A completely updated guide to the laws and regulations governing charitable giving
This fully updated Fifth Edition of The Tax Law of Charitable Giving is the definitive resource for nonprofit lawyers, accountants, and fundraising professionals charged with navigating the increasingly complex maze of charitable giving regulations. This new edition includes:
- Detailed documentation and citations, including references to regulations, rulings, cases, and tax literature
- An exhaustive index allowing for quick and easy reference
- Annual supplements to keep readers apprised of the latest developments affecting tax-exempt healthcare organizations
A completely updated guide to the laws and regulations governing charitable giving
This fully updated Fifth Edition of The Tax Law of Charitable Giving is the definitive resource for nonprofit lawyers, accountants, and fundraising professionals charged with navigating the increasingly complex maze of charitable giving regulations. This new edition includes:
- Detailed documentation and citations, including references to regulations, rulings, cases, and tax literature
- An exhaustive index allowing for quick and easy reference
- Annual supplements to keep readers apprised of the latest developments affecting tax-exempt healthcare organizations
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Overview
A completely updated guide to the laws and regulations governing charitable giving
This fully updated Fifth Edition of The Tax Law of Charitable Giving is the definitive resource for nonprofit lawyers, accountants, and fundraising professionals charged with navigating the increasingly complex maze of charitable giving regulations. This new edition includes:
- Detailed documentation and citations, including references to regulations, rulings, cases, and tax literature
- An exhaustive index allowing for quick and easy reference
- Annual supplements to keep readers apprised of the latest developments affecting tax-exempt healthcare organizations
Product Details
ISBN-13: | 9781118767665 |
---|---|
Publisher: | Wiley |
Publication date: | 07/02/2014 |
Series: | Wiley Nonprofit Authority |
Sold by: | JOHN WILEY & SONS |
Format: | eBook |
Pages: | 928 |
File size: | 2 MB |
About the Author
BRUCE R. HOPKINS is a senior partner with the firm Polsinelli PC. He is also the author of more than 35 books, including The Law of Tax-Exempt Organizations, Tenth Edition; The Law of Fundraising, Fifth Edition; Nonprofit Law for Colleges and Universities; Nonprofit Governance; and Nonprofit Law Made Easy, as well as the monthly newsletter Bruce R. Hopkins' Nonprofit Counsel, all published by Wiley.
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 & Sonsspecifically, 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 ofit seems rather immodest to say ita 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 existor 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 xv
Book Citations xxi
PART ONE Introduction to the Tax Law of Charitable Giving
1 Charitable Giving Law: Basic Concepts 3
1.1 Introduction to the Charitable Contribution Deduction 3
1.2 Defining Tax-Exempt Organizations 5
1.3 Principles of Charitable Organizations Law Philosophy 8
1.4 Statistical Profile of Charitable Sector 23
1.5 Categories of Tax-Exempt Organizations 28
2 The United States Tax System: An Overview 31
2.1 Concept of Income 33
2.2 Gross Income 34
2.3 Exclusions from Income 35
2.4 Concept of Adjusted Gross Income 36
