Estates Ch 9 Charitable Giving Flashcards
Gifts of services are fully deductible for the person performing the service.
a. True b. False
False
If an individual sells property to a charity at a bargain price, the individual will have a part sale and a part charitable contribution.
a. True b. False
True
The donor of unencumbered property in exchange for a charitable gift annuity receives an income tax deduction equal to the difference between the value of the annuity and the value of the property contributed for the annuity.
a. True b. False
True
An individual may choose to gift a life insurance policy to a charity.
a. True b. False
True
Charitable bequests in a will do not produce any income tax benefits. a. True b. False
True
A pooled income fund is analogous to a mutual fund provided by a charity.
a. True b. False
True
A CRAT provides an annuity to the grantor for a term defined by the grantor.
a. True b. False
True
A CLAT provides an annuity to a charity for a term defined by the grantor.
a. True b. False
True
A bequest to a charitable organization based on a contingency is not eligible for the charitable deduction.
a. True b. False
True
Terrence contributed $15,000 to a foreign charitable organization. At the time of the contribution, the organization told him that his contribution was tax deductible for income tax purposes.
Ignoring any income limitations, how much of the $15,000 contribution is deductible?
a. $0.
b. $7,500.
c. $10,000.
d. $15,000.
The correct answer is a.
Foreign charitable organizations are not qualified charitable organizations and therefore contributions to such organizations do not qualify for a charitable deduction. It is always the responsibility of the donor to determine the deductible status of their contribution.
The Organization to Prevent Cruelty to Animals receives contributions from the general public to fund programs to prevent cruelty to animals. Of its total support during the year, 75% of the funds are from contributions from supporting individuals.
What type of charity is The Organization to Prevent Cruelty to Animals?
a. Public Charity.
b. Private Foundation.
c. Private Operating Foundation.
d. Public Non-Operating Charity.
The correct answer is a.
To be classified as a public charity, more than 33% 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 not an unrelated trade or business.
Also, to be a public charity, not more than 33% of an
organization’s support can come from the sum of gross investment income plus unrelated business taxable income. Because the information provided tells us that 75% of the organization’s support is from individual contributions,
The Organization to Prevent Cruelty to Animals passes the first requirement to be classified as a public charity, and the organization must pass the second requirement because we know less than 33% of the contributions are derived from investment income and unrelated business taxable income
Janel cooks and delivers meals for the homeless and the elderly at Thanksgiving. Janel spends $200 on food, she drives 300 miles, and she spends 15 hours of her time (valued at $10/hour) completing the charitable service each year.
Of these expenses, how much will Janel deduct on her income tax return for the year?
a. $0.
b. $200.
c. $242.
d. $392.
The correct answer is c.
Only the actual money spent on the food and the mileage are deductible expenses.
The mileage is deductible at $0.14/mile. The value of Janel’s services are not deductible. So, the total deduction for Janel’s income tax return is $242 ($200 + 300(0.14))
Which of the following statements regarding life insurance is true?
]
a. When an individual designates a charitable organization as the beneficiary of their life insurance policy, the individual can deduct the face value of the policy as a charitable contribution on their income tax return.
b. If an individual designates a charitable organization as the beneficiary of their life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in their gross estate.
c. If an individual designates a charitable organization as the beneficiary of their life insurance policy, and then dies without changing the beneficiary designation, the death proceeds of the life insurance policy will be included in their taxable estate.
d. Transferring ownership of a life insurance policy to a charitable organization does not qualify for an income tax charitable deduction.
The correct answer is b.
Option b is a correct statement.
Option a is incorrect as only a transfer of the ownership of a life
insurance policy qualifies as a charitable deduction. A simple beneficiary designation will not create a
charitable deduction.
Option c is incorrect as the life insurance death benefit will be included in the gross
estate, but if the decedent dies and the charitable organization is the listed beneficiary, the estate will
receive a deduction from the adjusted gross estate to arrive at the taxable estate.
Option d is incorrect
because a transfer of the ownership of a life insurance policy to a charitable organization will qualify for
an income tax charitable deduction.
