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Overview
Discover a fully updated and comprehensive reference on US charitable tax law from a leading authority
As United States charitable tax law becomes ever more complex and byzantine, the need for a one-stop resource on foundational and advanced topics in this practice area has become acute. The comprehensively revised Sixth Edition of The Tax Law of Charitable Giving fills this niche. The book offers readers a fulsome, authoritative, and well-organized description of modern US tax laws on charitable giving
Ranging over the basics of US charitable giving law to the intricate details of contributions of various types of property and international giving, this accomplished nonprofit lawyer, professor, and author delves deeply into a wide variety of subjects concerning deductible (and nondeductible) charitable giving. In addition to fundamental topics such as the definition of gift and percentage limitations on charitable deductions, readers will learn about planned giving, donor-advised funds, the substantiation and appraisal requirements, reporting and disclosure laws, valuation pricinples, tax penalties, and more.
Ideal for lawyers, accountants, and other financial professionals who advise clients on charitable giving and tax matters, The Tax Law of Charitable Giving provides an authoritative reference on all aspects of philanthropy and federal tax law.
Product Details
| ISBN-13: | 9781119756002 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 03/30/2021 |
| Series: | Wiley Nonprofit Authority |
| Edition description: | 6th ed. |
| Pages: | 864 |
| Product dimensions: | 6.90(w) x 9.90(h) x 1.50(d) |
About the Author
Read an Excerpt
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
December 1999
Table of Contents
Preface xvBook Citations xix
Part One Introduction to the Tax Law of Charitable Giving
1 Charitable Giving Law: Basic Concepts 3
§ 1.1 Introduction to Charitable Contribution Deduction 3
§ 1.2 Defining Tax-Exempt Organizations 5
§ 1.3 Charitable Organizations Law Philosophy 8
§ 1.4 Statistical Profile of Charitable Sector 23
§ 1.5 History of Charitable Contribution Deduction 29
§ 1.6 Charitable Contribution Deduction Reform Proposals 32
2 Fundamental Concepts 35
§ 2.1 Definition of Gift 36
§ 2.2 Definition of Donor 83
§ 2.3 Definition of Charitable Organization 84
§ 2.4 Public Charities and Private Foundations 96
§ 2.5 Unrelated Business Law 113
§ 2.6 Factors Affecting Income Tax Deductibility of Charitable Gifts 121
§ 2.7 Charitable Organizations Listing Reliance Rules 122
§ 2.8 Grantor Trust Law 126
3 Contributions of Money and Property 129
§ 3.1 Contributions of Money 129
§ 3.2 Contributions of Property in General 130
§ 3.3 Contributions of Long-Term Capital Gain Property in General 132
§ 3.4 Contributions of Ordinary Income Property 132
§ 3.5 Certain Contributions of Capital Gain Property 136
§ 3.6 Contributions of Property for Unrelated Use 139
§ 3.7 Step Transaction Doctrine 142
§ 3.8 Charitable Pledges 148
Part Two Charitable Giving in General
4 Timing of Charitable Deductions 153
§ 4.1 Overview of Law 154
§ 4.2 Contributions of Money in General 155
§ 4.3 Contributions of Money by Check 155
§ 4.4 Contributions of Money by Credit Card 158
§ 4.5 Contributions of Money by Telephone 159
