Week 2

Question 1

A donor can deduct a gift to an “eligible” charitable organization. What IRS publication lists “eligible” charitable organizations?

A) 990-PF

B) Publication 78

C) 1040 Schedule C

D) 1040 Instructions for Schedule C

Answer 1

B) Publication 78

The correct answer is B. This publication lists eligible charities.

Question 2

For a gift of appreciated long-term capital gain property other than qualified appreciated stock to a private nonoperating foundation, what is the deduction limit as a percentage of AGI?

A) Fair Market Value, up to 20% of AGI

B) The lesser of Fair Market Value or Basis, up to 20% of AGI

C) Fair Market Value, up to 30% of AGI

D) The lesser of Fair Market Value or Basis, up to 30% of AGI

Answer 2

B) The lesser of Fair Market Value or Basis, up to 20% of AGI

The correct answer is B. The deduction is for basis only (or fair market value if less than basis) up to 20% of AGI with a five-year carryforward for the unused deduction

Question 3

A donor has exceeded his or her AGI limitations for the year. For how many more years can the unused deduction be carried forward? (Assume that it is not 2020 and that the CARES Act does not apply).

A) None

B) Two

C) Three

D) Five

Answer 3

D) Five

The correct answer is D. Once the donor has hit the AGI limits, the unused deduction can be carried forward to an additional five years.

Question 4

When a donor gives appreciated nonpublicly traded property other than closely held business interests, at what size gift and above must a qualified appraisal by a qualified appraiser be obtained, in accordance with the general rule?

A) $1,000

B) $5,000

C) $25,000

D) $50,000

Answer 4

B) $5,000

Question 5

A C-Corporation makes a gift to a public charity in 2019. It can take a deduction up to what percentage of its taxable income?

A) 10%

B) 20%

C) 30%

D) 50%

Answer 5

A) 10%

The correct answer is A. Generally, corporations can deduct up to 10% of taxable income. Under the CARES Act, corporations are allowed to deduct up to 25% of taxable income. This applies only to cash contributions paid during calendar year 2020 and to a qualified charitable organization.

Question 6

With respect to a gift of cash to a public charity, what is the deduction limit as a percentage of adjusted gross income?

A) 30%

B) 20%

C) 60%

D) 50%

Answer 6

C) 60%

The correct answer is C. It is 60% under the new law. Under prior law, it had been 50%. Under the CARES Act, it is 100%, if the gift is cash and is given to a qualified charitable organization (as of this writing, the CARES Act applies only to gifts in calendar year 2020).

Question 7

The donor will give tangible personal property to XYZ College, a public charity. In which case or cases below will the donor get a deduction at fair market value, without a reduction for the unrecognized gain?

I. The tangible personal property will be used by the College in line with its exempt purpose.

II. The tangible personal property will be sold by the College and the proceeds then used for the school’s exempt purpose.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 7

A) I only

The correct answer is A. To get the FMV deduction, the property must be used by the College for its exempt purpose.

Question 8

Differences between qualified recipients of charitable contributions for estate tax purposes and for income tax purposes include which of the following?

I. Estate tax deductions are available for contributions to foreign charities, while income tax deductions are not.

II. Estate tax deductions are available for transfers to the United States, or to any U.S. state or political subdivision, for a public purpose, while such a deduction is not allowed for income tax purposes.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 8

A) I only

The correct answer is A. The first statement is true. The second is false because income tax and estate tax deductions are both allowed for gifts to the U.S., a state, or a political subdivision, if used for a public purpose.

Question 9

Which of the following statements concerning the reduction rules for charitable contributions of appreciated property to 501(c)(3) organizations is (are) correct?

I. A reduction rule requires that the contribution deduction be reduced by the amount of gain that would not be long-term capital gain, had the property been sold by the donor at its fair market value.

II. A reduction rule requires that the contribution deduction be reduced by the amount of long-term capital gain, if the tangible personal property donated is unrelated to the purpose of the charitable organization’s exempt status.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 9

C) Both I and II

The correct answer is C. Both statements are true. With property subject to a short-term gain, deduction is reduced to basis (FMV minus gain). Likewise, if the donor gives tangible personal property, then the deduction is reduced to basis, unless the property will be used pursuant to the charity’s exempt purpose.

