Section 7: Charitable Giving

Question 1

Public Charity Deduction limits

Answer 1

Cash 60%
OI Property 60% (lesser of fmv or basis)
LTCG 30% fmv
tangible (related) 30% fmv
tangible (unrelated) 60% fmv

Question 2

Maximum SALT deduction

Answer 2

state and local taxes $10k maximum

Question 3

Life Insurance Income tax deduction

Answer 3

if a charity is the irrevocable bene you could qualify for a charitable deduction and provide leverage- confirm w/ CPA

Question 4

estate tax deduction limits for charity

Answer 4

unlimited

Question 5

5013c

Answer 5

IRS definition of a charity- IRC designation- must have a charitable letter from IRS to prove

Question 6

ordinary income property

Answer 6

charitable deduction limited to adjusted basis

i.e. cant get deduction for s-t growth

Question 7

life insurance policy valuation

Answer 7

if requested- insurance company can provide free of charge:

1. Interpolated terminal value plus unearned premium
2. The replacement cost of the policy on form712

Question 8

Private operating foundation

Answer 8

“operating foundation”- active charitable activities- not just giving money away

e.g. museum, library, etc

More liberal from a tax standpoint- up to 50% ago for cash contributions and 30% agi fmv for ltcg property

Question 9

Private Foundations

Answer 9

they don’t solicit for donations- referred to as non-operating foundation

cash contributions deductible up to 30% agi

LTCG limited to 20% agi

Question 10

CLT

Answer 10

charitable lead trust

can be structured as charitable lead “annuity trust” or “unitrust”

residual can come back to the grantor or estate- get deduction equal to pg of future income payments to charity

Question 11

CRUT

Answer 11

charitable remainder unitrust

variable payout based on annual valuation date

1. standard crut- fixed %
2. net income- pays lesser of fixed % or actual income
3. Net income makeup unitrust (nim-crut) can make up income to extent less then fixed %
4. Flip Crut- payout lesser of income or fixed during initial period then fixed % remains

Question 12

CRAT

Answer 12

charitable remainder annuity trust

fixed payment at least 5%, no more then 50% of initial fmv- term less than or equal to 20 years, value of remainder interest must be at least 10% of initial fmv- usually optimized close as possible to 10%- once calculated can’t add more

Question 13

Pooled Income fund

Answer 13

a trust maintained by the charity- receive donations analogous to a mutual fund- donations are co-mingled

Question 14

QCDs

Answer 14

qualified charitable distributions

up to $100k from pretax to charity- no agi limit
counts towards rmd
could lower taxes on s/s and medicare premiums since they are agi related

Question 15

Private Charitable income tax donations

Answer 15

cash 30% agi
OI. 30%agi limited to basis
LTCG 20%
Tangible related 30%
Tangible unrelated 30%
Life insurance Basis or replacement up to 30%

*% of agi

Question 16

qualify as public charity

Answer 16

receive at least 1/3 of support from general public and maybe medical research facilities associated with hospitals

Question 17

charitable remainders

Answer 17

donor can gift personal residence or farm to charity and continue to live there for the rest of their life and get deduction for pg of the remainder interest

Question 18

NIMCRUT

Answer 18

net income makeup charitable remainder unitrust

if income produced is inadequate to meet the unitrust payout amount, trust has a makeup provision, bene can recieve lesser of % of trust’s assets or actual trust income plus any express income from the past years, typically funded with low income producing assets in early years then trustee later converts to higher income after bene retires

Question 19

CRUT overview

Answer 19

charitable remainder unitrust

income goes to non-charitable bene, pays fixed percentage of net fmv or principle revalued annually, income based on performance, can be inflation hedge, additional assets can be added

Question 20

CRAT overview

Answer 20

charitable remainder annuity trust

once funded, no assets can be added, only thing that can be changed is the ultimate charity bene, if income does not meet the fixed amount, can take from principle, can exhaust principle

Question 21

Private foundations overview

Answer 21

limited deductions of 30% for cash and 20% for ltcg property (of agi)

very expensive to operate

5% required distributions per year to charity

file income tax return

not have any unreleased business transaction income

family members and others who manage can be paid for this work

Question 22

split-interest charitable transfers

Answer 22

generally not permitted except for w/ remainder/lead trusts and pooled income funds, e.g. transfer is for current income or remainder but not both

Question 23

private foundations are structured as…

Answer 23

not-for-profit corporation or tax exempt trust

typically formed by one family as opposed to sourcing funds from multiple sources

Question 24

IRS published list of charities

Answer 24

IRS publication 78

If not listed, it is wise to request a determination letter from the IRS for the charity

Question 25

charitable transfer

Answer 25

gratuitous transfer of property to charitable, religious, scientific, educational, or other specified organizations

Question 26

CRUT with life insurance

Answer 26

low basis assets are donated to CRUT- CRUT pays income for both spouses lives- life insurance is purchased w/ part of annual income- get current tax deduction

Question 27

flip crut

Answer 27

NIMCRUT OR NICRUT and a standard CRUT are combined- can flip from NIMCRUT or NICRUT to regular CRUT based on event not controlled by the trustee or donor

e.g. sale of illiquid assets, birthday, death of spouse

Question 28

Funding a CRUT

Answer 28

often funded with appreciated securities, eliminate cap gains taxes

may provide higher income stream

remainder interest must equal 10% of fmv of assets transferred to trust

Question 29

CRT Taxation

Answer 29

Can last up to 20 years or life of bene

each payment to bene treated as
1. OI to the extent trust has it in current year and then undistributed OI from prior years
2. CG current year and then undistributed CG from prior years
3. Other income current year, then prior years
4. tax free distribution

5% must pay annually, 10% must remain- young donor is not suitable

Question 30

UBTI - private foundation

Answer 30

when tax exempt organization generates revenue not substantially related it taxes the income- this way it does not create an unfair advantage w/ taxable entities

also common securities can cause ubti if borrowed funds are used to purchase

if partnership is held and it uses borrowed funds, then UBTI is created for foundation

Question 31

990-PF

Answer 31

private foundation tax filling form- it is publicly available- private foundation is not so private

Question 32

How to simplify charitable estate plan

Answer 32

use DAF- can use combo of successors and charities at death- avoids atty costs

Question 33

Limitation of LTCG property given to a private foundation

Answer 33

Long-term capital gain property donated to a private foundation is deductible up to 20% of AGI.

Question 34

tax payer donates qualified appreciated stock stock to a private foundation- what is the shares limitation?

Answer 34

The stock cannot be more than 10% of the corporation’s shares

Question 35

CRUT/CRAT beneficiary payments limitations

Answer 35

CRAT & CRUT can make payments to the beneficiary for up to 20 years or the life of the beneficiary.

Question 36

Your client is 55 years old, is planning on retiring in 2 years and will have an AGI of $500,000 until he retires. He believes his AGI in his first year of retirement will be $100,000. The client would like to make charitable gifts totaling $200,000 this year and 100,000 in each of the next two years to a qualified public charity. A list of potential gifts are: 1. $175,000 cash 2. $200,000 stock with a $10,000 short-term capital gain 3. $600,000 stock purchased 10 years ago with a long-term capital gain of $500,000 In order to maximize his income tax deductions, which asset(s) should he gift in the first year?

Answer 36

Because of his AGI, the client should contribute short term capital gain property in year one. In year two, the client can contribute either short-term capital gain property or long-term capital gain property and still deduct the gifts in full. In year three, the client should distribute short-term capital gain property or cash in order to ma

Question 37

Deduction Limitations Public Charities

Answer 37

Question 38

Deduction limitations on private charities

Answer 38