Chapter 11 p.631
§170 income tax charitable deduction issues:
1) Is the recipient eligible to receive a tax deductible charitable contribution? §170(c).
2) Does percentage limitation apply to deduction amount (a “cap,” i.e., not a “floor”)? §170(b).
3) What is the type of donated property; what special deduction limitations are applicable?
4) What is the specific type of eligible charitable donee? E.g, §§170(e) & (f).
Percentage limits on the charitable contributions deduction:
1) 50% of the “contributions base” when public charities are recipients. §170(b)(1)(A).
30% (or a lesser percentage) when
contribution is to a “private foundation.”
3) Corporations -10% of taxable income limit?
These limits are “ceilings” and not “floors.” No “floor” is applicable to the charitable contributions deduction (cf., casualty loss).
Charitable Contribution Deduction – Appropriate?
Is the charitable contribution really a consumption item for FIT purposes?
Is the charitable contribution deduction a substitute for direct government support?
Other reasons to support charitable contributions deduction?
- To circumvent U.S. Constitutional concerns?
- To facilitate wealth distribution?
A tax expenditure item? See chart (p. 536-7).
Regan v. TWR p.631
IRS determines whether an organization is entitled to §501(c)(3) tax-exempt status.
Should an organization be permitted §501(c)(3) status if it attempts to influence legislation?
Does denial of status violate the 1st Amendment?
Decision by U.S. Congress to not facilitate lobbying by a tax-exempt §501(c)(3) entity.
Not violating the “equal protection” clause to enable tax-exempt Vet organizations to lobby.
Option: Use a §501(c)(4) organization.
§501(c)(4) Entity p.637
Restrictions on §501(c)(4) org. – to be for promotion of common good & general welfare.
No prohibition on campaign activities but not permitting supporting individual candidates.
Note scandal re IRS applications for tax-exempt status by Tea Party affiliated organizations.
Note (1) proposed Reg. limit on “candidate-related political activity” & (2) H.R. 3865, the “Stop Targeting of Political Beliefs by the IRS Act of 2014.”
Bob Jones University
Public Policy Limit p.638
Can BJ University be denied tax-exempt, charitable (educational) status as being racist”?
Entity’s charitable tax-exempt status is determined under §501(c)(3) (not §170(c)).
But, the charity must not be engaged in illegal activities or violate established “public policy.”
Does non-exempt federal tax status for BJ Univ. affect all taxpayers as its contributors?
Held: BJ’s “sincerely held religious beliefs” do not supersede the overriding national public policy interest (in § 501(c)(3)).
Unrelated Business Taxable Income p.655
U.S. v. American Bar Endowment – does group insurance income derived from members of the association by this §501(c)(3) org. constitute unrelated business taxable income (UBTI)? See Code §§ 511-513.
Held: ABE activities are equivalent to commercial activities. Are dividends received by ABE equivalent to “profits”? Here dividends required to be assigned by members to ABE as a condition for participation in insurance. continued
Unrelated Business Income, cont. p.655
Dividends were profits and dividends were required to be assigned to ABE as a condition of participating in the insurance program.
Potential for unfair competition exists here.
Part III (p. 661) – Was a charitable contribution deduction available for the excess of premium payments over the cost of insurance to ABE?
Inadequate proof here as to whether insurance was cheaper than at other sources (and the differential was a charitable contribution).
What is a Contribution? p.664
Dowell v. United States “Sponsorship gift” to Oral Roberts Evangelistic Assn. to get access (?) to living in OR subsidiary retirement center.
Assertion that a “gift” was not required as a condition for admission to residency. These funds to be used for capital improvements. Separate monthly payments for current services.
Held: Charitable gift (donative intent) & not a payment for services.
Affd: FRCP Rule 52(a) (clearly erroneous rule).
Disallowance of a charitable contribution deduction for amounts paid by members of the Church of Scientology for “auditing sessions.”
Based on its religious “doctrine of exchange.”
In litigation IRS stipulated that Scientology is a bona fide religious org. - but a benefit received.
O’Connor dissent: what about pew rents, payments for Catholic masses, and attendance fees for Jewish High Holy days?
Note: Later IRS settlement with Scientology.
Charitable Gifts with Benefits Received
Ottawa Silica Co. (not in casebook) – cf. Dowell
Land developer gives land parcel to school district to build a school (and adjoining roads).
Claimed a charitable deduction for the transfer.
Any benefits received by the donor in response to gift? Holding a “quid pro quo” was received.
The remaining property received substantial benefits. Result: No charitable tax deduction.
