BCLP Charity Law

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Keep the change, ya filthy animal!

Keep the change, ya filthy animal!

December 1, 2011

Authored by: Nathan Boyce

In Home Alone 2, the villains from the first movie have inexplicably broken out of jail and end up in New York. Daniel Stern’s character, Marv, wraps his glove in tape, dips it in a holiday donation receptacle manned by a Santa Claus, and pulls it out covered with coins. 

Harry: That’s very smart, Marv. You bust outta jail to rob 14 cents from a Santa Claus?

Marv: Every little bit helps. Besides, now we’ve got our new nicknames: We’re the Sticky Bandits!

At this point in the movie, only the most prescient

Keeping Adequate Records for Charitable Donations

November 28, 2011

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When a taxpayer makes a charitable donation, he or she must maintain adequate records.  Without such records, the taxpayer is not entitled to a charitable deduction under Section 170 of the Internal Revenue Code.  This situation occurred in Joyce A. Linzy v. Commissioner because the taxpayer, who ironically owned and operated an income tax return preparation business, was unable to provide proper records.

The taxpayer made charitable contributions to Church 1 and Church 2 in 2007.  The contributions to Church 1 totaled $7,500 and were acknowledged by both a letter dated January 1, 2010 and copies of checks, all for amounts greater than $250.  The contributions to Church 2 were evidenced by a tithing statement dated January 1, 2010 which acknowledged that the taxpayer donated a total of $2,255 and included several copies of checks, some of which were for amounts less than $250.

For cash donations less than $250,

Qualified Appraisal Rules Strike Again

October 17, 2011

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In a recent decision, the Tax Court granted the IRS’s motion for partial summary judgement on the basis that the taxpayer’s appraisal for a non-cash charitable contribution did not satisfy the “qualified appraisal” rules.  Friedberg v. Comm., TC Memo 2011-238 (Oct 3, 2011).  Section 170(f)(11)(C) of the Code denies a charitable deduction for non-cash contributions in excess of $5,000 unless the taxpayer-donor obtains a qualified appraisal of the property and attaches to its return for the tax year of the contribution the information about the property and the appraisal as the IRS requires.   Unfortunately, denial of a charitable deduction for a contribution of valuable property to a charity for failure to satisfy the qualified appraisal and other IRS donation substantiation rules is a common occurrence. 

There are numerous cases and rulings denying the charitable deduction for failure to precisely comply with the IRS substantiation rules, including the qualified appraisal rules.   These cases may seem unfair to individual taxpayers, who are

Solicitation Disclosure

September 2, 2011

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Solicitation Disclosure

September 2, 2011

Authored by: Nathan Boyce

There are consequences to improperly representing that a donation is deductible. Generally, Section 6113 requires non-501(c)(3)s that are seeking donations to conspicuously disclose “that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes.’” A $1,000 fine is imposed up to $10,000 for the year for failure to include such language. For intentional failure, the daily fine is the greater of $1,000 or 50 percent of the aggregate cost of the offending solicitations–with no maximum for the year. To be clear, this is not advice for pending 501(c)(3)s–that’s another blog topic–but for others. For example, if my (c)(7) social club asked for donations for my kids’ psychological rehabilitation,

Donor-Advised Funds

Donor-Advised Funds

March 9, 2011

Authored by: Nathan Boyce

In general, a donor-advised fund exists when the following three criteria exist:

1. the fund is owned and controlled by a public charity; 2. the fund is separately identified by reference to contributions of a donor or donors 3. a donor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts from the fund

A key to the third point is that the public charity will consider the advice of the donor, but the public charity itself controls all distributions.

Donations Plus State Tax Credits = Full Deduction

February 16, 2011

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There are numerous programs available in various states where state tax credits are used as an incentive to encourage taxpayers to contribute money or property to a governmental or charitable entity.  For example, under one program, a taxpayer contributes $100 to a charity and is entitled to a state income tax credit of $50.    One issue that is often raised is whether the taxpayer is also entitled to a federal and state charitable income tax deduction.  In IRS Chief Counsel Advice 201105010, it was noted that the tax benefit of a charitable deduction is not regarded as a return benefit that negates a charitable deduction.  The IRS concluded that state tax credits should be treated the same.  Therefore, the taxpayer is entitled to a charitable deduction in the amount of the contribution, and is not reduced by the amount of the state tax credit.  This is helpful guidance.

What’s Your House Worth?

November 10, 2010

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What’s Your House Worth?

November 10, 2010

Authored by: Nathan Boyce

In Rolfs v. Commissioner, 135 T.C. No. 24, the taxpayers donated the lake house they had been living in to an exempt organization but were denied any charitable deduction.  The grounds for the denial were that the lake house’s value did not exceed the benefit the taxpayers received in return.  That return benefit was valued at $10,000.  The lake house was a “typical, albeit modest” lake house.  So, how in the world could you donate such a house and have it not be worth at least $10,000? 

Made a Charitable Pledge? Consider Satisfaction with Your IRA

September 13, 2010

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When charitable pledges come do, some donors scramble to find ways to satisfy the pledge without a negative impact to current cash flow.   A donor’s use of a private foundation to satisfy the pledge is often unattractive since such a transfer could result in self-dealing to the extent the donor’s pledge is considered a legally binding obligation under applicable state law.  However, a transfer from the donor’s IRA in satisfaction of the pledge may represent a viable alternative.  In an Information Letter released August 20, 2010, to Harvey Dale (a well-known tax professor), the IRS concluded that a taxpayer who satisfies a pledge by making a qualified charitable distribution from his or her IRA directly to a charitable organization would not include the distribution in gross income (citing Rev. Rul. 55-410, which provides that the satisfaction of a pledge by means of a donation of appreciated or depreciated property does not give rise to a taxable gain

Charities and Life Insurance – A Growing Trend?

Life insurance has always been an important part of charitable giving.  Although there are legitimate uses, over the years the IRS has identified certain abuses regarding the use of life insurance in charitable planning.  In our practice, we have seen a recent surge in charitable planning techniques involving life insurance.  Before your charity accepts a gift of life insurance, you should consider several issues, including the following:  (1) the application of Section 170(f)(10), the so-called “charitable split-dollar rules” (which, if applicable, impose an excise tax on the charity equal to 100% of the premium payments), (2) applicable state insurable interest laws, (3) private inurement, private benefit, and excess benefit rules, (4) unrelated business income rules (and debt-financed income rules, to the extent the life insurance was acquired with borrowed funds), (5) the partial interest rules (impacting both the income and gift tax deduction of the donor), (6) I.R.C. § 4944, the jeopardizing investment rules, and I.R.C. §