Question 10

Which of the following statements concerning charitable organizations is (are) correct?

I. The classification of a charitable organization is a factor in determining the tax treatment of the donation.

II. Donors may contribute and deduct up to 60 percent of their adjusted gross incomes for gifts of cash to private charitable organizations.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 10

A) I only

The correct answer is A. The first statement is true. The second statement is false. For gifts to a private charity, the highest limitation available is 30% (that is, for gifts of cash).

Question 11

Which of the following statements concerning the donation of artwork by the creator of the property is (are) correct?

I. A deduction is not permitted.

II. The deduction is equal to the fair market value of the artwork.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 11

D) Neither I nor II

The correct answer is D. For gifts of artwork by the artist, the deduction is for basis–that is, for the materials used.

Question 12

To be deductible for income tax purposes, a charitable gift must meet all these requirements, EXCEPT:

A) It must be a voluntary transfer.

B) It must be made to an eligible recipient.

C) It must be made in proper form.

D) It must have a positive social impact.

Answer 12

D) It must have a positive social impact.

The correct answer is D. While the donor may want a positive social impact, and while the gift may achieve such impact, there is no requirement in the tax code that the gift must achieve impact. The gift must, however, be a voluntary transfer to an eligible recipient and must be made in proper form.

Question 13

All of these are exceptions to the rule that a gift of a partial interest is nondeductible, except

A) charitable remainder trust

B) charitable lead trust

C) life insurance beneficiary is a charity, while donor owns the policy

D) charitable gift annuity

Answer 13

C) life insurance beneficiary is a charity, while donor owns the policy

The correct answer is C. Certain split-interest gifts, including CRTs, CLTs, CGAs, PIFs, conservation easements, and a remainder interest in a residence or farm, are specific exceptions to the rule that a donor must give away an entire property, and retain no benefits from it. A life insurance policy owned by the donor is not deductible, even if the beneficiary is a charity. This is pursuant to the general rule that a gift is not deductible unless it is an irrevocable gift of the entire property.

Question 14

With regard to quid pro quo contributions, all of the statements below are true, EXCEPT:

A) A contribution to charity is deductible only to the extent the value of the gift exceeds anything received in return.

B) Token items may be ignored within the limits specified annually by the IRS.

C) A donor receiving goods or services in exchange for a gift can rely on the charity’s own good faith estimate of the value of those goods and services.

D) Membership benefits within limits specified by the IRS can be ignored, unless they can be exercised frequently.

Answer 14

D) Membership benefits within limits specified by the IRS can be ignored, unless they can be exercised frequently.

The correct answer is D. Actually, to be ignored, membership benefits, within the limits set by the IRS, must be exercisable frequently.

Question 15

A donor has publicly traded stock with a small capital gain. The donor has already hit the 30% of AGI limit for gifts of capital gain assets to a public charity. The CPA suggests that the client take the “step-down election.” As to that election, all of the following are true, EXCEPT:

A) The donor can “step the gift down” to basis.

B) The gift will be treated as subject to the 50% AGI limitation, not the 30% limitation.

C) The property stepped down must be retained by the charity for at least 12 months prior to sale.

D) The election applies to all contributions of such property by the taxpayer during the tax year.

Answer 15

C) The property stepped down must be retained by the charity for at least 12 months prior to sale.

The correct answer is C. That statement is false. There is no such rule with regard to the charity’s selling the appreciated public stock. The other statements are true.

Question 16

Mary has limited life expectancy. She wants the bulk of her estate to go to charity. Each of the following is a good reason to accelerate her giving so she gives while alive, EXCEPT:

A) She can get an income tax deduction.

B) She can have a positive impact sooner.

C) She can have the satisfaction of making a difference while alive.

D) She can avoid the AGI limits if the gift is made within 12 months of her death.

Answer 16

D) She can avoid the AGI limits if the gift is made within 12 months of her death.

The correct answer is D. There is no special rule about avoiding the AGI limits for income tax purposes within a year of death.