Spread the tax basis for the donated land over the remaining property. Tax benefit is deferred.
Quid Pro Quo Arrangements
How measure the value of the benefit received by the donor? The fair market value of the item as received by the donor.
See §6115 re a statement to be provided to the donor re value of “goods or services” provided.
What about a charitable gift to build a building and receiving accompanying “naming rights”?
Any reduction of the charitable deduction required for the quid pro quo element when “psychic” benefits are provided ?
Contributions to College Athletic Programs P.670
§170(l) limits the deduction to 80% of the amount contributed when taxpayer also receives a right to purchase tickets to athletic events. Relevant to UT and LSU football game tickets? Other schools? Is 80% too high? Cf., 2017 Obama tax proposal.
For tax historians (junkies?): Remembering the prelude to §170(l) and the antics of then U.S. Senators Long (Louisiana) and Bentsen (Texas) in this context (after IRS audits were initiated) – enactment of a “non-Code” deduction provision.
Appreciated Property Hilla Rebay p.670
Gifts made of self-created paintings with significant valuations to various public charities.
Held: Excessive valuations; on tax audit significantly reduced to values determined by IRS (supported by IRS valuation experts).
Note the attempt to “bootstrap” value by a sale of a painting to a friend for an excessive price.
Query: Is this the right tax approach for a self-created painting? What about the value in the paintings above tax basis - §61 inclusion?
Contributions of Capital Gain Property p.673
§170(e) provides limitations on the deduction for contributions of (1) ordinary income property and (2) certain capital gain property.
- Ordinary income property (e.g., wages)?
- Tangible personal property (but, what if for “use” by the specific charitable recipient?)
- Private charitable foundation as the recipient.
Cf., intangible property (e.g., publicly traded stock) donated to a public charity (&, also, to a private charitable foundation; see §170(e)(5)).
Possible Recapture of the §170 Deduction p.674
§170(e)(1)(B)(i)(II) limits deduction to basis for contribution of tangible personal property when (1) sold by donee before the end of the year and (2) no certification re use of property by donee.
§170(e)(7) requires recapture of deduction in excess of basis if property is sold by charitable donee within three years unless a certification is provided re use by charitable donee.
Purpose of this limitation: Treat charity as the agent of donor for selling appreciated property?
Substantiation Requirements p.674
§170(f)(8) – Substantiation requirements mandate a written acknowledgement when the gift is over $250. Must be contemporaneous.
Including for cash & checks: §170(f)(17).
Must include information that no goods or services were provided to the donor as a “quid pro quo.”
Substantiation, continued p.674
If goods or services are provided the donee organization must estimate the value (unless they consist solely of “intangible religious benefits”).
Qualified appraisal is required for $5,000+ contributions. §170(f)(11)(C).
And more than $500,000 - §170(f)(11)(D).
Motor vehicles & boats, etc. - §170(f)(12)
Clothing - §170(f)(16).
Charities & Private Inurement
Reg. §1.501(c)(3) – charitable organization’s activities are to be consistent with public policy.
What about private inurement from the charity to individuals as violating the public purpose?
E.g., consider very high salaries to the employees of the charity (e.g., children), or some other significant beneficial economic arrangements (e.g., automobiles).
Cf., §501(c)(3) org. appeal for contributions & fundraisers take large percentage of proceeds.
Charitable Trusts p.674
1) Charitable lead trust – §170(f)(2)(B). For
deductibility, must provide a guaranteed annuity or fixed percentage. Objective of this provision? No deduction & no income; alternative: deduction but income inclusion.
2) Charitable remainder trust - §170(f)(2)(A) & §664. For deductibility the format of gift must be: (a) a charitable remainder annuity trust (CRAT), or, (b) a charitable remainder unitrust (CRUT). What is objective of this requirement?
Fractional Interests in Property p. 675
1) Real estate and gift of a tenancy in common.
2) Fractional (vertical) interest in a painting (e.g., 50% tenancy in common). §170(o) limit.
3) Remainder - Personal residence or a farm. §170(f)(3)(B)(i).
4) Gift of a conservation easement – see §170(h).
5) Remainder (horizontal) interest in tangible personal property. §170(a)(3) limitation. Do “paintings have legs”?
Charitable Gift of Services p. 675
Any charitable deduction for gift of (volunteer) services to a charity?
What if a deflection occurs of an amount to a charitable organization which would have been compensation? E.g, an entertainer performs free at a charitable fundraiser event. Cf., §74(b).
What about a (rare) blood donation?
Mileage for the use of a passenger automobile - 14¢ per mile. §170(i). Certainly a low mileage allowance - why?