Tax Deductibility of Charitable Gifts.
3.7 Grantor Trust Rules.
Chapter Four Gifts of Money and Property.
4.1 Gifts of Money.
4.2 Gifts of Property in General.
4.3 Gifts of Long-Term Capital Gain Property in General.
4.4 Gifts of Ordinary Income Property.
4.5 Certain Gifts of Capital Gain Property.
4.6 Gifts of Property for Unrelated Use.
4.7 Variations in Applying Property Rules.
4.8 Step Transaction Doctrine.
4.9 Charitable Pledges.
Chapter Five Fundamentals of Planned Giving.
5.2 Appreciated Property Gifts.
5.3 Planned Gifts: Core Concepts.
5.4 Charitable Remainder Trusts.
5.5 Pooled Income Funds.
5.6 Charitable Gift Annuities.
5.7 Charitable Lead Trusts.
5.8 Planned Giving: Other Forms.
5.9 Planned Giving and Securities Laws.
PART THREE CHARITABLE GIVING IN GENERAL.
Chapter Six Timing of Charitable Deductions.
6.1 Gifts of Money in General.
6.2 Gifts of Money by Check.
6.3 Gifts of Money by Credit Card.
6.4 Gifts of Money by Telephone.
6.5 Gifts of Securities.
6.6 Gifts of Copyright Interest.
6.7 Gifts by Means of Notes.
6.8 Gifts by Letters of Credit.
6.9 Gifts of Property Subject to Option.
6.10 Gifts of Stock Options.
6.11 Gifts of Credit Card Rebates.
6.12 Gifts of Tangible Personal Property.
6.13 Gifts of Real Property.
6.14 Gifts by C Corporations.
6.15 Gifts by S Corporations.
6.16 Gifts by Partnerships.
6.17 Gifts by Means of Internet.
Chapter Seven Percentage Limitations.
7.2 Individual’s Contribution Base.
7.3 Corporation’s Taxable Income.
7.4 Percentage Limitations: An Overview.
7.5 Fifty Percent Limitation.
7.6 Thirty Percent Limitation for Gifts of Certain Property.
7.7 Electable 50 Percent Limitation.
7.8 General 30 Percent Limitation.
7.9 Interplay of 50 Percent/Special 30 Percent Limitations.
7.10 Interplay of 50 Percent/General 30 Percent Limitations.
7.11 Interplay of Special 30 Percent/General 30 Percent Limitations.
7.12 Twenty Percent Limitation.
7.13 Gifts for the Use of Charity.
7.14 Blending Percentage Limitations.
7.15 Individuals’ Net Operating Loss Carryovers and Carrybacks.
7.16 Rules for Spouses.
7.17 Information Requirements.
7.18 Percentage Limitation for Corporations.
7.19 Corporations’ Net Operating Loss Carryovers and Carrybacks.
Chapter Eight Estate and Gift Tax Considerations.
8.2 Federal Gift Tax.
8.3 Federal Estate Tax.
8.4 Unification of Taxes.
8.5 Generation-Skipping Transfer Tax.
8.6 Estate Planning Principles.
8.7 Remainder Interests.
Chapter Nine Special Gift Situations.
9.1 Works of Art.
9.4 Scientific Research Property.
9.5 Computer Technology or Equipment.
9.6 License to Use Patent.
9.7 Conservation Property.
9.8 S Corporation Stock.
9.9 Section 306 Stock.
9.10 Retirement Plan Accounts.
9.11 Commodity Futures Contracts.
9.12 Donors’ Creations.
9.13 Charity Auctions.
9.15 Unreimbursed Expenses.
9.16 Limitation on Deduction for Expenses Due to Pleasure.
9.17 Automobile Expenses.
9.18 Use of Property.
9.19 Bargain Sales.
9.20 Property Subject to Debt.
9.21 Future Interests in Tangible Personal Property.
9.22 Contributions by Trusts.
9.23 Partial Interests.
9.25 Clothing and Household Items.
9.26 Charitable Family Limited Partnerships.
9.27 Motor and Other Vehicles.
9.28 Intellectual Property.
9.29 Foreign Tax Credit.
9.30 Subsistence Whaling Expenses.
9.31 Public Policy Considerations.
Chapter Ten Other Aspects of Deductible Giving.
