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The Tax Law of Charitable Giving, Fourth Edition 2012 Supplement 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. Professionals can ensure they are well prepared to make decisions ...
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The Tax Law of Charitable Giving, Fourth Edition 2012 Supplement 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. 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
Note to the Reader: Sections not in the main volume, The Tax Law of Charitable Giving, Fourth Edition (9780470560600), are indicated by "(New)" after the title. Material new to or modified in this supplement is indicated by an asterisk in the left margins in the Contents and throughout the supplement.
About the Author ix
Book Citations xiii
PART ONE INTRODUCTION TO THE TAX LAW OF CHARITABLE GIVING
Chapter One Charitable Giving Law: Basic Concepts 3
* 1.4 Statistical Profile of Charitable Sector 3
Chapter Two The United States Tax System: An Overview 5
* 2.4 Concept of Adjusted Gross Income 5
* 2.6 Standard Deduction 5
* 2.7 Concepts of Taxable Income 5
* 2.15 Taxation of Income 6
PART TWO BASICS OF CHARITABLE GIVING LAW
Chapter Three Fundamental Concepts 11
* 3.1 Meaning of Gift 11
3.3 Meaning of Charitable Organization 14
* 3.4 Public Charities and Private Foundations 15
* 3.6 Factors Affecting Income Tax Deductibility of Charitable Gifts 15
* 3.6A Charitable Organizations Listing Reliance Rules (New) 15
Chapter Four Gifts of Money and Property 19
* 4.3 Gifts of Long-Term Capital Gain Property in General 19
* 4.5 Certain Gifts of Capital Gain Property 19
4.6 Gifts of Property for Unrelated Use 19
PART THREE CHARITABLE GIVING IN GENERAL
Chapter Six Timing of Charitable Deductions 23
* 6.15 Gifts by S Corporations 23
Chapter Eight Estate and Gift Tax Considerations 25
* 8.2 Federal Gift Tax 25
* 8.3 Federal Estate Tax 26
* 8.4 Unification of Taxes 27
* 8.4A Estate and Gift Tax Regime (New) 27
8.7 Remainder Interests 28
Chapter Nine Special Gift Situations 29
* 9.3 Inventory 29
* 9.5 Computer Technology or Equipment 30
* 9.7 Conservation Property 30
* 9.10 Retirement Plan Accounts 34
9.12 Donors’ Creations 34
* 9.15 Unreimbursed Expenses 34
* 9.17 Automobile Expenses 35
9.19 Bargain Sales 36
* 9.22 Contributions by Trusts 36
* 9.31 Public Policy Considerations 37
Chapter Ten Other Aspects of Deductible Giving 41
* 10.1 Valuation of Property 41
* 10.4 Conditional Gifts 42
10.9 Deductible Gifts to Noncharitable Organizations 44
* 10.14 Penalties 45
PART FOUR PLANNED GIVING
Chapter Eleven Valuation of Partial Interests 51
* 11.3 General Actuarial Valuations 51
Chapter Twelve Charitable Remainder Trusts 53
* 12.2 Charitable Remainder Annuity Trust Rules 53
12.4 Issues 53
12.7 Early Terminations of Charitable Remainder Trusts 54
* 12.8 Taxation of Charitable Remainder Trusts 54
* 12.9 Mandatory Provisions 55
* 12.10 Private Foundation Rules 55
PART FIVE INTERNATIONAL CHARITABLE GIVING
Chapter Eighteen International Giving by Individuals during Lifetime 59
* 18.2 Background 59
* 18.5 Summary 59
PART SIX ADMINISTRATION OF CHARITABLE GIVING PROGRAMS
Chapter Twenty-One Substantiation and Appraisal Requirements 63
* 21.2 Substantiation Requirements for Gifts of Money 63
* 21.3 Substantiation Requirements for Gifts of $250 or More 63
21.4 Substantiation Requirements for Noncash Gifts 64
21.5 Appraisal Requirements 64
21.6 Appraisals and Penalties 67
* 21.8 Burden of Proof Rules 67
Chapter Twenty-Two Disclosure Requirements 69
* 22.2 Quid Pro Quo Contribution Rules 69
Chapter Twenty-Four Reporting Requirements 71
* 24.13 Split-Interest Trust Filing Requirements 71
PART SEVEN APPENDICES
Appendix E: Inflation-Adjusted Insubstantiality Threshold—$50 Test 75
Appendix F: Inflation-Adjusted Insubstantiality Threshold—$25 Test 77
Appendix G: Inflation-Adjusted Low-Cost Article Definition 79
Appendix H: Monthly Federal Interest Rates Used in Valuing
Partial Interests (IRC § 7520) 81
Cumulative Table of Cases 89
Cumulative Table of IRS Revenue Rulings and Revenue Procedures 97
Cumulative Table of IRS Private Determinations Cited in Text 101
Cumulative Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda 105
Cumulative Table of Cases Discussed in Bruce R. Hopkins' Nonprofit Counsel 115
Cumulative Table of Revenue Rulings Discussed in Bruce R. Hopkins’ Nonprofit Counsel 119
Cumulative Table of Private Letter Rulings and Technical Advice Memoranda discussed in Bruce R. Hopkins’ Nonprofit Counsel 121
Cumulative Index 123