§ 4.6 Contributions of Securities 159
§ 4.7 Contributions of Copyright Interest 162
§ 4.8 Contributions by Means of Notes 163
§ 4.9 Contributions by Letters of Credit 163
§ 4.10 Contributions of Property Subject to Option 164
§ 4.11 Contributions of Stock Options 165
§ 4.12 Contributions of Credit Card Rebates 167
§ 4.13 Contributions of Tangible Personal Property 167
§ 4.14 Contributions of Real Property 168
§ 4.15 Contributions of Easements 168
§ 4.16 Contributions by C Corporations 169
§ 4.17 Contributions by S Corporations 170
§ 4.18 Contributions by Partnerships 171
§ 4.19 Contributions by Means of the Internet 173
5 Limitations on Annual Deductibility 175
§ 5.1 Overview of Law 176
§ 5.2 Individuals’ Contribution Base 179
§ 5.3 Corporations’ Taxable Income 179
§ 5.4 Percentage Limitations: An Overview 180
§ 5.5 Sixty Percent Limitation 182
§ 5.6 Fifty Percent Limitation 183
§ 5.7 Thirty Percent Limitation for Gifts of Certain Property 186
§ 5.8 Electable 50 Percent Limitation 189
§ 5.9 General 30 Percent Limitation 193
§ 5.10 Interplay of 50 Percent/Special 30 Percent Limitations 194
§ 5.11 Interplay of 50 Percent/General 30 Percent Limitations 194
§ 5.12 Interplay of Special 30 Percent/General 30 Percent Limitations 195
§ 5.13 Twenty Percent Limitation 195
§ 5.14 Qualified Conservation Contribution Law 196
§ 5.15 Conservation Gifts by Farmers and Ranchers 196
§ 5.16 Gifts for the Use of Charity 198
§ 5.17 Blending Percentage Limitations 199
§ 5.18 Rules for Spouses 200
§ 5.19 Information Requirements 202
§ 5.20 Percentage Limitation for Corporations 202
6 Estate and Gift Law 205
§ 6.1 Overview of Law 205
§ 6.2 Federal Gift Tax 207
§ 6.3 Federal Estate Tax 218
§ 6.4 Unification of Taxes 234
§ 6.5 Remainder Interests 234
§ 6.6 Ascertainability of Value of Charitable Interest 244
7 Unique Charitable Contribution Laws 249
§ 7.1 Works of Art 250
§ 7.2 Gems 254
§ 7.3 Inventory 256
§ 7.4 Scientific Research Property 264
§ 7.5 License to Use Patent 265
§ 7.6 Easements and Other Conservation Property 267
§ 7.7 S Corporation Stock 292
§ 7.8 Section 306 Stock 300
§ 7.9 Retirement Plan Accounts 302
§ 7.10 Commodity Futures Contracts 309
§ 7.11 Donors’ Creations 311
§ 7.12 Charity Auctions 312
§ 7.13 Services 319
§ 7.14 Unreimbursed Expenses 321
§ 7.15 Limitation on Deduction for Expenses Due to Pleasure 327
§ 7.16 Automobile Expenses 331
§ 7.17 Use of Property 331
§ 7.18 Bargain Sales 332
§ 7.19 Property Subject to Debt 338
§ 7.20 Future Interests in Tangible Personal Property 341
§ 7.21 Contributions by Trusts 342
§ 7.22 Taxidermy 351
§ 7.23 Clothing and Household Items 352
§ 7.24 Vehicles 352
§ 7.25 Intellectual Property 359
§ 7.26 Foreign Tax Credit 363
§ 7.27 Subsistence Whaling Expenses 364
§ 7.28 Virtual Currency Transactions 365
8 Additional Aspects of Deductible Giving 367
§ 8.1 Contributions by Means of an Agent 368
§ 8.2 Contributions for the Use of Charity 369
§ 8.3 Conditional Contributions 371
§ 8.4 Earmarking of Contributions for Individuals 377
§ 8.5 Interrelationship with Business Expense Deduction 380
§ 8.6 Denial of Deduction for Lobbying Activities 382
§ 8.7 Deductible Contributions to Noncharitable Organizations 383
§ 8.8 Reallocation of Deductions 388
§ 8.9 Funding of Terrorism 388
§ 8.10 Statute of Limitations 389
§ 8.11 Concept of Trust Income 389
