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58 Cards in this Set

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Which taxpayers can take an income tax deduction for charitable contributions?
only those who itemize their deductions (not take the standard deductions)
to what type of entities can deductible donations be made?
170(c) organizations qualified to receive deductible contributions.
What are the three categories of charitable organizations?
private foundations
public charities
private operating foundations
What are private foundations?
the default charitable category and the least favored
often lower dedutibility than with other entities
What are public charities?
most favored category
organization must qualify
most favored tax deduction
What are private operating foundations?
hybrid between charitable and private foundations
favorable deductions
what is a quid pro quo contribution?
when donor gives something to charity in exchange for goods and services;
deduction is limited to amount by which value of property trnasferred exceeds value of items received in return
exception - de mininimus rule
Are foreign donations deductible?
not to foreign charities
yes to domestic charities doing foreign work

but for estate tax purposes, not limited to domestic charities; also private foundations ok
Are partial interests deductible?
no (e.g. one week in vacation home donated to charity auction)
Are earmarked contributions deductible?
No (e.g. donation to non-profit college on condition $$ be used to offset costs for son attending college)
How is the deduction for donated vehicles handled?
deduction limited to amount charity sells vehicle for
Exceptions:
charity actually uses vehicle
charity tranfers vehicle for less than FMV to further charitable purpose.
What is a donor-advised fund?
Separate funds maintained by public charities where donor is permitted to recommend charitable donees to charity.
Power of private foundation but allow contribution deductions - contributions are treated as contribution to charity maintaining fund.
What does a contribution to a donor-advised fund require for deductibility?
letter from charity to donor stating that charity has exclusive legal control over assets.
What is the rule for deduction for donation of clothing and household items?
must be in good condition or better (unless single item under $500 along with appraisal)
how is deductibility handled for contributed property with built-in ordinary income and short-term capital gain potential?
amount of contribution shall be reduced by the amount of gain that is not long-term capital gain (held for longer than 12 months)
how is deductibility handled for long-term capital gain property?
it is reduced by the long-term capital gain potential in the property ONLY IF it is tangible personal property, contributions to private foundations, certain intellectual property, taxidermy
when is dedutibility reduced for personal property donations with long-term capital gain property?
when contributed property is used by donee in way that is unrelated to donee's charitable purpose (e.g. painting contributed to hospital that sells it to raise money) OR
charity sells it during same year contribution is made.
de minimis exception
What is another major exception for the long-term capital gain property reduction rule?
donation of qualified appreciated stock:
in a corporation
established security market
long-term capital gain potential
limited to less than 10% of outstanding value.
What is the limit for dedutible donations?
50% of AGI
or 30% of AGI if built-in gains and not subject to reduction exception


