I.R.S. October 10, 2005 Alan S. Hejnal

Transcription

1 I.R.S. October 10, 2005 Alan S. Hejnal

2 Outline Understanding Gifts What is, and what is not, a gift, according to the IRS Key characteristics Common activities that are not gifts Identifying the legal donor The name on the check rule of thumb Donor-advised & Donor-directed funds

3 Outline Understanding Gifts When is a gift complete, and why is that important? Being careful about Deductible Deductible for whom? as what? Providing the donor something in return (Quid Pro Quo transactions)

4 Outline Gift receipts Responsibilities related to substantiating a charitable gift The donor s responsibilities The donee s responsibilities Acknowledgment and disclosure requirements Why are there 2 sets of requirements? When is a receipt required? What has to be included on the receipt?

5 Outline Gift receipts Special Cases Non-cash gifts Payroll Deduction Planned Gifts Auctions Unreimbursed Expenses When not to send a receipt

6 Outline Record keeping requirements IRS Forms and Publications

7 The Ever Necessary Disclaimer... What I am NOT: An attorney A tax advisor An accountant Your attorney, tax advisor, or accountant Providing legal, tax, or financial advice

8 The Ever Necessary Disclaimer... What I AM: An Advancement Services professional with more than 15 years of experience Providing general information

9 Understanding Gifts October 2005 CASE Gift Processing Workshop 9

10 Understanding Gifts What is, and is not, a gift (according to the IRS) October 2005 CASE Gift Processing Workshop 10

11 What is a gift, anyway? The IRS uses the term charitable contribution A charitable contribution is a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value. IRS Publication 526

12 What is a gift, anyway? to a qualified organization Most, if not all, of your organizations are qualified organizations! IRS Pub. 526 lists examples IRS Pub. 78 lists all the qualified organizations

13 What is a gift, anyway? to a qualified organization Most organizations have to apply to the IRS to become a qualified organization (churches don t) IRS sends a letter affirming tax-exempt status under 501(c)(3) if the Internal Revenue Code Some donors request a copy of the 501(c)(3) letter It s a good idea to locate this letter, have copies on hand

14 What is a gift, anyway? voluntary Not a contractual obligation Not under a court order

15 What is a gift, anyway? without getting, or expecting to get, anything of equal value. Not an exchange transaction Not like a sale in a bookstore, where you get something for its fair market value Donative intent must intend to make a gift

16 What is a gift, anyway? The IRS talks about being able to deduct contributions of money or property Generally, you can deduct your contributions of money or property that you make to, or for the use of, a qualified organization. IRS Publication 526

17 What is a gift, anyway? Donors can also deduct out-of-pocket expenses incurred while doing volunteer work for a qualified organization You may be able to deduct some amounts you pay in giving services to a qualified organization. IRS Publication 526 Certain conditions apply Unreimbursed Directly connected with the services Arise only because of providing the services

18 What is a gift, anyway? That s it Cash Property other than cash Out-of-pocket expenses incurred while doing volunteer work for a qualified organization

19 What isn t a gift? Some common activities are specifically excluded Value of your time or services General volunteer service Services of attorney, portfolio manager, etc. (accounting treatment might be different) Expenses incurred while providing the service might be deductible, but not the value of the service itself

20 What isn t a gift? Some common activities are specifically excluded Partial interest Use of someone s home, auto, rent-free office space, etc. In general, donor must transfer their entire interest in property (26CFR1.170A-7) If an auto dealership gives you a new car, that could be a gift If an auto dealership lets you use a new car for a year, that s not a gift

21 What isn t a gift? Specifically excluded (cont d.) Gifts to, or for the benefit of, an individual For example, tuition payments, or scholarships for donor-specified students The underlying issue is whether the effect of the gift is to benefit the charitable purpose of the qualified organization, or to benefit the individual To preserve deductibility, the organization must control the selection If funds come with a name attached, almost certainly not a gift to the organization

22 What isn t a gift? Specifically excluded (cont d.) Cost of raffle, bingo, or lottery tickets The underlying issue is that the donor has received full value in return, namely the chance to win a valuable prize Any time you enter (only) donors in a drawing, you may well negate the deductibility of all of their gifts! Best practice: allow an easy way for nondonors to also participate in the drawing

23 What isn t a gift? Specifically excluded (cont d.) Gifts to, or for the benefit of, fraternities or sororities Fraternities and sororities may be not-forprofit organizations, but gifts to fraternities and sororities are not deductible as charitable contributions The underlying issue is whether the effect of the gift is to benefit the charitable purpose of the qualified organization, or to benefit the fraternity or sorority

24 What isn t a gift? Specifically excluded (cont d.) Contributions from which the donor benefits You cannot deduct as a charitable contribution the part of a contribution from which you receive or expect to receive a benefit. (IRS Pub. 526)

25 Understanding Gifts Identifying the Legal Donor October 2005 CASE Gift Processing Workshop 25

26 Identifying the Legal Donor Contributor includes individuals, fiduciaries, partnerships, corporations, associations, trusts, and exempt organizations. (IRS Form 990 Instructions) So that s the range of entities, but who is the donor for a specific gift?