10.1 Valuation of Property.
10.2 Contributions by Means of an Agent.
10.3 Gifts for the Use of Charity.
10.4 Conditional Gifts.
10.5 Earmarking of Gifts for Individuals.
10.6 Alternative Minimum Tax Considerations.
10.7 Interrelationship with Business Expense Deduction.
10.8 Denial of Deduction for Lobbying Activities.
10.9 Deductible Gifts to Noncharitable Organizations.
10.10 Reallocation of Deductions.
10.11 Charitable Giving and Funding of Terrorism.
10.12 Statute of Limitations.
10.13 Concept of Trust Income.
10.15 Transactions of Interest.
PART FOUR PLANNED GIVING.
Chapter Eleven Valuation of Partial Interests.
11.1 Overview of Statutory Law.
11.2 Standard Actuarial Factors.
11.3 General Actuarial Valuations.
11.4 Nonstandard Actuarial Factors.
Chapter Twelve Charitable Remainder Trusts.
12.2 Charitable Remainder Annuity Trust Rules.
12.3 Charitable Remainder Unitrust Rules.
12.5 Tax Treatment of Distributions.
12.6 Division of Charitable Remainder Trusts.
12.7 Early Terminations of Charitable Remainder Trusts.
12.8 Taxation of Charitable Remainder Trusts.
12.9 Mandatory Provisions.
12.10 Private Foundation Rules.
12.11 Wealth Replacement Trusts.
12.12 Calculation of Charitable Deduction.
Chapter Thirteen Pooled Income Funds.
13.2 Qualifying Pooled Income Funds.
13.3 Allocation of Income.
13.4 Recognition of Gain or Loss on Transfers.
13.5 Mandatory Provisions.
13.6 Private Foundation Rules.
13.7 Pass-Through of Depreciation.
13.8 Tax Status of Fund and Beneficiaries.
13.9 Multiorganization Pooled Income Funds.
13.10 Comparison with Charitable Remainder Trusts.
13.11 Charitable Contribution Deduction.
Chapter Fourteen Charitable Gift Annuities.
14.1 Contract as Vehicle Form.
14.2 Tax Treatment to Donor.
14.3 Deferred Payment Gift Annuities.
14.4 Estate and Gift Tax Consequences.
14.5 Unrelated Business Income Implications.
14.6 Unrelated Debt-Financed Income Implications.
14.7 Contrast with Other Planned Gift Methods.
14.8 Gift Annuities and Antitrust Laws.
14.9 Gift Annuities and Securities Laws.
14.10 Charitable Contribution Deduction.
Chapter Fifteen Other Gifts of Remainder Interests.
15.2 Contributions of Remainder Interests in Personal Residence or Farm.
15.3 Undivided Portions of Entire Interests in Property.
Chapter Sixteen Charitable Lead Trusts.
16.1 General Rules.
16.2 Income Interest.
16.3 Income Tax Charitable Deduction.
16.4 Tax Treatment of Charitable Lead Trusts.
16.5 Testamentary Use of Charitable Lead Trusts.
16.6 Percentage Limitation Rules.
16.7 Private Foundation Rules.
16.8 Anti-Abuse Rule Concerning Income Interests.
16.9 Charitable Income Trusts.
16.10 Comparison with Charitable Remainder Trusts.
16.11 Valuing Charitable Deduction.
Chapter Seventeen Gifts of and Using Life Insurance.
17.2 Life Insurance Concepts.
17.3 Charitable Giving and Insurance.
17.4 Insurable Interest.
17.5 Unrelated Debt-Financed Income Considerations.
17.6 Charitable Split-Dollar Insurance Plans.
17.7 Applicable Insurance Contract Reporting Requirements.
PART FIVE INTERNATIONAL CHARITABLE GIVING.
Chapter Eighteen International Giving by Individuals during Lifetime.
