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1 IRS Rules & Regs Presented by: Catherine K. Spickard Director of Development Services University of Michigan CASE Gift Processing Workshop 1

2 Topics of the Day All about Gifts What is a gift and what is not Definition of a donor Types of Gift Credit (Legal and Soft) When is a gift complete What is a Gift-in in-kind (more in part II) Pension Protection Act 2006 IRA Rollover Provision Donor-advised Funds & Donor Directed Funds Quiz CASE Gift Processing Workshop 2

3 Topics of the Day Tax Receipts/Written Gift Acknowledgements and Disclosure Requirements When are written acknowledgments necessary and what information must you include Quid Pro Quo and Safe Harbor Rules Auctions Unreimbursed expenses Resources and References CASE Gift Processing Workshop 3

4 What I am NOT: NOT an attorney NOT a tax advisor NOT giving legal advice Disclaimer... My qualifications i then: 16 years of University Development experience Seasoned and sometimes stubborn professional in the area of Development Services CASE Gift Processing Workshop 4

5 What is a gift? IRS defines a charitable contribution as 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 CASE Gift Processing Workshop 5

6 What is a Qualified Organization Qualified organizations include non-profit groups that t include educational, religious, i charitable, scientific or are literary in purpose or that t work to prevent cruelty to children and animals IRS Publication 526 lists examples CASE Gift Processing Workshop 6

7 Voluntary, etc Voluntary not like an exchange transaction There must be Donative Intent Given without the expectation of receiving something of equal value in return CASE Gift Processing Workshop 7

8 What is not a gift Gifts of services are not generally eligible for the federal income tax charitable deduction Gifts of time, labor or effort Partial Interests use of home, office space, vehicle (not the same as a fractional interest ex.- artwork) Discounts CASE Gift Processing Workshop 8

9 What is not a gift Gifts to, or for the benefit of a specific individual (tuition payments) Contributions ti in which h the donor benefits Gifts to, or for the use of fraternities, sororities and non-qualifying student organizations Cost of raffle tickets CASE Gift Processing Workshop 9

10 Gifts-in in-kind Tangible personal property, intangible personal property, real property Can be more challenging to deal with May need appraisal Need to be careful that t the GIK is not really Services CASE Gift Processing Workshop 10

11 Definitions of a Donor The IRS defines a donor as someone who makes a contribution directly to a qualified organization or legal representative of that organization, for the use of a legally enforceable trust for that organization or in a similar legal arrangement. CASE Management Reporting Standards defines donors as those individuals or organizations that transmit a gift or grant to a qualified institution. In 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. CASE Gift Processing Workshop 11

12 2 Tips for determining the donor Ak Ask the questions. Whose asset was iti immediately ditl before bf it was transferred to your organization Who is the check writer/signer Be cautious though - some parties act as an agent for the donor CASE Gift Processing Workshop 12

13 Whose Rules Do You Follow? Internal Revenue Service (IRS) Council for Advancement and Support of Education (CASE) Your Institution Donor s o sw Wishes CASE Gift Processing Workshop 13

14 Types of Gift Credit Legal Credit (or hard credit) is given to whoever made the contribution Total # of hard credits must equal gift amount Some institutions have one 100% hard credit Other institutions have two 50% hard credits CASE Gift Processing Workshop 14

15 Types of Gift Credit Soft Credit (or recognition credit) is primarily for recognition purposes Can give to as many as you wish Whomever your institution wishes to credit f for the gift CASE Gift Processing Workshop 15

16 When is a gift complete In general, a gift is complete when the donor has relinquished control of the asset to your institution Specific rules apply for cash, credit cards & securities Important for you to understand the impact of gift date for your donors Donor is responsible for deciding when to claim the deduction CASE Gift Processing Workshop 16

17 Charitable IRA Rollover Provision Pension Protection Act of 2006 Signed into Law August 2006 Provides tax incentives for donors age 70 ½ or older to contribute IRA assets to educational institutions and other non-profits CASE Gift Processing Workshop 17