27 Identifying the Legal Donor Much more attention in IRS publications to identifying contributions than to identifying contributors Recall that contributions are money, or property other than money The money or property belonged to someone at the time that it was contributed That person, by implication, is the donor!

28 Identifying the Legal Donor In general, the contributor is whoever made the contribution, i.e. whoever transferred their money or other property to you. In those cases where a contribution passes through several entities, the last of the entities through which it passes before being received by the donee should be cited as the donor.

29 So who is the Donor? Whose asset was it immediately before it was transferred to your organization? Not whose hands were on it last, but to whom did it last belong

30 So who is the Donor? A pretty good rule of thumb for checks: whose account was the check drawn on? There are exceptions! trust offices payroll deductions passed on by the employer, acting as the donor s agent Essentially, any person or organization acting as the agent for another person or organization

31 So who is the Donor? Who would you record as the legal donor in the following situation? You send an appeal to John Doe. The check that John sends in return says John Doe, MD Inc. at the top. Who gets the legal credit: John Doe (the person), or John Doe MD Inc. (the corporation)? John Doe, MD Inc. (probably with soft credit to John)

32 So who is the Donor? Who would you record as the legal donor in the following situation? You receive a check from the Fidelity Charitable Gift Fund. An accompanying letter indicates that you should send an acknowledgment to Jane Smith. Who is the legal donor: Jane Smith or the Charitable Gift Fund? Fidelity Charitable Gift Fund More generally, it depends on the details of the fund. Donor Advised Fund vs. Donor Directed Fund

33 So who is the Donor? Donor-Advised Funds (DAF) More commonly encountered than Donor-Directed Funds. Assets irrevocably transferred to the fund

34 So who is the Donor? Donor-Advised Funds (DAF) Donor gets a deduction at the time of the contribution to the fund This is one of the reasons donors use donor-advised funds. Donors get their deduction now, but can decide where to steer contributions over time, once they ve decided, etc.

35 So who is the Donor? Donor-Advised Funds (DAF) Funds subject to rules governing private foundations Gifts/grants/distributions from the fund cannot pay pledges. No one associated with the fund can get any goods or services in consideration of gifts/grants/distributions from the fund.

36 So who is the Donor? Donor-Advised Funds (DAF) Vanguard Charitable Endowment Program, Fidelity Charitable Gift Fund, etc. do only donor-advised funds. If cover letter excludes paying pledges, providing goods & services, almost certainly donoradvised.

37 So who is the Donor? Donor-Directed Funds Donor does not get a deduction at the time of the contribution to the fund. Donor retains control of the assets in the fund.

38 So who is the Donor? Donor-Directed Funds The organization is essentially administering the fund for the donor. Donor directs what contributions are made by the fund; fund managers do not have approval/discretion. Uncommon

39 So who is the Donor? Who would you record as the legal donor in the following situation? Your CEO gave a lecture at XYZ Corp., and asked that XYZ send the check to your organization as a gift. Who gets the legal credit: XYZ Corp or your leader? The boss is always right. It Depends! Is XYZ reporting this as income to your CEO? (typically done by issuing an IRS Form 1099)

40 Understanding Gifts When is a Gift Complete? October 2005 CASE Gift Processing Workshop 40

41 When is it a gift? Ultimately, the donor s responsibility The donor decides when to claim the deduction The donor decides on the amount of the deduction (which may depend on time)

42 When is it a gift? So why is this important to you? So you understand the possible impact on your donors, and provide them the best service possible For example, if you don t process a credit card gift until after January 1 st, the donor may not be able to claim the gift in the intended year Also, the rules are very similar to the rules you have to follow for accounting purposes, and for gift management reporting (CASE/CAE/etc.)

43 When is it a gift? In general, a gift is complete when it has left the donor s control Time of making contribution. Usually, you make a contribution at the time of its unconditional delivery. (IRS Pub. 526) Specific rules for contributions of cash, of securities, by credit card, etc.

