Chapter 9 - Charitable Giving

Question 1

Define Capital Gain Property

Answer 1

Property that, when sold, results in either capital gain or Section 1231 gain.

Question 2

Define Charitable Lead Trust (CLT)

Answer 2

A trust in which a charitable organization receives the income interest and a non-charitable beneficiary (usually a family member) receives the remainder interest.

Question 3

Define Charitable Remainder Annuity Trust (CRAT)

Answer 3

A trust that provides a fixed annuity to the donor (usually for life) for an amount that is great than or equal to 5% of the initial net FMV of the property contributed to the trust. The remainder interest of the trust passes to the named charitable organization.

Question 4

Define Net Income with Makeup Charitable Remainder Trust (NIMCRUT)

Answer 4

A CRUT that requires that a fixed percentage (min 5%) of the annual value of the trust assets be credited to the income beneficiary, or if less, the net income of the trust for that year, with any deficiencies to be made up in later years when the trust income exceeds the required set percentage amounts for such years.

Question 5

Define Ordinary Income Property

Answer 5

Property that, when sold, results in recognition of ordinary income.

Question 6

Define Pooled Income Funds

Answer 6

Donor contributions are pooled in a trust created and maintained by the charity. Each donor receives an allocable share of the income from the trust for his life.

Question 7

Define Private Foundation

Answer 7

A charitable organization that receives its support from a single individual or family. It can be either a private operating or a private non-operating foundation.

Question 8

Define Private Non-operating Foundation

Answer 8

A charitable organization that does NOT spend at least 85% of it’s adjusted net income on activities engaged in for the active conduct of the exempt purpose.

Question 9

Define Private Operating Foundation

Answer 9

A charitable organization that spends AT LEAST 85% of it’s adjusted net income on activities engaged in for the active conduct of the exempt purpose.

Question 10

Define Public Charities

Answer 10

Charitable organizations that receive broad support from the general public.

Question 11

Define Sprinkling Provision

Answer 11

The trustee’s right to make distributions to the trust beneficiaries at his discretion.

Question 12

Define Tangible Property

Answer 12

Property that is not realty and may be touched.

Question 13

How are bequests made at death to qualified charitable organizations treated?

Answer 13

They are deducted from the decedent’s adjust gross estate to arrive at the taxable estate.

Question 14

If an organization tells you that your contribution is tax deductible when, in fact, it is not, can you still take a deduction?

Answer 14

No. The burden is on the taxpayer to verify a qualifying organization’s charitable status.

Question 15

What are the 2 tests that a organization must meet to be considered a public charity?

Answer 15

Test 1: More than 1/3 of the organization’s support must be from a combination of gifts, grants, contributions, membership fees, and gross receipts from sales in an activity which is related .
Test 2: Requires that no more than 1/3 of an organization’s support can come from the sum of gross investment income plus unrelated business receipts.

Question 16

What are the limitations for cash contributions made during life?(3)

Answer 16

1. Value of any cash contribution is decreased by any tangible benefit received by the donor
2. Cash contributions to colleges and universities where the donor receives the right to purchase athletics event tickets are limited to 80% of the original contribution
3. If taxpayer receives a low value item w/ the organization’s name or logo on it, the contribution is fully deductible

Question 17

How are gifts of services treated?

Answer 17

When donating services, only the unreimbursed out-of-pocket expenses directly connected with services are deductible. Not the “value” of any services themselves.

Question 18

What are 4 examples of out-of-pocket deductible expenses?

Answer 18

Car expenses
Support for foster children in excess of payment received
Travel and transportation expenses in connection with attending a convention on behalf of a qualified organization.
Uniforms required to be worn while performing charitable services.

Question 19

How are gifts of property treated?

Answer 19

Deduction for property is the FMV of the property at date of contribution, subject to AGI limitations

Question 20

What is Ordinary Income Property and how is it treated for deduction purposes?

Answer 20

Property, if sold, would result in recognition of ordinary income. Deductible amount is adjusted basis in property, unless the FMV is less that the adjusted basis, then FMV.

Question 21

What is Capital Gain Property and how is it treated for deduction purposes?

Answer 21

Property, if sold, would result in a capital gain or section 1231 gain. Deduction is equal to FMV if it is not included in 2 exceptions.

Question 22

What are the 2 exceptions for Capital Gain Property not being equal to FMV for deduction purposes?

Answer 22

1) When capital gain property is donated to a private operating foundation, deduction is limited to the adjusted basis - the lesser of 20% of AGI or 50% of AGI minus any other contributions.
2) Donations of tangible property put to an unrelated use - Lesser of FMV or Adj Basis