2.5 Deductions 37
2.6 Standard Deduction 39
2.7 Concept of Taxable Income 39
2.8 Taxable and Nontaxable Entities 41
2.9 Annual Accounting Period 42
2.10 Accounting Methods 43
2.11 Timing 43
2.12 Property 44
2.13 Inventory 46
2.14 Gain 47
2.15 Taxation of Income 53
2.16 Capital Assets, Gains, and Losses 58
2.17 Carryovers and Carrybacks 60
2.18 Alternative Minimum Tax 61
2.19 Depreciation 64
2.20 Capital Gains and Losses Rates 65
2.21 Taxation of Corporate Distributions 65
2.22 Accumulated Earnings and Personal Holding Company Taxes 66
2.23 Tax Credits 66
2.24 Foreign Tax Credits 67
2.25 Federal Tax Law Definition of Marriage 67
PART TWO Basics of Charitable Giving Law
3 Fundamental Concepts 71
3.1 Meaning of Gift 71
3.2 Meaning of Donor 117
3.3 Meaning of Charitable Organization 119
3.4 Public Charities and Private Foundations 131
3.5 Unrelated Business Rules 146
3.6 Factors Affecting Income Tax Deductibility of Charitable Gifts 153
3.7 Charitable Organizations Listing Reliance Rules 155
3.8 Grantor Trust Rules 157
4 Gifts of Money and Property 161
4.1 Gifts of Money 161
4.2 Gifts of Property in General 162
4.3 Gifts of Long-Term Capital Gain Property in General 164
4.4 Gifts of Ordinary Income Property 165
4.5 Certain Gifts of Capital Gain Property 170
4.6 Gifts of Property for Unrelated Use 173
4.7 Variations in Applying Property Rules 177
4.8 Step Transaction Doctrine 178
4.9 Charitable Pledges 184
5 Fundamentals of Planned Giving 187
5.1 Introduction 188
5.2 Appreciated Property Gifts 188
5.3 Planned Gifts: Core Concepts 189
5.4 Charitable Remainder Trusts 191
5.5 Pooled Income Funds 199
5.6 Charitable Gift Annuities 207
5.7 Charitable Lead Trusts 208
5.8 Planned Giving: Other Forms 211
5.9 Planned Giving and Securities Laws 212
PART THREE Charitable Giving in General
6 Timing of Charitable Deductions 217
6.1 Gifts of Money in General 219
6.2 Gifts of Money by Check 219
6.3 Gifts of Money by Credit Card 222
6.4 Gifts of Money by Telephone 222
6.5 Gifts of Securities 223
6.6 Gifts of Copyright Interest 226
6.7 Gifts by Means of Notes 226
6.8 Gifts by Letters of Credit 227
6.9 Gifts of Property Subject to Option 227
6.10 Gifts of Stock Options 228
6.11 Gifts of Credit Card Rebates 230
6.12 Gifts of Tangible Personal Property 231
6.13 Gifts of Real Property 231
6.14 Gifts by C Corporations 232
6.15 Gifts by S Corporations 233
6.16 Gifts by Partnerships 234
6.17 Gifts by Means of Internet 237
7 Percentage Limitations 239
7.1 Introduction 240
7.2 Individual’s Contribution Base 243
7.3 Corporation’s Taxable Income 243
7.4 Percentage Limitations: An Overview 243
7.5 Fifty Percent Limitation 246
7.6 Thirty Percent Limitation for Gifts of Certain Property 253
7.7 Electable 50 Percent Limitation 257
7.8 General 30 Percent Limitation 263
7.9 Interplay of 50 Percent/Special 30 Percent Limitations 265
7.10 Interplay of 50 Percent/General 30 Percent Limitations 266
7.11 Interplay of Special 30 Percent/General 30 Percent Limitations 268
7.12 Twenty Percent Limitation 268
7.13 Gifts for the Use of Charity 270
7.14 Blending Percentage Limitations 270
7.15 Individuals’ Net Operating Loss Carryovers and Carrybacks 271
7.16 Rules for Spouses 275
7.17 Information Requirements 279
7.18 Percentage Limitation for Corporations 280
7.19 Corporations’ Net Operating Loss Carryovers and Carrybacks 283
8 Estate and Gift Tax Considerations 287
8.1 Introduction 287
8.2 Federal Gift Tax 289
8.3 Federal Estate Tax 301