§ 8.12 Unrelated Business Income Charitable Deduction 393
§ 8.13 Charitable Family Limited Partnerships 394
§ 8.14 Abusive Tax Transactions 396
§ 8.15 Public Policy Considerations 408
Part Three Planned Giving
9 Planned Giving and Valuation 417
§ 9.1 Planned Giving Fundamentals 417
§ 9.2 Partial Interests Law 420
§ 9.3 Overview of Valuation Law 423
§ 9.4 Standard Actuarial Factors 424
§ 9.5 General Actuarial Valuations 426
§ 9.6 Nonstandard Actuarial Factors 429
§ 9.7 Securities Laws 432
10 Charitable Remainder Trusts 435
§ 10.1 Definitions 437
§ 10.2 Charitable Remainder Annuity Trust Law 448
§ 10.3 Charitable Remainder Unitrust Law 462
§ 10.4 Issues 479
§ 10.5 Tax Treatment of Distributions 492
§ 10.6 Division of Charitable Remainder Trusts 499
§ 10.7 Basis in Disposition of Term Interest 503
§ 10.8 Taxation of Charitable Remainder Trusts 505
§ 10.9 Mandatory Provisions 507
§ 10.10 Private Foundation Law 508
§ 10.11 University Endowment Investment Sharing 510
§ 10.12 Charitable Remainder Trusts as Partners or Shareholders in REITs 512
§ 10.13 Wealth Replacement Trusts 513
§ 10.14 Calculation of Charitable Contribution Deduction 513
§ 10.15 Merger of Charitable Remainder Trusts 519
§ 10.16 Early Terminations of Charitable Remainder Trusts 519
§ 10.17 Regular Termination of Charitable Remainder Trusts 521
11 Pooled Income Funds 525
§ 11.1 Definitions 526
§ 11.2 Qualifying Pooled Income Funds 527
§ 11.3 Allocation of Income 533
§ 11.4 Recognition of Gain or Loss on Transfers 534
§ 11.5 Mandatory Provisions 535
§ 11.6 Private Foundation Law 536
§ 11.7 Pass-Through of Depreciation 537
§ 11.8 Tax Status of Funds and Beneficiaries 538
§ 11.9 Multiorganization Pooled Income Funds 540
§ 11.10 Comparison with Charitable Remainder Trusts 543
§ 11.11 Charitable Contribution Deduction 544
12 Charitable Gift Annuities 547
§ 12.1 Contract as Vehicle Form 547
§ 12.2 Tax Treatment to Donor 548
§ 12.3 Deferred Payment Gift Annuities 549
§ 12.4 Estate and Gift Tax Consequences 550
§ 12.5 Unrelated Business Income Implications 550
§ 12.6 Unrelated Debt-Financed Income Implications 551
§ 12.7 Contrast with Other Planned Gift Methods 552
§ 12.8 Antitrust Laws 553
§ 12.9 Securities Laws 554
§ 12.10 Charitable Contribution Deduction 554
13 Other Types of Deductible Remainder Interests 557
§ 13.1 Overview of Law 557
§ 13.2 Qualifying Partial Interests 558
§ 13.3 Remainder Interests in Personal Residences or Farms 558
§ 13.4 Undivided Portions of Entire Interests in Property 562
14 Charitable Lead Trusts 571
§ 14.1 Overview of Law 571
§ 14.2 Income Interests 572
§ 14.3 Tax Treatment of Charitable Lead Trusts 574
§ 14.4 Testamentary Use of Charitable Lead Trusts 576
§ 14.5 Percentage Limitation Law 578
§ 14.6 Private Foundation Law 578
§ 14.7 Anti-Abuse Rule Concerning Income Interests 580
§ 14.8 Charitable Income Trusts 582
§ 14.9 Comparison with Charitable Remainder Trusts 583
§ 14.10 Valuing Charitable Contribution Deduction 583
§ 14.11 Charitable Contribution Deduction 584
15 Contributions of and Using Life Insurance 587
§ 15.1 Introduction 587
§ 15.2 Life Insurance Concepts 588
§ 15.3 Charitable Giving and Insurance 591
§ 15.4 Insurable Interest 596
§ 15.5 Unrelated Debt-Financed Income Law 599
§ 15.6 Charitable Split-Dollar Insurance Plans 600
§ 15.7 Insurance Contract Reporting Requirements 607