18.3 Earmarking and Conduit Restrictions.
18.4 Control over Foreign Donees.
18.6 Income Tax Treaties.
Chapter Nineteen International Giving by Individuals through Estates.
19.2 Estate Tax Rules.
19.3 Gift Tax Rules.
19.4 Charitable Giving by Noncitizen Nonresidents.
Chapter Twenty International Giving by Corporations.
20.1 Corporate Gifts to U.S. Charity for Overseas Use.
20.2 Gifts of Money from Foreign Affiliate of U.S. Parent to Overseas Charity.
20.3 Gift of Goods or Services to Benefit Foreign Charity.
20.4 Grants of Funds from U.S. Corporation-Related Foundation to Foreign Charity.
PART SIX ADMINISTRATION OF CHARITABLE GIVING PROGRAMS.
Chapter Twenty-one Substantiation and Appraisal Requirements.
21.2 Substantiation Requirements for Gifts of Money.
21.3 Substantiation Requirements for Gifts of $250 or More.
21.4 Substantiation Requirements for Noncash Gifts.
21.5 Appraisal Requirements.
21.6 Appraisals and Penalties.
21.7 Appraisals of Clothing and Household Items.
21.8 Burden of Proof Rules.
Chapter Twenty-two Disclosure Requirements.
22.1 Disclosure by Charitable Organizations in General.
22.2 Quid Pro Quo Contribution Rules.
22.3 Disclosure by Noncharitable Organizations.
Chapter Twenty-three Special Events, Corporate Sponsorships, and Donor-Advised Funds.
23.1 IRS Audit Guidelines.
23.2 Special Events.
23.3 Corporate Sponsorship Rules.
23.4 Donor-Advised Funds.
Chapter Twenty-four Reporting Requirements.
24.1 Gift Reporting by Individuals.
24.2 Gift Reporting by C Corporations.
24.3 Gift Reporting by S Corporations.
24.4 Gift Reporting by Partnerships.
24.5 Gift Reporting by Donees in General.
24.6 Gift Reporting in Unrelated Business Context.
24.7 Reporting of Noncash Gifts in General.
24.8 Reporting of Gifts of Vehicles.
24.9 Reporting of Gifts of Intellectual Property.
24.10 Reporting on Dispositions of Contributed Property.
24.11 Applicable Insurance Contract Reporting Requirements.
24.12 Personal Benefit Contract Reporting Requirements.
24.13 Split-Interest Trust Filing Requirements.
Chapter Twenty-five State Fundraising Regulation.
25.1 State Regulation in General.
25.2 Historical Perspective.
25.3 States’ Police Power.
25.4 Basic Definitions.
25.5 Registration Requirements.
25.6 Reporting Requirements.
25.7 Exemptions from Regulation.
25.8 Fundraising Cost Limitations.
25.9 Prohibited Acts.
25.10 Contractual Requirements.
25.11 Disclosure Requirements.
PART SEVEN APPENDICES.
Appendix A Sources of the Law.
Appendix B Internal Revenue Code Sections.
Appendix C Form 8283—Noncash Charitable Contributions.
Appendix D Form 8282—Donee Information Return.
Appendix E Inflation-Adjusted Insubstantiality Threshold— $50 Test.
Appendix F Inflation-Adjusted Insubstantiality Threshold— $25 Test.
Appendix G Inflation-Adjusted Low-Cost Article Definition.
Appendix H Monthly Federal Interest Rates Used in Valuing Partial Interests (IRC § 7520).
Appendix I Deemed Rates of Return for Transfers to New Pooled Income Funds.
Appendix J Form 1098—C.
Appendix K Selected Bibliography.
Table of Cases.
Table of IRS Revenue Rulings and Revenue Procedures.
Table of IRS Private Determinations Cited in Text.
Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda.
Table of Cases Discussed in Bruce R. Hopkins’ Nonprofit Counsel.
Table of Revenue Rulings Discussed in Bruce R. Hopkins’ Nonprofit Counsel.
Table of Private Letter Rulings and Technical Advice Memoranda Discussed in Bruce R. Hopkins’ Nonprofit Counsel.