8.4 Unification of Taxes 315
8.5 Generation-Skipping Transfer Tax 316
8.6 Remainder Interests 319
8.7 Ascertainability 329
9 Special Gift Situations 333
9.1 Works of Art 334
9.2 Gems 338
9.3 Inventory 340
9.4 Scientific Research Property 352
9.5 Computer Technology or Equipment 353
9.6 License to Use Patent 355
9.7 Conservation Property 357
9.8 S Corporation Stock 380
9.9 Section 306 Stock 389
9.10 Retirement Plan Accounts 391
9.11 Commodity Futures Contracts 401
9.12 Donors’ Creations 403
9.13 Charity Auctions 404
9.14 Services 411
9.15 Unreimbursed Expenses 412
9.16 Limitation on Deduction for Expenses Due to Pleasure 418
9.17 Automobile Expenses 422
9.18 Use of Property 422
9.19 Bargain Sales 423
9.20 Property Subject to Debt 429
9.21 Future Interests in Tangible Personal Property 433
9.22 Contributions by Trusts 436
9.23 Partial Interests 444
9.24 Taxidermy 447
9.25 Clothing and Household Items 448
9.26 Charitable Family Limited Partnerships 448
9.27 Motor and Other Vehicles 450
9.28 Intellectual Property 457
9.29 Foreign Tax Credit 462
9.30 Subsistence Whaling Expenses 462
9.31 Public Policy Considerations 463
10 Other Aspects of Deductible Giving 471
10.1 Valuation of Property 472
10.2 Contributions by Means of an Agent 496
10.3 Gifts for the Use of Charity 497
10.4 Conditional Gifts 499
10.5 Earmarking of Gifts for Individuals 505
10.6 Alternative Minimum Tax Considerations 508
10.7 Interrelationship with Business Expense Deduction 509
10.8 Denial of Deduction for Lobbying Activities 510
10.9 Deductible Gifts to Noncharitable Organizations 511
10.10 Reallocation of Deductions 516
10.11 Charitable Giving and Funding of Terrorism 517
10.12 Statute of Limitations 518
10.13 Concept of Trust Income 518
10.14 Penalties 521
10.15 Transactions of Interest 532
PART FOUR Planned Giving
11 Valuation of Partial Interests 541
11.1 Overview of Statutory Law 541
11.2 Standard Actuarial Factors 542
11.3 General Actuarial Valuations 544
11.4 Nonstandard Actuarial Factors 547
12 Charitable Remainder Trusts 551
12.1 Definitions 552
12.2 Charitable Remainder Annuity Trust Rules 566
12.3 Charitable Remainder Unitrust Rules 580
12.4 Issues 598
12.5 Tax Treatment of Distributions 615
12.6 Division of Charitable Remainder Trusts 627
12.7 Early Terminations of Charitable Remainder Trusts 631
12.8 Taxation of Charitable Remainder Trusts 633
12.9 Mandatory Provisions 636
12.10 Private Foundation Rules 637
12.11 Wealth Replacement Trusts 639
12.12 Calculation of Charitable Deduction 646
13 Pooled Income Funds 653
13.1 Definitions 654
13.2 Qualifying Pooled Income Funds 655
13.3 Allocation of Income 661
13.4 Recognition of Gain or Loss on Transfers 665
13.5 Mandatory Provisions 666
13.6 Private Foundation Rules 667
13.7 Pass-Through of Depreciation 668
13.8 Tax Status of Fund and Beneficiaries 669
13.9 Multiorganization Pooled Income Funds 670
13.10 Comparison with Charitable Remainder Trusts 674
13.11 Charitable Contribution Deduction 675
14 Charitable Gift Annuities 677
14.1 Contract as Vehicle Form 677
14.2 Tax Treatment to Donor 678
14.3 Deferred Payment Gift Annuities 679
14.4 Estate and Gift Tax Consequences 681
14.5 Unrelated Business Income Implications 681
14.6 Unrelated Debt-Financed Income Implications 682
14.7 Contrast with Other Planned Gift Methods 683
14.8 Gift Annuities and Antitrust Laws 684
14.9 Gift Annuities and Securities Laws 685
14.10 Charitable Contribution Deduction 685
15 Other Gifts of Remainder Interests 687