Four years ago, Winston created a charitable remainder trust with himself as the income beneficiary and a qualified charity as the remainder beneficiary. In the current year, Winston would like to make an additional contribution to the trust. Which of the following charitable trusts would allow Winston to make an additional contribution during the year?
a. CRAT.
b. CRUT.
c. CRET.
d. CRIT.
The correct answer is b.
Only a CRUT allows additional contributions
. A CRAT does not allow additional contributions.
A CRET and CRIT do not exist.
he Organization to Prevent Cruelty to Animals receives contributions from the general public to fund programs to prevent cruelty to animals. Of its total support during the year, 75% of the funds are from contributions from supporting individuals.
What type of charity is The Organization to Prevent Cruelty to Animals?
Public Charity.
Private Foundation.
Private Operating Foundation.
Public Nonoperating Charity.
Public Charity.
Rationale
To be classified as a public charity, more than 33% 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 not an unrelated trade or business.
Also, to be a public charity, not more than 33% of an organization’s support can come from the sum of gross investment income plus unrelated business taxable income. Because the information provided tells us that 75% of the organization’s support is from individual contributions, The Organization to Prevent Cruelty to Animals passes the first requirement to be classified as a public charity, and the organization must pass the second requirement because we know less than 33% of the contributions are derived from investment income and unrelated business taxable income.
Terrence contributed $15,000 to a foreign charitable organization. At the time of the contribution, the organization told him that his contribution was tax deductible for income tax purposes. Ignoring any income limitations, how much of the $15,000 contribution is deductible?
$0.
$7,500.
$10,000.
$15,000.
$0.
Rationale
Foreign charitable organizations are not qualified charitable organizations and therefore contributions to such organizations do not qualify for a charitable deduction. It is always the responsibility of the donee to determine the deductible status of their contribution.
Stella contributed $100 to the United Way and $300 to the Church of Good People. Which of the following statements concerning her contribution to the charitable organizations is correct?
Stella must file IRS Form 8283.
Both the United Way and the Church of Good People are required to send a confirmation of the contribution to Stella.
Only the United Way is required to send a confirmation of the contribution to Stella.
Only the Church of Good People is required to send a confirmation of the contribution to Stella.
Only the Church of Good People is required to send a confirmation of the contribution to Stella.
Rationale
Only when a contribution totals more than $250 is the organization required to provide the donor with a written statement of acknowledgement. So, only the Church of Good People would be required to provide this statement. Form 8283 is only filed when the total of non-cash contributions exceeds $500.
Which of the following contributions would require the taxpayer to obtain a Statement of Value from the IRS?
The taxpayer is never required to obtain a Statement of Value.
Taxpayer donates art work valued at $150,000 to a private nonoperating foundation.
Taxpayer donates art work valued at $10,000 to a public charity.
Taxpayer donates art work valued at $15,000 to a public charity.
The taxpayer is never required to obtain a Statement of Value.
Rationale
A taxpayer is never required to obtain a Statement of Value from the IRS. The taxpayer may obtain a Statement of Value from the IRS if the art work is valued at $50,000 or more.
Which of the following statements concerning a pooled income fund is correct?
A pooled income fund is created for each individual.
The pooled income fund is managed by its contributors.
Pooled income funds invest strictly in tax-exempt securities.
The income of a pooled income fund is paid to the contributors
The income of a pooled income fund is paid to the contributors.
Rationale
Option d is a correct statement. Option a is incorrect as a pooled income fund is created by the contributions of many individuals whose funds are commingled. Option b is incorrect because the pooled income fund is managed by the charity for whom it will benefit. Option c is incorrect because pooled income funds are not allowed to invest in tax-exempt securities.
Which of the following statements regarding life insurance is true?
When an individual designates a charitable organization as the beneficiary of his or her life insurance policy, the individual can deduct the face value of the policy as a charitable contribution on his or her income tax return.
If an individual designates a charitable organization as the beneficiary of his or her life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in his or her gross estate.
If an individual designates a charitable organization as the beneficiary of his or her life insurance policy, and then dies without changing the beneficiary designation, the death proceeds of the life insurance policy will be included in his or her taxable estate.
Transferring ownership of a life insurance policy to a charitable organization does not qualify for an income tax charitable deduction.
If an individual designates a charitable organization as the beneficiary of his or her life insurance policy, but retains the right to change the beneficiary designation, the death proceeds of the life insurance policy will be included in his or her gross estate.
