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Home Law in the News Mixed News for the Not-for-Profit World
Mixed News for the Not-for-Profit World Print E-mail

Many people devote substantial time to charities in the form of Board and Committee memberships, direct financial support, mail and direct appeals and related time and support, and by providing free or discounted legal services.  Indeed, many know that some of the expenses incurred are deductible, such as mileage, even though, in many cases, the value of the services provided are not themselves deductible.  In 2004, the value of all cash charitable contributions reported to the IRS was over $122 billion dollars.  This counted only cash donations appearing as deductions upon over 130 million returns.  Some public interest tracking agencies report that this accounts for about 25% of actual charitable contributions annually provided in the United States by United States citizens (and others) who file tax returns.  This is because the number reported by the IRS pertains only to cash contributions and ignores many other types of contributions (personal and real property, for example), and because a percentage of deductions are never taken due to the reporter being unaware of a deduction or failing to file a return.  
 
These are big numbers.  So big, in fact, that the IRS and the Congress are making concerted efforts to reduce these numbers by denying deductions for many people.  The odd thing is that this is being largely accomplished by stealth. Nobody is reviewing IRS Regulations published in the CFR, nor statutes that give any clue that they have tax laws attached, and as a result, the public is unaware of this assault.  Soon long gone may be the day that you give $10.00 to the zoo as you pass the penguin exhibit because you see how many tons of food those birds can eat in a year.  Here’s a couple of the hidden gems in recent legislation that will affect charitable donations and their deductibility. 
 
The Pension Protection Act actually carried some tack-ons addressing the tax deductibility of charitable contributions.  Now, all cash donations must be supported by bank records or written confirmation from the charity.  If the amount donated throughout the year exceeds $500.00, new forms and sections of forms need completion.  Single large gifts over $250.00 must be documented by a contemporaneous writing (i.e., receipt).  Donated clothing (and similar thrift donations) must be in good used condition or better to qualify for deductibility (though there is no definition of what this means or how to prove the condition of goods to the satisfaction of the IRS). 
 
The American Jobs Creation Act of 2004 also had some add-ons.  Now, used vehicle donations where a $500.00 or greater deduction is taken is limited to the sale price obtained by the charity when re-sold in an arms length transaction.  In many cases, this is scrap value less transportation costs.   Further, the charity has a tax form to fill out and submit to the donor and the IRS to report the consideration received. 
 
Additionally, the rules for the contribution of appreciated property have changed.  Besides the limitations relating to the donor's adjusted gross income, there are now more rules than ever concerning what is donated, why and for how long it was held, what type of property it is, fractional interest donations, and what the true purpose of the donation was - philanthropy or tax avoidance.  There are new rules for reporting gifts of stock and rules requiring charities to submit reports to prove they do not support terrorism. 

Also, New York State is making a concerted effort to limit property tax exemptions for charities and not-for-profit entities.
 
In short, there are lots of traps for the unwary.  A good recommended starting point for some of these issues is IRS Publication 526.  Fortunately, the IRS does not yet charge for these publications.

 

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