30% or 20% for non-public charities
depending on built-in capital gains potential
Can a donor "carryover" contributions?
yes, for five succeeding taxable years.
what type of substantiation of donations is required?
minimal for under $250
normal for over $250
extended for over $500
appraisal for over $5000
Can donations directly from retirement accounts be mad?
Yes, only IRA/Roth IRAs
limited to $100,000 per year
donor over 70 1/2
For estate tax deductibility purposes, is there a maximum donation? Is less credit given when assets have built-in capital gains?
no maximum
no reduction in creidt.
Are standards for deductibility more generous for estate tax than for income tax?
yes.
no distinction between gifts "to" or "for use of" charitable donees
if a trustee has discretion to make charitable gifts, are those gifts deductible?
Maybe - IRS may argue no because at moment of death possibility that nothing will be given.
better practice to require that gifts be given and let trustee pick the charities
What are two ways to provide a trust to benefit spouse for life with remainder to charity?
1. CRT (CRAT or CRUT)
entire transfer deducible for estate tax purposes because qualifies for marital deduction and remainder qualifiees for charitable deduction
2. QTIP with charitable remainder. Trust included in estate of SS, but qualifies for deduction at death of SS
How do powers of appointment impact estate tax charitable deductibility?
General power - transfers to charity ARE deductible
special/lmited power - not deductible
can non residents get a gift tax donation?
yes, but only for domestic charities
What is the general rule regarding contribution of less than a full interest in property to charity?
no deduction.
EXCEPTIONS:
CRT
CLT
remainder interest in residence or farm
charitable gift annuitites
why might a client contribute personal residence to charity?
Large current income tax deduction
keep living in residence rent-free; passes to charity upon death.
What are charitable gift annuitites?
transfer of property to a charity in exchange for an annuity.
amount transferred will exceed annuity value -- deduction allowed for difference
What are options for donors who want to make a large contribution in current year (for tax reasons) but select beneficiary in future years?
1. private foundation (generally only good for $1M+)
2. donor-advised fund
3. supporting organization
4. donor-directed fund
What is a CLT?
charitable lead trust (CLAT/CLUT)
initially makes all distributions to charity (either annuity or unittrust)
what is the most common CLT
non-grantor CLATs
when are CLTs most likely to be used
on death - or othwerise when donor's income tax deduction isn't relevant (e.g. donor already exceeded 50% AGI level)
what is the primary benefit of a CLT?
estate or gift tax deduction is calculated at 120% of midterm AFR. If actual investment return during charitable return exceeds that figure, excess passes free of estate and gift tax.
Are CLAT's preferred when AFR is low or high?
Low - easier hurdle to beat with investments
what is the estate tax deduction for a CLT?
unlimited estate tax deduction at death for value of annuity (NPV)
what is the gift tax deduction for a CLT?
allowed when the gift is complete; no annual exclusion (because it is a future-interest gift)
should an alternate charitable beneficiary be named?
yes
What is a CRT?
a charitable remainder trust that provides payments to one or more NON-charitable beneficiaries for their lifetimes or a term of years. On death of final recipient/end of term, principal balance distributed to charity
who is the classic candidate for a CRT?
charitably-inclined,
highly appreciated asset that he wishes to sell
what are tax benefits of a CRT?
income tax deduction for gift to CRT for value of remainder interest
no capital gains tax for sale within the trust
gift to CRT doesn't trigger gift or estate tax
income stream for incoem beneficiary
how could a CRT help a parent with spendthrift child?
provide income to spendthrift without principal,
partial estate tax deduction
what are some negatives of CRTs
irrevocable
lack of liquidity
cost of set up
dificulties of administration
is early termination of CRT allowed?
has been in a number of occasions by IRS
what is a CRAT
charitable remainder annuity trust
pays income beneficiary a specified amount based on fixed percentage and pays same amount each year or fixed dollar amount.
Must be between 5-50% of initial FMV
if not an individual can't exceed 20 years
What is the minimum value of the remainder benefit in a CRAT?
10% of initial FMV
for a CRAT, what is the minimum probability that the assets will last long enough to pay the annuity?
95%
When is a CRAT preferred to CRUT
elderly clients when security is more important than inflation protection
What is a CRUT
charitable remainder unitrust
pays a fixed percentage of assets each year
When is a CRUT preferable to CRAT?
not as elderly
inflation protection more important than security
must be 5-50% of FMV
What is a NICRUT or NIMCRUT
Charitable net income unitrust (w/ or w/out makeup provisions)
pays the LESSER of a fixed % of trust's net FMV or
actual net income for the year
who is a NIMCRUT appropriate for?
client who doesn't want to invade trust principal and wants to receive only income;
when contributed asset is illiquid and non-income producing
What is difference between CRUT and net income unitrust?
CRUT easier to administer
but NIMCRUT may offer more fleixbility for not making a payment when income is not generated.
The higher the payout rate, the _____ the charitable deduction
lower
Can a sole proprietorship be transferred into a CRT?
not a good idea.
can encumbered property be transferred to a CRT?
not a good idea