Rationale
Option b is a correct statement. Option a is incorrect as only a transfer of the ownership of a life insurance policy qualifies as a charitable deduction. A simple beneficiary designation will not create a charitable deduction. Option c is incorrect as the life insurance death benefit will be included in the gross estate, but if the decedent dies and the charitable organization is the listed beneficiary, the estate will receive a deduction from the gross estate to arrive at the taxable estate. Option d is incorrect because a transfer of the ownership of a life insurance policy to a charitable organization will qualify for an income tax charitable deduction
Four years ago, Winston created a charitable remainder trust with himself as the income beneficiary and a qualified charity as the remainder beneficiary. In the current year, Winston would like to make an additional contribution to the trust.
Which of the following charitable trusts would allow Winston to make an additional contribution during the year?
CRAT.
CRUT.
CRET.
CRIT.
CRUT.
Rationale
Only a CRUT allows additional contributions. A CRAT does not allow additional contributions. A CRET and CRIT do not exist
Which of the following is not an issue when considering whether to deduct the adjusted basis or the fair market value of contributed property?
The current market rate of interest.
The donor’s current and projected adjusted gross income for the 5 years after the contribution.
The fair market value of the donated property.
The capital gains rate in effect at the time of the transfer.
The capital gains rate in effect at the time of the transfer.
Rationale
Option d is not an issue when deciding whether to deduct the adjusted basis or the fair market value since the transfer generally does not create a capital gain.
All of the other options are issues to consider.
The current market rate of interest impacts the time value of money, which is an issue that should be considered.
Valentina transfers property to a revocable trust naming herself as the income beneficiary and the United Way as the remainder beneficiary.
What type of trust has Valentina created?
Revocable living trust.
CRAT.
CRUT.
Pooled income fund.
Revocable living trust.
Rationale
To be a CRAT, CRUT or pooled income fund, the trust would have to be irrevocable. Since it is a revocable trust, it must be a revocable living trust.
Which of the following statements is not correct?
An organization that spends less than 85% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a public charity.
Public charities receive broad support from the general public.
An organization that is not a public charity and spends 90% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a private operating foundation.
A public charity can receive up to 33% of its support from its gross investment income and its unrelated business taxable income.
An organization that spends less than 85% of its adjusted net income on activities engaged in for the active conduct of its exempt purpose is a public charity.
Rationale
Option a describes a private non-operating foundation not a public charity. All of the other statements are true.
Which of the following does not qualify as a charitable organization?
The state of Kentucky.
The city of Los Angeles.
A cemetery company organized to maintain cemetery plots in a county.
Republican National Committee.
Republican National Committee.
Rationale
Political organizations are not qualifying charitable organizations. The other options are considered qualified charitable organizations. Section 170(c) defines which organizations will qualify for charitable status. They include:
- a State, a possession of the United States, or any political subdivision;
- a corporation, trust or community chest, fund or foundation that is organized in the U.S. and is operated exclusively for religious, charitable scientific, literary or educational purposes, fostering national or international amateur sports competition, or prevention of cruelty to animals;
- a post or organization of war veterans organized in the U.S.;
- a domestic fraternal society, order or association, operating under the lodge system, but only if the contribution is to be used for the purposes listed above;
- a cemetery company.
Brock transfers $100,000 of stock to a charitable organization in return for a life annuity on his life valued at $43,000.
With regards to this transfer, how much is Brock’s charitable deduction?
$0.
$43,000.
$57,000.
$100,000.
$57,000.
Rationale
When an individual transfers property in exchange for a charitable annuity, the value of the property less the value of the retained annuity interest is the value of the charitable deduction. In this case, $100,000 - $43,000 = $57,000.
Natalia and Lyoto paid $400 for two tickets to the United Church’s annual gala ball. The church determined that the fair market value of each ticket was $100.
How much can Natalia and Lyoto deduct on their income tax return?
$0.
$100.
$200.
$400.
$200.
Rationale
The value of any tangible benefit received in return for a contribution is not deductible. In this case, Natalia and Lyoto paid $400 for two tickets and received $200 ($100/ticket) in benefit. The difference, $200 ($400-$200), is deductible on their income tax return
Which of the following assets is most likely found in a wealth replacement trust?