44 When is it a gift? Cash, checks, etc. Received by mail (USPS) the postmark date (as long as the check clears in due course) Received by FedEx, etc. when it s in your hands Delivered in person when it s in your hands

45 When is it a gift? Credit card charges Not until the charge is made Not when the donor mails you the form authorizing the charge

46 When is it a gift? Securities (paper certificates and signed stock power sent to your organization) Received by mail the postmark date the later of the two postmarks, if sent separately (which is a good idea!) Received by FedEx, etc., or delivered in person when both items are in your hands

47 When is it a gift? Securities (paper certificates sent to the company for re-registration) The date on the certificate issued in your organization s name Donor does not have precise control of date of gift (which determines the value of the gift!)

48 When is it a gift? Securities (electronic transfer via a broker) The date the shares are actually received in your organization s account Not when the donor gives instructions Not when the shares leave the donor s account Donor does not have precise control of date of gift (which determines the value of the gift!)

49 Understanding Gifts Deductible October 2005 CASE Gift Processing Workshop 49

50 Deductible for whom? as what? There are many kinds of deductions besides charitable deductions e.g. deduction of business expenses Deductibility depends on many things, some of them entirely out of your view e.g. limitations related to other gifts the donor made, to other organizations

51 Deductible for whom? as what? Deductibility is complicated (cont d.) That s why you see statements like is deductible as a charitable contribution for federal income tax purposes to the maximum extent allowed by law The best advice I can give you is: don t give tax advice That s why you see statements like please consult your tax advisor

52 Understanding Gifts Providing the Donor Something in Return (Quid Pro Quo Gifts) October 2005 CASE Gift Processing Workshop 52

53 Quid Pro Quo Gifts Remember a contribution is voluntary and is made without getting, or expecting to get, anything of equal value. What if you get, or expect to get, something of lesser value in return?

54 Quid Pro Quo Gifts You cannot deduct as a charitable contribution the part of a contribution from which you receive or expect to receive a benefit. (IRS Pub. 526)

55 Quid Pro Quo Gifts Quid Pro Quo is Latin for something for something something given in return for something else

56 Quid Pro Quo Gifts Examples A donor makes a contribution of $1,000 and is entitled to receive a framed art print, valued at $125, in return A company is a gold sponsor of a charity golf tournament for $5,000, and is entitled to send 4 of its employees who each get to play a round of golf, eat 2 meals, and get an assortment of golf gifts

57 Quid Pro Quo Gifts receives or expects to receive It doesn t matter if the anyone actually attends the show, eats the dinner, or plays golf. All that matters is that there was an expectation that donor, and/or others of their choosing, would do so.

58 Quid Pro Quo Gifts receives or expects to receive Past practices create expectations! If donors at a certain level received a certain benefit this year, that is usually enough to create an expectation that donors at that level this year will receive the benefit (even if you don t tell them that they will receive the benefit).

59 Quid Pro Quo Gifts receives or expects to receive The test of deductibility is not whether the right to admission or privileges is exercised but whether the right was accepted or rejected by the taxpayer. Revenue Ruling

60 Quid Pro Quo Gifts receives or expects to receive To preserve deductibility, the donor must decline any benefits, and do so no later than when the gift is made.

61 Quid Pro Quo Gifts Special Case Right to Purchase Tickets to College Athletic Events Some colleges give certain people priority to buy scarce tickets, or to get better seats If any gifts are part of the ticket priority formula, the deductibility of those gifts is limited to 80% of the amount that would otherwise be deductible

62 Gift Receipts October 2005 CASE Gift Processing Workshop 62

63 Gift Receipts The Donor s Responsibilities and the Donee s Responsibilities October 2005 CASE Gift Processing Workshop 63

64 Gift Receipts The donor has certain responsibilities Determining whether to claim a charitable deduction Determining the period in which to claim a deduction Determining the amount to claim as a deduction Obtaining written substantiation for gifts of $250 or more

65 Gift Receipts The donee has certain responsibilities Stating the name of the organization Verifying what was received from the donor The amount of a cash gift A description of any property other than cash the taxpayer transferred to the donee organization Disclosing any substantial goods or services were provided to the donor in return for the gift Providing written disclosure when receiving more than $75 partly as a contribution and partly in exchange for goods and services

66 Gift Receipts When you think about it The donor is responsible for things that the donor is in the best position to understand The donee is responsible for things that the donee is in the best position to understand

67 Gift Receipts Acknowledgment (Substantiation) and Disclosure Requirements October 2005 CASE Gift Processing Workshop 67

68 Gift Receipts There are actually two sets of requirements Written Acknowledgment (Substantiation) Written Disclosure Both covered in IRS Pub The good news A thoughtfully implemented gift receipt can readily fulfill both the donor s written acknowledgment requirement and the charitable organization s written disclosure requirement

69 Gift Receipts Why would there be two sets of requirements? The IRS is concerned about two different (although related issues)

70 Gift Receipts Written Substantiation (Acknowledgment) Is this payment to a qualified organization actually a voluntary contribution for which the donor is not getting anything of substantial value in return, or is it a tuition payment, or a purchase at a shop, or rental of the church hall for a wedding reception? The donor is responsible for obtaining written substantiation for contributions of $250 or more.

