Presentation:
Federal Income Taxation
Chapter 11 Personal Expenditures: Charitable
Contributions
Professors Wells
October 7, 2015
Charitable Contributions
Tax Issues
p.664
Code §170 deduction issues summarized:
1) Is the recipient eligible for a contribution?
2) Is a percentage limitation applicable to deduction against
AGI?
3) What is the type of donated property and is any special
percentage or other limitation applicable because of the
type?
4) What is the specific type of eligible charitable donee?
2 Is the Charitable Contribution Tax
Deduction Justified?
p.664
Is the charitable contribution a consumption item for tax
purposes?
Is the contribution a substitute for direct governmental
support?
What other reasons exist for allowing a charitable
contributions deduction?
E.g., to facilitate wealth redistribution?
E.g., to circumvent constitutional concerns?
Is this item a “tax expenditure”?
3 Charitable Contribution:
Dowell v. United States
p.664
FACTS: Dowell made a “sponsorship gift” and at the same time
was allowed to rent an apartment at University Village.
Issue: Was this a charitable contribution?
Trial court held that the sponsorship gift was not required and
was a gift.
Tenth Circuit: Affirmed. Court stated that whether there is a
prid quo no is a factual question. In this case, there were
sufficient facts for the court to believe no prid quo no.
4 Charitable Contribution:
Supp. pp.62-64
Ottawa Silica Co v. United States
FACTS: Land contributed to local government to build
school.
Issue: Was this a charitable contribution?
Court Reasoning: Taxpayer received a substantial benefit in
return and thus this was not a charitable contribution. If the
land is relinquished to induce action by the public agency or
charity, it may not be deducted as a charitable contribution,
5 Charitable Contribution:
Lombardo v. Commissioner
Supp. p.65
FACTS: Taxpayer arrested and police seized 14 tons of marijuana,
$148,000 in cash, and seized the land on which he was operating.
The taxpayer placed on probation under an order that required
him to pay $145,000 to the county school fund. Taxpayer claimed a
charitable contribution deduction.
Holding: No charitable or donative intent. Payment was made to
stay out of jail.
6 Charitable Contribution:
Hilla Rebay v. Commissioner
p.670
FACTS: Painter donated paintings and claimed their value was
$143,000 from 1955-1957 and $50,000 worth of paintings in
1958-1959. IRS contended that the 1955-1957 paintings were worth
only $7,000 and said that 1958-1959 paintings had no value.
Court agreed with IRS valuation for the 1958-1959 donated
paintings and found that the 1958-1959 paintings were worth $2,300.
General Rule: Charitable contribution deduction is equal to the
amount of the cash plus the fair market value of the property
contributed in-kind. Treas. Reg. §1.170A-1(c).
Exception: §170(e) limits deduction to basis for property that would
produce short-term capital gain or ordinary income.
7 Charitable Contribution:
Notes & Questions
p.670
1. Private school determine not to raise tuition but rather to put on a
high-pressure fund-raising effort among parents, pointing out to them
how contributions will cost the parents less than an equal number of
dollars of tuition increase?
2. Are religious services any different from educational services?
3. (a) The cast and producer of a play agree to perform the play free.
$100 per ticket paid by audience goes to the charitable beneficiary. How
much of the cost of a ticket is deductible?
3 (b) A symphony orchestra conducts a music school for performing
musicians in connection with its summer festival in the mountains
without charge to Friends of the Symphony. To become a friend, a
taxpayer makes a contribution of $20 and attend eight concerts. How
much can he deduct?
(c) A state university gives members of its ‘‘President’s Club’’ (donors
who contribute $10,000 or more during the year) priority in the purchase
8 of season tickets to university football or basketball home games.
Example:
Self-created Asset Donated to
Charity
Painter donates his own self-created painting to the charity
auction. 20x tax basis & 300x FMV.
See Code §1221(a)(3). Not a capital asset (since self
created). Sale would produce ordinary income.
Donor can deduct only to the extent of the donor’s tax basis
for the self-created asset. See Code §170(e)(1)(A).
Cf., gift of one’s personal & business papers to charity? §1221(a)(3).
9 Mechanics of the Limit on
Contributions Deduction
Percentage Limitations on this Deduction:
1)
2)
50 percent of the contribution base.
Public charities - §170(b)(1)(B)
30 percent or a lesser percentage.
A “ceiling” rather than a “floor.”
Five Year Carryforward: Any excess charitable contribution that cannot
be used is then carried forward for 5 years. See §170(d).
10 Charitable Gifts of
Partial Interests
Tangible personal property –
Remainder interest gift - See Code §170(a)(3), restricting a
current deduction.
Trusts, etc. - Code §170(f) limitations re partial interest gifts
1)  Income interest to charity.
2) Remainder interests to charity - CRATs & CRUTs (Code
§664(d)).
3) Charity remainder in a residence or farm.
11 Defining a “Charitable Contribution”
p.670
“Quid pro quo” analysis –
Hernandez decision, p.670
Payments made to the Church of Scientology to obtain
services such as "auditing" and "training,” based on the
Scientology "doctrine of exchange”.
Held: An identifiable benefit was received & no tax
deduction was available. Correct result? Note §§170(f)(8)
& 6115. 12 Athletic “Booster Club”
p.670
Note 3(c): Opportunity to purchase college football tickets was
originally ruled to be deductible in full. Rev. Rul. 86-63. But,
Congress responded to allow 80% deductible via §170(l).
How value the “opportunity” to purchase the football tickets
as made available to the donor by the donee university?
Why are athletic tickets treated differently?
13