A personal residence.
Investment securities.
Personal use assets.
Permanent life insurance
Permanent life insurance.
Rationale
A wealth replacement trust is commonly used to replace assets donated to charities such as to a CRAT or CRUT. Such donations disenfranchises the normal heirs. If the donor wants to essentially make it up to the heir, he or she creates an ILIT to purchase permanent life insurance to replace the asset lost to the heirs by the charitable donation. Often, the donor uses the cash value of the charitable income tax deduction to purchase the life insurance. ILITs are also generally set up to avoid estate tax.
Which of the following statements is not true?
A charitable gift during life can reduce estate taxes.
A charitable gift during life can reduce income taxes.
Only a full, outright donation of property will qualify as a deductible charitable contribution.
The donor of a charitable gift may be required to file a gift tax return including the charitable contribution.
Only a full, outright donation of property will qualify as a deductible charitable contribution.
Rationale
A donor can transfer an interest in property, other than the full, outright ownership, and receive a charitable deduction. All of the other statements are true statements. Option d is a true statement because the donor of a charitable contribution will have to file a gift tax return and include the charitable transfer if the contribution is a split interest gift, or if the donor made other taxable gifts during the year.
Maggie contributed $10,000 to a private non-operating foundation that has never made any distributions. Maggie also contributed $15,000 to a private operating foundation. Maggie’s AGI for the tax year was $100,000.
What is Maggie’s charitable contribution
deduction for the year?
$10,500.
$25,000.
$50,000.
$100,000.
$25,000.
Rationale
The contribution of the $10,000 to the nonoperating foundation is subject to a 30% AGI limitation, and the contribution to the private operating foundation is subject to a 60% AGI limitation.
Neither of the limitation amounts is an issue as the total of the contributions does not exceed either limit. In this case, the total charitable contribution is $25,000, the sum of both contributions.
Rashad graduated from the University of Pittsburgh. Each year, season tickets are sold only to those who make a contribution to the university of $1,000 or more. If Rashad contributes $1,000, so that he meets the requirements to purchase season tickets, how much is his deductible contribution for the year?
$0.
$500.
$900.
$1,000.
$0.
Rationale
For a contribution to a university where the donor receives the right to purchase tickets to athletic events, none of the contribution is allowed as a charitable contribution.
Kimbo irrevocably transfers property to a trust over which he retains an annuity payment each year equal to 6% of the initial fair market value of the property transferred to the trust. Kimbo designates the United Way as the remainder beneficiary.
Which of the following statements concerning this transfer is true?
Kimbo can make an additional contribution to the trust in subsequent years.
Kimbo must inform the United Way of their right to the remainder of the trust’s assets.
Kimbo will receive an income tax charitable deduction on his income tax return for the year in which the trust is formed.
The United Way can force Kimbo to transfer the present value of their interest to them immediately.
Kimbo will receive an income tax charitable deduction on his income tax return for the year in which the trust is formed.
Rationale
At the creation of a CRAT, Kimbo will receive an income tax charitable deduction on his income tax return for the year in which the trust is formed. Option a is incorrect because a CRAT does not allow subsequent contributions after creation. Options b and d are incorrect as the United Way does not have to be informed of their right to receive the remainder interest and they have do not have a right to force the payment of their interest.
Chael donated one of his original creation paintings to his alma mater, Backwoods University. His adjusted basis in the artwork was $400 and the fair market value was $150. Chael also contributed 100 shares of XYZ corporation that had an adjusted basis of $50 and a fair market value equal to $1,000 (held long-term).
Ignoring the AGI limitations, what is the maximum amount Chael can deduct in relation to these donations?
$200.
$1,150.
$1,300.
$1,400.
$1,150.
Rationale
The painting has a fair market value less than its adjusted basis, and is considered ordinary income property. When the fair market value is less than the adjusted basis, a contribution of ordinary income property is limited to the fair market value ($150). Because Chael created the painting, we do not have to worry about the related use test. The contribution of stock is a contribution of capital gain property and the deductible amount is equal to the fair market value of the stock ($1,000). The total of both items, and the deduction for the year, equals $1,150.