71 Gift Receipts Written Disclosure Is the charitable organization informing donors when the deductibility of contributions is limited by the value of goods or services provided in return? The charitable organization is responsible for providing written disclosure whenever it receives more than $75 partly as a contribution and partly in exchange for goods and services.

72 Written Acknowledgment The donor s responsibility Required for gifts of $250 or more Donor cannot deduct contributions of $250 or more without contemporaneous written acknowledgment substantiating the gift Typically provided as a receipt for each gift, or as an annual statement

73 Written Acknowledgment Written Acknowledgment must include the name of the organization The amount of a cash contribution, or a description (not value!) of a non-cash contribution A statement that no goods and services were provided by the organization in return for the contribution, or a description and good-faith estimate of the value of the goods and services provided (quid pro quo)

74 Written Acknowledgment Token exception insubstantial goods or services need not be included Specific thresholds are adjusted for inflation every year

75 Written Acknowledgment First token exception Low cost articles with the organization s name or logo, which cost the organization no more than $8.30, do not have to be included, as long as the payment is at least $ If the items are donated, the determination is based on what the organization would have had to pay for them had they not been donated. (You can t just say Well, they didn t cost us anything! )

76 Written Acknowledgment Second token exception Goods and services do not have to be included when the value of all benefits is no more than 2% of the amount given and no more than $83

77 Written Acknowledgment Membership benefits exception certain insubstantial recurring privileges do not have to be included either Benefits are received in return for an annual payment of $75 or less Benefits consist of recurring privileges such as discounted admission, free or discounted parking, discounted purchases at the organization s gift shop or book store, etc.

78 Written Disclosure The charitable organization s responsibility Required when more than $75 is received partly as a contribution and partly in exchange for goods and services Disclosure may be part of solicitation materials, or included on receipt

79 Written Disclosure Written Disclosure must Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is the limited to the amount of the contribution that is in excess of the value of the goods and services provided by the organization Provide a good-faith estimate of the fair market value of those goods and services

80 Gift Receipts Check to make sure that you. Receipt contributions of $250 or more (or $75 or more if you provide goods or services in return) Include the name of your organization Include the amount of a cash contribution, or a description (not value!) of a non-cash contribution

81 Gift Receipts Check to make sure that you. Include a statement that no goods and services were provided by the organization in return for the contribution, or a description and goodfaith estimate of the value of the goods and services provided

82 Gift Receipts Check to make sure that you. Include a statement that the amount of the contribution that is deductible for federal income tax purposes is the limited to the amount of the contribution that is in excess of the value of the goods and services provided by the organization

83 Gift Receipts Dating Receipts No IRS requirement that the receipt include a date Determining the date of gift, and when to claim a deduction, is ultimately the donor s responsibility

84 Gift Receipts Dating Receipts If you include a date of gift and the donor relies on that and the IRS disagrees, the donor could come back to you If you include a date, best to use your processing date rather than attempt to show legal gift date

85 Gift Receipts Dating Receipts One Further Thought IRS auditors understand how this works If a donor claims a gift in one year, and has a receipt with your processing date in early/mid-january of the following year, the IRS knows that processing, etc., takes a little time

86 Gift Receipts Special Cases October 2005 CASE Gift Processing Workshop 86

87 Gift Receipts Gifts in Kind Includes a description (but not value) of a non-cash contribution Some organizations elect to include value of a gift of publicly-traded securities If a donor insists that the receipt include a value, resist. Refer the donor to IRS Publication As a last resort, include language like which you have valued at $x.xx

88 Gift Receipts Gifts in Kind Includes a description (but not value) of a non-cash contribution In fact, you may want to extend the last resort language: "... which you have valued at $x.xx. Please seek guidance from your tax preparer before assigning ANY value to your in-kind donations. This document does not serve as verification of the actual deductible amount."