18 How it works Individuals aged 70 ½ and older may transfer up to $100,000 per year directly from an IRA to a qualified charity This qualified charitable distribution is excluded from the donor s taxable income CASE Gift Processing Workshop 18

19 The Benefits of the IRA Rollover Qualified distributions are excluded from the donor s adjusted gross income The charitable distribution may be applied toward your Required Minimum Distribution Distribution is not counted as part of the maximum allowable tax deduction. Allows donor s to make charitable contributions in amounts over 50% of their adjusted gross income CASE Gift Processing Workshop 19

20 The Benefits of the IRA Rollover Distribution may reduce income and reduce the percentage of social security income subject to taxation Since the distribution generates neither taxable income nor an itemized tax deduction even donors who do not itemize can benefit CASE Gift Processing Workshop 20

21 Points to Remember Qualified charitable distributions cannot be paid to the account holder. Distributions must me paid directly to the charity IRA rollovers cannot be used to fund split interest or life income gifts such as charitable gift annuities or charitable remainder trusts Donors may not receive quid pro quo benefits CASE Gift Processing Workshop 21

22 Points to Remember Distribution cannot be made to private foundations, donor advised funds or supporting organizations Charity must provide written acknowledgement to donor CASE Gift Processing Workshop 22

23 Pension Protection Act 2006 Recapture Rule GIK s Gifts of all tangible personal property can be deducted at FMV provided the gift is for a related use If disposed of within a year of the gift the deduction is limited to the lesser of the donor s basis or sales price unless the charity certifies that it had been used for a related purpose or it had been planned dt to be used db but tth that tb became impossible or infeasible CASE Gift Processing Workshop 23

24 Pension Protection Act 2006 Recapture Rule GIK s If disposed of after 1 year but in les than 3, the donor must include as ordinary income he difference between the claimed deduction and the donor s basis or sales price unless the charity provides the discussed certification 8282s must now be filed if the property is sold within 3 years ( not 2) $10,000 penalty for claiming related use when really unrelated CASE Gift Processing Workshop 24

25 Donor-advised Funds and Donor Directed Funds CASE Gift Processing Workshop 25

26 Donor-advised Funds The donor transfers (irrevocably) assets into the fund Donor gets the tax deduction at the time of the transfer Donor can later recommend where the funds should be distributed Common DAFs include Vanguard Charitable Endowment, Fidelity Charitable Gift Fund CASE Gift Processing Workshop 26

27 Donor-advised Funds (DAF) DAF are subject to rules governing private foundations Gifts/Grants cannot pay pledges No one associated with the fund can receive goods or services in consideration of distribution DAF are more common than DDF CASE Gift Processing Workshop 27

28 Donor Directed Funds Donor retains control over assets in the fund Organization acts as an administrator of the donor funds Donor directs what contributions are made by the fund; fund managers do not have approval/discretion Donor does not receive tax deduction at the time of the contribution to the fund DDF are uncommon CASE Gift Processing Workshop 28

29 Time for a Quiz. CASE Gift Processing Workshop 29

30 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from: John Doe, MD Inc. Does John Doe,, the person, or John Doe, MD Inc., the business, receive the legal credit? John Doe, MD Inc. with soft credit to John CASE Gift Processing Workshop 30

31 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from Bob Jones with a note explaining that it is actually a gift from Sally and Bob Johnson.. Who gets the legal credit: Bob Jones or Sally Johnson? Bob Jones with soft-credit to Sally CASE Gift Processing Workshop 31

32 Who is the Donor? Who would you record as the legal donor in the following situation? Check received from the Schwab Charitable Gift, indicating that we should send an acknowledgment to Jane Smith.. Who gets the legal credit: Jane Smith or the Charitable Gift Fund? It Depends! Donor Advised Fund vs. Donor Directed Fund CASE Gift Processing Workshop 32

33 Written Acknowledgments/ Tax Receipts Required for all contributions of $250 or more (except quid pro quo) in the U.S. and for any contribution in Canada in order to claim a charitable deduction. Cancelled checks are no longer sufficient. i Donor is responsible for obtaining Substantiation to donor must be contemporaneous (that is, in time for tax filing) New vehicle rules require receipt within 30 days of gift (if retaining) or 30 days from the date of sale CASE Gift Processing Workshop 33