Question 17

Each of these is a factor whose interplay with the others influences the deduction allowed for income tax purposes, except

A) the type of property donated

B) the type of charitable organization receiving the gift

C) the fair market value of the property

D) the cause to which the charity is devoted

Answer 17

D) the cause to which the charity is devoted

The correct answer is D. Some have suggested that a gift to charity benefiting the needy should have a greater tax benefit than gifts to charities helping primarily the well off (e.g., opera, ballet, elite schools). But no such code provision exists as of the date of this text. The other factors do influence the size of the deduction, as does the value of any goods or services that the donor may receive from the charity in return for the gift.

Question 18

All of these are tangible personal property, except

A) land

B) art collections

C) furniture

D) automobile

Answer 18

A) land

The correct answer is A. The others are tangible personal property. Land is considered real property.

Question 19

All of the following are typically considered public charitable organizations for the purpose of the charitable income tax deduction, EXCEPT

A) governmental units, if the gift is used for a public purpose

B) educational institutions

C) religious organizations

D) private foundations

Answer 19

D) private foundations

The correct answer is D. Private foundations are not public charities.

Question 20

The donor has the following assets: cash, appreciated publicly traded stock, antique furniture that has appreciated in value, and art works that the donor has created herself. All of the statements below are true, EXCEPT:

A) Cash given to a public charity can be deducted up to 60% of AGI.

B) Appreciated publicly traded securities given to a public charity can be deducted up to 30% of AGI.

C) Art created by the artist who gives it can be deducted at fair market value, up to 30% of AGI, if given to a public charity.

D) Appreciated antiques can be deducted at fair market value, up to 30% of AGI, only if they will be used by the public charity pursuant to its charitable purpose, rather than being sold.

Answer 20

C) Art created by the artist who gives it can be deducted at fair market value, up to 30% of AGI, if given to a public charity.

The correct answer is C. Art created by the artist can only be deducted up to basis.

Question 21

Which statement or statements below as to basis is (are) correct?

I. If a capital gain asset is given to a non-charitable beneficiary, then the basis of the donor carries over to the recipient.

II. If a capital gain asset is bequeathed to a non-charitable beneficiary, then the basis in the hands of the recipient steps-up (or steps-down) to fair market value at the date of death or by an alternative valuation date within six months of death, if the property has not yet been sold.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 21

C) Both I and II

The correct answer is C. Both statements are correct. Capital gain property received from a decedent will step-up (or step-down) to the fair market value at the date of death (or at an alternative valuation date within 6 months of death, if the property has not yet been sold). If given to a heir during life rather than at death, a capital asset will have “carryover basis,” not “stepped-up basis,” in the hands of the recipient.

Question 22

As to the date a charitable gift is completed for the purpose of the income tax deduction, which statement or statements below is (are) correct?

I. A gift by mail is completed when the donor drops it into a USPS mailbox.

II. A gift by stock certificate is completed when delivered in negotiable form.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 22

C) Both I and II

The correct answer is C. Both statements are true.

Question 23

Which gift is deductible as a charitable gift?

A) Chandler gives an undivided partial interest in his farm to the Salvation Army.

B) Jack gives forest land to charity, retaining the right to log the timber.

C) Phoebe gives land to charity, retaining the mineral rights.

D) Elliott owns an office building and gives a charity the right to use an office within it at no charge.

Answer 23

A) Chandler gives an undivided partial interest in his farm to the Salvation Army.

The correct answer is A. The gift of an undivided partial interest is deductible. However, a gift of only certain rights, but not all rights, in an asset is not deductible. Retaining mineral rights or logging rights are examples of dividing up the interests in an asset, rather than giving an undivided share of one’s entire interest Likewise, owning a building and only giving certain rights (e.g., the use of an office for free) is a gift of a divided interest and is thus not deductible.

Question 24

As to the charitable income tax deduction, each of the statements below is correct, EXCEPT:

A) The general rule is that a gift must be of all the donor’s rights in the asset given, without substantial benefits back.

B) The donor may deduct a gift to a charity for which the donor receives “insignificant” benefits, such as a T-shirt or a mug with the charity’s logo.

C) The donor may deduct a gift of a divided partial interest to a charity.