89 Gift Receipts Payroll Deduction Donor can support deduction with 2 items: Pay stub identifying and showing amount of deduction, and A statement that no goods and services were provided by the organization in return for the contribution, or a description and good-faith estimate of the value of the goods and services provided Can be part of solicitation materials, authorization form, or pledge confirmation letter

90 Gift Receipts Planned Gifts Really a special sort of quid pro quo Donor donates something of value, and Gets something of value in return Annual payments (annuity, annuity trust, etc.) Right to live in the house during their lifetime (retained life interest) Etc.

91 Gift Receipts Planned Gifts Typically very complicated Planned Giving Officer is your best resource Typically, the Planned Giving Officer will provide the donor with documentation that also serves as the receipt Specialized software, etc., for this purpose

92 Gift Receipts Auctions Two different transactions Donations of things to auction Auction purchases that include a gift component

93 Gift Receipts Auctions Donations of things to auction Subject to the same rules as other donations Donations of services, partial interest, etc. are not deductible Bicycle tune-up by the board chair Use of a donor s cabin by the lake

94 Gift Receipts Auctions Auction purchases Subject to quid pro quo rules Only the portion, if any, over the fair market value (FMV) of the item, is a contribution Have to establish a fair market value for each item

95 Gift Receipts Auctions Auction purchases (cont d.) Charitable intent Donor has to intend to give more than the item is worth Important to show bidders the FMV Otherwise, standard quid pro quo receipt Includes value and description of items the winning bidder received

96 When Not to Send a Receipt Naming someone other than the donor For example, naming an individual for a gift from their business, or from a donor-advised fund they established For something that s not a gift For example, for contributed services, or purchase of raffle tickets You probably want to express appreciation (preferably not in a format that looks like a receipt!)

97 Unreimbursed Expenses Remember that contributed services are not deductible Out-of-pocket expenses while providing volunteer service are deductible under certain circumstances Organization acknowledges the services, but does not verify the expenses

98 Unreimbursed Expenses Written acknowledgment The donor s responsibility Required for gifts of $250 or more Donor cannot deduct a single contribution of $250 or more in unreimbursed expenses without contemporaneous written acknowledgment substantiating the gift

99 Unreimbursed Expenses Written acknowledgment must include the name of the organization a description of the services provided by the volunteer a statement that no goods and services were provided by the organization in return for the service, or a description and good-faith estimate of the value of the goods and services provided

100 Unreimbursed Expenses Recap Written Acknowledgment for Unreimbursed Expenses you describe the voluntary services you identify what, if any, the organization provided the volunteer in return you do not identify, or substantiate, anything about the expenses; that s the donor s responsibility

101 Record Keeping October 2005 CASE Gift Processing Workshop 101

102 Record-Keeping Recordkeeping. The organization s records should be kept for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that support an item of income, deduction, or credit must be kept for 3 years from the date the return is due or filed, whichever is later. (IRS Form 990 Instructions)

103 Record-Keeping Section 501(c) organizations that receive tax-deductible contributions must keep sample copies of their fundraising materials, such as: Dues statements Fundraising solicitations, Tickets, Receipts, Or other evidence of payments received in connection with fundraising activities (IRS Form 990 Instructions)

104 Record-Keeping For each fundraising event, organizations must keep records to show the portion of payment received from patrons that is not deductible; that is, the retail value of the goods or services received by the patrons. (IRS Form 990 Instructions)

105 Resources October 2005 CASE Gift Processing Workshop 105

106 IRS Forms and Publications

107 IRS Forms and Publications Publication 526, Charitable Contributions Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements Publication 561, Determining the Value of Donated Property

108 IRS Forms and Publications Publication 557, Tax-Exempt Status for Your Organization Publication 78, Cumulative List of Organization Publication 17, Your Federal Income Tax

109 IRS Forms and Publications Form 8283, Noncash Charitable Contributions Instructions for Form 8283 Form 8282, Donee Information Return (Sale, Exchange, or Other Disposition of Donated Property)

110 IRS Forms and Publications Form 990 & Form 990-EZ, Return of Organization Exempt From Income Tax Instructions for Form 990 and Form 990-EZ

111 Other Resources The Safe Harbor Rules (value of insubstantial goods and services that can be ignored for Quid Pro Quo gifts) change annually. They are published in the last Internal Revenue Bulletin of each year. Join the Fund Services Listserv!!!

112 Questions (& Answers?)

113 Contact Information Alan S. Hejnal Director, Advancement Services Gettysburg College 300 N. Washington St., Campus Box 423 Gettysburg, Pennsylvania Voice: October 2005 CASE Gift Processing Workshop 113