34 Written Acknowledgments What must they include: The name of the organization The amount of a cash contribution ti or for non- cash gifts, a description of the property (Not a Value) A statement that no goods or services were provided by the organization, or a description and good faith estimate of the value of the goods and services (quid pro quo) CASE Gift Processing Workshop 34

35 Written Acknowledgments Vehicle Contribution Deduction of more than $500 Your name and taxpayer id number, vehicle ID #, date of gift And one of the following:» A statement that no goods or services were provided by the charity in return for the donation» Or a description and good faith estimate of the goods or services received» A statement that goods or services provided by the charity consisted entirely of intangible religious benefits Special rules apply for donated vehicles sold at $500 or less Generally, if the charity sells the vehicle, the donor deduction is limited to the gross proceeds received by the organization from the sale. CASE Gift Processing Workshop 35

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37 Written Disclosure & Quid Pro Quo An organization ation must provide a written disclosure statement to a donor who makes a payment exceeding $75 partly for goods and services provided by the organization. A contribution made by a donor in exchange for goods or services is known as a Quid pro quo contribution. In these situations, the disclosure must inform donor that the tax-deductible amount is limited to the excess of the amount contributed over the value of goods or services provided. Disclosure must also provide donor with a good-faith estimate of the value of such goods or services. CASE Gift Processing Workshop 37

38 Safe Harbor Rules (U.S) Quid Pro Quo receipts are not required when: Fair market value of all benefits received in connection with the payment does not exceed the lesser of 2% of the gift amount or $89 (2007) OR Gift is $44.50 (2007) or more and the cost of all benefits given does not exceed the IRS low-cost articles minimum of $8.90 (2006) AND The only benefit the donor received consisted of token items bearing the institution s name or logo CASE Gift Processing Workshop 38

39 Safe Harbor Information The Safe Harbor Rules change annually. They are published in the last IRB of each year (Internal Revenue Bulletin). CASE Gift Processing Workshop 39

40 Example If a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60. Even though the deduction is less than $75, a disclosure statement must be sent because the donor's payment (quid pro quo contribution) is more than $75. If a receipt is sent for payment under $75, it must show quid pro quo info. Also remember, solicitation material must always mention quid pro quo. CASE Gift Processing Workshop 40

41 Other Info on Goods & Services Value of Goods and Services Disclosure statement must always be included on the receipt. Up to a $1,000 penalty per failure to disclose or improper disclosure for your organization AND your organization s President, Chairperson of CEO. Certain Membership Benefits Excluded An annual membership benefit is considered to be insubstantial if it is provided in exchange for an annual payment of $75 or less. Rights or privileges given must fall below the minimums listed under quid pro quo. CASE Gift Processing Workshop 41

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43 Auctions A donor contributing an item to be used in a charity auction is eligible for a tax deduction related to the item donated. Provide donor with a Gift-In-Kind receipt. (Can only issue receipt if the item is sold) Items purchased at auction: Only the amount, if any, in excess of the fair market valued of an item purchased can be considered a charitable contribution. CASE Gift Processing Workshop 43

44 Unreimbursed Expenses Out-of of-pocket expenses incurred while providing volunteer services are deductible under certain circumstances (ex. Transportation) Donor cannot deduct a single contribution of $250 or more without a written acknowledgement Remember-contributed services themselves are not deductible CASE Gift Processing Workshop 44

45 References Determining the Value of Donated Property- IRS Pub Charitable Contributions- IRS Pub Charitable Contribution- IRS Pub / pdf/p1771.pdf Guide to Vehicle Donations- IRS Pub (not revised yet) gov/pub/irs-tege/pub4302 tege/pub4302.pdf pdf CASE Gift Processing Workshop 45

46 More References Donors Guide to Vehicle Donations- IRS Pub Updates on Disclosure and Substantiation Rules Best place for all the updated information: CASE Gift Processing Workshop 46

47 Questions???? CASE Gift Processing Workshop 47