Part Four International Charitable Giving
16 International Giving by Individuals During Lifetime 611
§ 16.1 Introduction 611
§ 16.2 Overview of Law 612
§ 16.3 Earmarking and Conduit Restrictions 615
§ 16.4 Control over Foreign Donees 619
§ 16.5 Summary 622
§ 16.6 Income Tax Treaties 623
17 International Giving by Individuals by Means of Estates 625
§ 17.1 Overview of Law 625
§ 17.2 Estate Tax Law 626
§ 17.3 Gift Tax Law 632
§ 17.4 Charitable Giving by Noncitizen Nonresidents 632
18 International Giving by Corporations 635
§ 18.1 Contributions to U.S. Charities for Foreign Use 635
§ 18.2 Contributions of Money from Foreign Affiliate of U.S. Parent to Foreign Charities 636
§ 18.3 Contributions of Goods or Services to Benefit Foreign Charities 637
§ 18.4 Grants of Funds from U.S.-Related Foundation to Foreign Charities 638
Part Five Administration of Charitable Giving Programs
19 Substantiation and Appraisal Law 651
§ 19.1 Introduction 652
§ 19.2 Substantiation Law for Charitable Monetary Contributions 653
§ 19.3 Substantiation Law for Charitable Contributions of $250 or More 654
§ 19.4 Substantiation Law for Noncash Charitable Contributions 669
§ 19.5 Substantiation Law for Conservation Contributions 675
§ 19.6 Substantiation Law for Contributions of Motor Vehicles, Boats, and Airplanes 675
§ 19.7 Substantiation Law for Contributions to Donor-Advised Funds 676
§ 19.8 Appraisal Law 676
§ 19.9 Appraisals of Clothing and Household Items 687
§ 19.10 Recordkeeping Law 688
20 Disclosure Law 693
§ 20.1 Disclosure by Charitable Organizations in General 693
§ 20.2 Quid Pro Quo Contribution Law 698
§ 20.3 Disclosure by Noncharitable Organizations 702
21 Special Events, Corporate Sponsorships, and Donor-Advised Funds 707
§ 21.1 IRS Audit Guidelines 708
§ 21.2 Special Events 712
§ 21.3 Corporate Sponsorship Law 714
§ 21.4 Donor-Advised Funds 717
22 Reporting Law 739
§ 22.1 Contribution Reporting by Individuals 739
§ 22.2 Contribution Reporting by C Corporations 740
§ 22.3 Contribution Reporting by S Corporations 740
§ 22.4 Contribution Reporting by Partnerships 740
§ 22.5 Contribution Reporting by Donees in General 741
§ 22.6 Contribution Reporting in Unrelated Business Context 746
§ 22.7 Noncash Contributions Reporting Law in General 749
§ 22.8 Contributions of Vehicles Reporting Law 765
§ 22.9 Contributions of Intellectual Property Reporting Law 767
§ 22.10 Dispositions of Contributed Property Reporting Law 768
§ 22.11 Personal Benefit Contract Reporting Law 771
§ 22.12 Split-Interest Trust Reporting Law 771
23 Valuation Principles and Various Penalties 773
§ 23.1 Valuation of Property—General Principles 773
§ 23.2 Valuation of Works of Art 779
§ 23.3 Valuation of Securities 781
§ 23.4 Valuation of Other Types of Property 784
§ 23.5 Other Court Valuation Cases 793
§ 23.6 Federal Tax Penalties 803
§ 23.7 Burden of Proof Law 815
§ 23.8 Burden of Production and Procedural Law 817
24 State Fundraising Law 819
§ 24.1 State Regulation in General 819
§ 24.2 Historical Perspective 820
§ 24.3 States’ Police Power 822
§ 24.4 Basic Definitions 823
§ 24.5 Registration Law 824
§ 24.6 Reporting Law 824
§ 24.7 Exemptions from Regulation 825
§ 24.8 Fundraising Cost Limitations 826
§ 24.9 Prohibited Acts 827
§ 24.10 Contract Law 828
§ 24.11 Disclosure Law 829
About the Author 831
About the Online Resources 833
Index 835