Janel cooks and delivers meals for the homeless and the elderly at Thanksgiving. Janel spends $200 on food, she drives 300 miles, and she spends 15 hours of her time (valued at $10/hour) completing the charitable service each year.
Of these expenses, how much will Janel deduct on her income tax return for the year?
$0.
$200.
$242.
$392.
$242.
Rationale
Only the actual money spent on the food and the mileage are deductible expenses. The mileage is deductible at $0.14/mile. The value of Janel’s services are not deductible. So, the total deduction for Janel’s income tax return is $242 ($200 + 300(0.14)).
Quinton sold a parcel of land to a qualified charitable organization for $10,000. The parcel of land had a fair market value of $100,000 and an adjusted basis of $50,000. What taxable gain must Quinton recognize at the time of the contribution?
$0.
$5,000.
$50,000.
$90,000.
$5,000.
Rationale
Because Quinton sold the property at 10% ($10,000/$100,000) of its fair market value, 10% of its adjusted basis offsets the sales proceeds. The capital gain is $5,000, $10,000 - $5,000 = $5,000.
which charitable trust allows the donor to make an additional contribution during the year?
A.Revocable Living Trust B.CRAT C.CLT D.CRUT
The correct answer is D. CRUT
A donor wants to create a revocable trust, naming the donor as the income beneficiary and a charity as the remainder beneficiary. Which type of trust is appropriate?
A.Revocable Living Trust B.CRAT C.CLT D.CRUT
Solution: The correct answer is A.
A charity receives the income and the remainder is left to a non charity.
A.Revocable Living Trust B.CRAT C.CLT D.CRUT
Solution: The correct answer is C. CLT
This trust pays a fixed annuity to the donor based on the initial fair market value of the trust.
A.Revocable Living Trust B.CRAT C.CLT D.CRUT
B.CRAT
Match the following descriptions with the correct order of trusts:
Allows naming donor as income beneficiary and charity as remainder beneficiary.
Trust pays fixed annuity to donor based on the initial fair market value of trust
Charity receives the income and the remainder is left to a non charity
Allows the donor to make an additional contribution during the year
A.Revocable Living Trust, CRUT, CRAT, CLT B.CRAT, CLT, Revocable Living Trust, CRUT C.Revocable Living Trust, CRAT, CLT, CRUT D.CLT, Revocable Living Trust, CRUT, CRAT
Solution: The correct answer is C.
In order:
Revocable Living Trust: Allows naming donor as income beneficiary and charity as remainder beneficiary CRAT: Trust pays fixed annuity to donor based on the initial fair mkt value of trust CLT: Charity receives the income and the remainder is left to a non charity. CRUT: Allows the donor to make an additional contribution during the year
Which of the following does not qualify as a charitable organization?
A.State of Louisiana B.City of New Orleans C.Red Cross D.Democratic National Committee
The correct answer is D.
Political organizations are not qualifying charitable organizations. The other options are all considered qualified charitable organizations under Section 170(c).
Which type of charitable remainder trust permits additional contributions to the trust after its inception?
A.CRATs B.CRUTs C.Both CRATs and CRUTs D.Neither CRATs nor CRUTs
Solution: The correct answer is B.
Only CRUTs permit additional contributions to the trust after its inception. CRATs do not permit additional contributions.
Caroline transfers $87,000 of stock to a charitable organization in return for a life annuity on her life valued at $40,000
With regard to this transfer, how much is Caroline’s charitable income tax deduction?
A.$0 B.$40,000 C.$47,000 D.$87,000
- $ 47,000
- When an individual transfers property in exchange for a charitable annuity, the value of the property less the value of the retained annuity is the value of the charitable deduction. In this case, $87,000 - $40,000 = $47,000.
Chelsea graduated from the University of Alabama. Each year, football season tickets are sold only to those who make a contribution to the university of $2,000 or more. Chelsea contributes $2,000, so that she meets the requirements to purchase season tickets, and also spends $500 on the season tickets. How much is her deductible charitable contribution for the year?
A.$0 B.$1,600 C.$2,000 D.$2,500
Solution: The correct answer is A.
For a contribution to a university where the donor receives the right to purchase tickets to athletic events, none of the contribution will be allowed as a charitable contribution.
The price of the actual tickets is not deductible.
