The Tax Law of Charitable Giving

BRUCE R. HOPKINS (Kansas City, MO) is a senior partner with the firm Polsinelli Shughart PC. He is also the author of more than 35 books, including The Law of Tax-Exempt Organizations, 10e, The Law of Fundraising, 4e, 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. Hopkins earned his Juris Doctorate and Master of Laws degrees at the George Washington University. He has practiced law for 40 years and is a member of the District of Columbia and Missouri bars. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, and Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007-2008.

Preface ix

About the Author xi

Book Citations xiii

Part One Introduction to the Tax Law of Charitable Giving 1

Chapter One Charitable Giving Law: Basic Concepts 3

§ 1.3 Principles of Charitable Organizations Law Philosophy 3

§ 1.4 Statistical Profile of Charitable Sector 3

Chapter Two The United States Tax System: An Overview 5

§ 2.5 Deductions 5

§ 2.6 Standard Deduction 6

§ 2.7 Concept of Taxable Income 7

§ 2.15 Taxation of Income 7

Part Two Basics of Charitable Giving Law 9

Chapter Three Fundamental Concepts 11

*§ 3.1 Meaning of Gift 11

§ 3.2 Meaning of Donor 17

§ 3.4 Public Charities and Private Foundations 18

§ 3.6 Factors Affecting Income Tax Deductibility of Charitable Gifts 21

§ 3.7 Charitable Organizations Listing Reliance Rules 21

Chapter Four Gifts of Money and Property 25

*§ 4.3 Gifts of Long-Term Capital Gain Property in General 25

*§ 4.4 Gifts of Ordinary Income Property 25

*§ 4.8 Step Transaction Doctrine 25

Chapter Five Fundamentals of Planned Giving 27

§ 5.5 Pooled Income Funds 27

Part Three Charitable Giving In General 29

Chapter Six Timing of Charitable Deductions 31

§ 6.13 Gifts of Real Property 31

§ 6.13A Gifts of Easements (New) 31

§ 6.15 Gifts by S Corporations 32

§ 6.16 Gifts by Partnerships 32

Chapter Seven Percentage Limitations 33

§ 7.2 Individual’s Contribution Base 33

§ 7.4 Percentage Limitations: An Overview 33

§ 7.4A Sixty Percent Limitation 34

§ 7.5 Fifty Percent Limitation 35

§ 7.12A Qualified Conservation Contributions 36

§ 7.12B Conservation Gifts by Farmers and Ranchers 37

Chapter Eight Estate and Gift Tax Considerations 41

*§ 8.2 Federal Gift Tax 41

*§ 8.4 Unification of Taxes 42

Chapter Nine Special Gift Situations 43

§ 9.3 Inventory 43

*§ 9.7 Conservation Property 44

§ 9.10 Retirement Plan Accounts 54

*§ 9.15 Unreimbursed Expenses 54

§ 9.19 Bargain Sales 55

§ 9.22 Contributions by Trusts 56

§ 9.22A Contributions by Estates 57

§ 9.23 Partial Interests 62

§ 9.25A College Seating Rights 62

*§ 9.31 Public Policy Considerations 63

Chapter Ten Other Aspects of Deductible Giving 65

§ 10.1 Valuation of Property 65

§ 10.4 Conditional Gifts 67

§ 10.7 Interrelationship with Business Expense Deduction 67

*§ 10.14 Penalties 68

*§ 10.15 Abusive Tax Transactions 70

Part Four Planned Giving 77

Chapter Eleven Valuation of Partial Interests 79

§ 11.3 General Actuarial Valuations 79

Chapter Twelve Charitable Remainder Trusts 81

§ 12.1 Definitions 81

*§ 12.2 Charitable Remainder Annuity Trust Rules 82

§ 12.3 Charitable Remainder Unitrust Rules 84

§ 12.4 Issues 84

§ 12.7 Early Terminations of Charitable Remainder Trusts 85

*§ 12.7A Basis in Disposition of Term Interest 86

*§ 12.8 Taxation of Charitable Remainder Trusts 87

§ 12.10 Private Foundation Rules 87

§ 12.12 Calculation of Charitable Deduction 88

§ 12.13 Regular Termination of Charitable Remainder Trusts 90

Chapter Thirteen Pooled Income Funds 93

*§ 13.5 Mandatory Provisions 93

§ 13.7 Pass-Through of Depreciation 93

Chapter Sixteen Charitable Lead Trusts 95

*§ 16.4 Tax Treatment of Charitable Lead Trusts 95

§ 16.5 Testamentary Use of Charitable Lead Trusts 95

*§ 16.7 Private Foundation Rules 96

Part Five International Charitable Giving 99

Chapter Eighteen International Giving by Individuals During Lifetime 101

*§ 18.4 Control over Foreign Donees 101

PART SIX ADMINISTRATION OF CHARITABLE GIVING PROGRAMS 103

Chapter Twenty-One Substantiation and Appraisal Requirements 105

*§ 21.1 Introduction 105

*§ 21.2 Record-Keeping Requirements for Gifts of Money 106

*§ 21.2A Substantiation Requirement for Conservation Contributions 107

*§ 21.3 Substantiation Requirements for Gifts of $250 or More 107

*§ 21.4 Substantiation Requirements for Noncash Gifts 114

*§ 21.5 Appraisal Requirements 117

*§ 21.7 Rules as to Clothing and Household Items 121

*§ 21.7A Substantiation Requirements for Gifts to Donor-Advised Funds 121

§ 21.8 Burden of Proof Rules 121

Chapter Twenty-Three Special Events, Corporate Sponsorships, and Donor-Advised Funds 123

*§ 23.4 Donor-Advised Funds 123

Part Seven Appendices 135

Appendix H Monthly Federal Interest Rates Used in Valuing Partial Interests (IRC § 7520) 137

Appendix I Deemed Rates of Return for Transfers to New Pooled Income Funds 145

Part Eight Tables 147

Cumulative Table of Cases 149

Cumulative Table of IRS Revenue Rulings and Revenue Procedures 163

Cumulative Table of IRS Private Determinations Cited in Text 167

Cumulative Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda 171

Cumulative Table of Cases Discussed in Bruce R. Hopkins’ Nonprofit Counsel 181

Cumulative Table of IRS Revenue Rulings Discussed in Bruce R. Hopkins’ Nonprofit Counsel 187

Cumulative Table of Private Letter Rulings and Technical Advice Memoranda Discussed in Bruce R. Hopkins’ Nonprofit Counsel 189

About the Online Resources 191

Cumulative Index 193