15.1 Overview 687
15.2 Contributions of Remainder Interests in Personal Residence or Farm 688
15.3 Undivided Portions of Entire Interests in Property 691
16 Charitable Lead Trusts 701
16.1 General Rules 701
16.2 Income Interest 702
16.3 Income Tax Charitable Deduction 704
16.4 Tax Treatment of Charitable Lead Trusts 705
16.5 Testamentary Use of Charitable Lead Trusts 707
16.6 Percentage Limitation Rules 708
16.7 Private Foundation Rules 709
16.8 Anti-Abuse Rule Concerning Income Interests 710
16.9 Charitable Income Trusts 713
16.10 Comparison with Charitable Remainder Trusts 713
16.11 Valuing Charitable Deduction 714
17 Gifts of and Using Life Insurance 715
17.1 Introduction 715
17.2 Life Insurance Concepts 716
17.3 Charitable Giving and Insurance 719
17.4 Insurable Interest 724
17.5 Unrelated Debt-Financed Income Considerations 727
17.6 Charitable Split-Dollar Insurance Plans 728
17.7 Applicable Insurance Contract Reporting Requirements 735
PART FIVE International Charitable Giving
18 International Giving by Individuals During Lifetime 739
18.1 Introduction 739
18.2 Background 740
18.3 Earmarking and Conduit Restrictions 743
18.4 Control Over Foreign Donees 747
18.5 Summary 749
18.6 Income Tax Treaties 750
19 International Giving by Individuals through Estates 753
19.1 Introduction 753
19.2 Estate Tax Rules 754
19.3 Gift Tax Rules 760
19.4 Charitable Giving by Noncitizen Nonresidents 760
20 International Giving by Corporations 763
20.1 Corporate Gifts to U.S. Charity for Overseas Use 763
20.2 Gifts of Money from Foreign Affiliate of U.S. Parent to Overseas Charity 764
20.3 Gift of Goods or Services to Benefit Foreign Charity 765
20.4 Grants of Funds from U.S. Corporation–Related Foundation to Foreign Charity 766
PART SIX Administration of Charitable Giving Programs
21 Substantiation and Appraisal Requirements 779
21.1 Introduction 779
21.2 Substantiation Requirements for Gifts of Money 780
21.3 Substantiation Requirements for Gifts of $250 or More 782
21.4 Substantiation Requirements for Noncash Gifts 792
21.5 Appraisal Requirements 795
21.6 Appraisals and Penalties 805
21.7 Appraisals of Clothing and Household Items 807
21.8 Burden of Proof Rules 807
22 Disclosure Requirements 809
22.1 Disclosure by Charitable Organizations in General 809
22.2 Quid Pro Quo Contribution Rules 814
22.3 Disclosure by Noncharitable Organizations 818
23 Special Events, Corporate Sponsorships, and Donor-Advised Funds 823
23.1 IRS Audit Guidelines 824
23.2 Special Events 828
23.3 Corporate Sponsorship Rules 830
23.4 Donor-Advised Funds 833
24 Reporting Requirements 841
24.1 Gift Reporting by Individuals 841
24.2 Gift Reporting by C Corporations 842
24.3 Gift Reporting by S Corporations 842
24.4 Gift Reporting by Partnerships 842
24.5 Gift Reporting by Donees in General 843
24.6 Gift Reporting in Unrelated Business Context 848
24.7 Reporting of Noncash Gifts in General 851
24.8 Reporting of Gifts of Vehicles 868
24.9 Reporting of Gifts of Intellectual Property 870
24.10 Reporting on Dispositions of Contributed Property 871
24.11 Personal Benefit Contract Reporting Requirements 874
24.12 Split-Interest Trust Filing Requirements 875
25 State Fundraising Regulation 877
25.1 State Regulation in General 877
25.2 Historical Perspective 878
25.3 States’ Police Power 880
25.4 Basic Definitions 881
25.5 Registration Requirements 882
25.6 Reporting Requirements 882
25.7 Exemptions from Regulation 883
25.8 Fundraising Cost Limitations 884