D) The donor may deduct $950, if he has given $1,000 to charity and has also received a meal worth $50.

Answer 24

C) The donor may deduct a gift of a divided partial interest to a charity.

The correct answer is C. The donor can deduct a gift, if the gift is an undivided partial interest, not if the gift is of a divided partial interest. The other statements are correct.

Question 25

All of these charitable gifts are eligible for a current income tax deduction, EXCEPT:

A) Joey gives his entire interest in his beach house to charity.

B) Rachel owns 100 shares of Xerox and gives 25 of those shares to her university.

C) Monica writes her college into her will for a bequest of $10,000.

D) Ross irrevocably transfers an undivided partial interest in his farm to his house of worship.

Answer 25

C) Monica writes her college into her will for a bequest of $10,000.

The correct answer is C. A bequest is not a current gift. Nothing has gone to charity yet, and it is revocable. At death, a person may have no remaining assets. For all these reasons, no current income tax deduction is allowed.

Question 26

With respect to the Federal capital gains tax rate, which statement or statements below is (are ) correct?

I. The top rate is 20%.

II. The rate for collectibles is 28%.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 26

C) Both I and II

The correct answer is C. Both statements are correct. It is an oddity of the tax law that the capital gains rate on collectibles is higher. This does provide an incentive for donors to give them.

Question 27

Which of these gifts is not deductible?

A) Gift to a college by an Asian-American woman restricted to scholarships for Asian-American women

B) Gift to a museum of a painting that they will hang on the museum wall

C) Gift to a school for the benefit of a named child in need

D) Gift of intellectual property to a local charity

Answer 27

C) Gift to a school for the benefit of a named child in need

The correct answer is C. What makes this gift not deductible is that it goes to a specific individual whom the donor names. The donor cannot deduct a gift earmarked for the use of a particular person.

Question 28

The donor is single. She pays mortgage interest on her $200,000 mortgage of $3,000. Her state and local taxes plus her property tax total $7,200. She gives $11,000 to a public charity. By what amount do her total itemized deductions exceed her standard deduction? For the purposes of this question, do not apply the CARES ACT deduction rules.

A) $11,000

B) $8,800

C) $10,000

D) $0

Answer 28

B) $8,800

The correct answer is B, $8,800. Her standard deduction for 2020 is $12,400, as a single taxpayer. Her total itemized deduction is $21,200: (SALT of $7,200 + mortgage interest of $3,000 + charitable gift of $11,000).

Her total itemized deduction of $21,200 minus the standard deduction of $12,400 = $8,800.

Thus, $8,800 is what she can deduct above and beyond her standard deduction.

Question 29

Your client, a single female, dies in 2020, with an estate of $10 million. She leaves all of this to her child. How much of that is subject to Federal estate tax?

A) $0

B) Approximately $4.5 million

C) Approximately $3 million

D) Approximately $1 million

Answer 29

A) $0

The correct answer is A. The lifetime exclusion amount in 2020 is $11.58 million. A married couple would have twice that between them. Thus, the decedent’s estate will not pay Federal any estate tax.

Question 30

The donor would like to deliver a check to a charity by the end of the year. It is December 30th. Which of the following should she not do?

A) Put it in a USPS mailbox

B) Drop the check off at the charity’s office

C) Make an online donation instead

D) Take the check to a FedEx and have them deliver it the next day

Answer 30

D) Take the check to a FedEx and have them deliver it the next day

Answer is D. Under the mailbox rule, if the donor drops the check off in a USPS mailbox, it is considered a completed gift. In contrast to the USPS, the rules related to private services are different. With a private service, the donor does not relinquish control of the gift until the charity receives the check. Even though FedEx can deliver the check the next day, she is taking a chance that it may not get there.

Question 31

Donor makes several gifts to charities at the end of the year. Which donation requires a qualified appraisal?

A) Publicly traded stocks valued at $10,000

B) An online credit card donation of $5,000

C) Membership at the art museum at the $500 level

D) A painting valued over $20,000

Answer 31

D) A painting valued over $20,000

Answer is D. Art valued at $20,000 or more requires an appraisal from a qualified appraiser.