The Tax Law of Charitable Giving, 2017 Supplement

By Bruce R. Hopkins

The classic reference for charitable gift regulations, updated for 2017

The Tax Law of Charitable Giving is the leading guide to the law, rules, and regulations governing charitable giving. Author Bruce R. Hopkins is the most respected authority in the field; in this book, he provides a comprehensive update on the latest changes to the law, new Treasury Department regulations, and much more to help lawyers, managers, and development directors in tax-exempt organizations stay up-to-date on all regulations pertaining to charitable gifts. This 2017 update includes coverage of updated estate tax law, new substantiation requirements, appraisal requirements, recordkeeping, donor-advised funds, and the new healthcare tax on investment income of trusts, with detailed documentation, citations, and references to regulations, rulings, cases, and tax literature included. The companion website provides additional tables, appendices, IRS guidelines, and other useful documents to help nonprofits make fully informed decisions about their fund-development programs.

As quickly as tax law evolves, it remains the nonprofit's responsibility to stay up-to-date and compliant with all relevant regulations. This book provides a definitive reference for the latest changes, new laws, and upcoming legislation to provide an accessible one-stop reference.

• Examine the latest changes to the laws surrounding charitable giving
• Learn how the new healthcare tax affects pooled income funds
• Understand the Treasury Department's new regulations for reporting, appraisal, and more
• Access reference tables, IRS guidelines, and other useful documents

Charitable gifts are the cornerstone of the nonprofit organization's support, and American taxpayers give more than any other group worldwide. The rules surrounding these gifts are complex, but compliance is critical to the health of the organization. The Tax Law of Charitable Giving provides an authoritative reference for all aspects of the law, with the most up-to-date information available anywhere.

• Language: English
• Publisher: Wiley
• Release date: Feb 17, 2017
• ISBN: 9781119345459

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Cover Design: Wiley

Cover Image: ©iStockphoto.com/Trifonov_Evgeniy

Copyright © 2017 by Bruce R. Hopkins. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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ISBN 9781118768037; ISBN 9781119345473 (Supplement)

ISBN 9781119345251 (ePDF)

ISBN 9781119345459 (ePub)

Preface

This is the third Preface to accompany the fifth edition of this book. This cumulative supplement covers developments in the charitable giving law context for the period ending as of the close of 2016.

This supplement reflects the various extensions of law occasioned by enactment of the Protecting Americans from Tax Hikes Act of 2015 and the Tax Increase Prevention Act of 2014.

The supplement also encompasses the extraordinary amount of litigation that is taking place in this field, particularly in the realms of gifts (or ostensible gifts) of easements, valuation of property that is the subject of charitable giving, the substantiation and appraisal requirements, and application of accuracy-related penalties in the charitable deduction context. There have even been two court opinions denying estates a charitable contribution deduction for distributions for charitable purposes because the amounts were not permanently set aside, as well as a court opinion concerning determination of the value of the remainder interest in a net income makeup charitable remainder unitrust.

Final regulations were issued concerning a transaction of interest involving dispositions of assets from charitable remainder trusts. Proposed regulations were issued to implement the exception to the general charitable gift substantiation requirement, by which donee organizations may file information returns with the IRS that report the required information about contributions; this proposal was withdrawn in the face of intense public and political opposition.

The IRS provided a prototype provision that may be included in the governing instrument of a charitable remainder annuity trust, which will be treated as a qualified contingency, enabling the trust to continue to qualify as a CRAT and sidestep the probability-of-exhaustion test.

The IRS has contributed some private letter rulings in the charitable giving area as well as an interesting chief counsel advice memorandum concerning the circumstances when a charitable gift may be deductible as a business expense.

The potential for tax reform looms. Consequentially, this cumulative supplement includes a new table, this of proposed and House of Representatives–passed law revisions in the charitable giving setting.

My thanks go to my development editor, Matthew Davis, and Seshadri Srinivasan, production editor, for their assistance and support in connection with this cumulative supplement.

Bruce R. Hopkins

March, 2017

About the Author

Bruce R. Hopkins is the principal lawyer in Bruce R. Hopkins Law Firm, LLC, in Kansas City, Missouri. He concentrates in the representation of charitable and other nonprofit organizations. His practice ranges over the entirety of law matters involving tax-exempt organizations, with emphasis on charitable giving (including planned giving), the formation of nonprofit organizations, acquisition of recognition of tax-exempt status for them, the private inurement and private benefit doctrines, the intermediate sanctions rules, legislative and political campaign activities issues, public charity and private foundation rules, unrelated business planning, use of exempt and for-profit subsidiaries, joint venture planning, tax shelter involvement, review of annual information returns, fundraising law issues, and Internet communications developments.

Mr. Hopkins served as chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; chair, Section Taxation, National Association of College and University Attorneys; and president, Planned Giving Study Group of Greater Washington, D.C.

Mr. Hopkins is the series editor of Wiley's Nonprofit Law, Finance, and Management Series. In addition to The Tax Law of Charitable Giving, Fifth Edition, he is the author of Bruce R. Hopkins' Nonprofit Law Dictionary; The Law of Tax-Exempt Organizations, Eleventh Edition; Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries; IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures; The Tax Law of Associations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits' Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; Starting and Managing a Nonprofit Organization: A Legal Guide, Sixth Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; Private Foundation Law Made Easy; Fundraising Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Legal Answer Book for Nonprofit Organizations; and The Second Legal Answer Book for Nonprofit Organizations; and is the coauthor, with Jody Blazek, of Private Foundations: Tax Law and Compliance, Fourth Edition; also with Ms. Blazek, The Legal Answer Book for Private Foundations; with Thomas K. Hyatt, of The Law of Tax-Exempt Healthcare Organizations, Fourth Edition; with David O. Middlebrook, of Nonprofit Law for Religious Organizations: Essential Questions and Answers; with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The New Form 990: Law, Policy, and Preparations; also with Ms. Gross, Nonprofit Governance: Law, Practice, and Trends; and with Alicia M. Kirkpatrick, The Law of Fundraising, Fifth Edition. He also writes Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons.

Mr. Hopkins earned his JD and LLM degrees at George Washington University National Law Center, his SJD degree at the University of Kansas School of Law, and his BA at the University of Michigan. He is the Professor From Practice at the Kansas University Law School, where he teaches courses on nonprofit and tax-exempt organizations, including the charitable giving rules. Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007–2016.

Book Citations

Throughout this book, four books by the author (in some instances, as coauthor), all published by John Wiley & Sons, are referenced as follows:

The Law of Fundraising, Fifth Edition (2013): cited as Fundraising

The Law of Tax-Exempt Organizations, Eleventh Edition (2016): cited as Tax-Exempt Organizations

The New Form 990: Law, Policy, and Preparation (2009): cited as New Form 990

Private Foundations: Tax Law and Compliance, Fourth Edition (2014): cited as Private Foundations

The second and fourth of these books are annually supplemented. Also, updates on all of the foregoing subjects (plus The Tax Law of Charitable Giving) are available in Bruce R. Hopkins' Nonprofit Counsel, the author's monthly newsletter, also published by John Wiley & Sons.

PART ONE

Introduction to the Tax Law of Charitable Giving

Chapter 1 Charitable Giving Law: Basic Concepts

Chapter 2 The United States Tax System: An Overview

CHAPTER ONE

Charitable Giving Law: Basic Concepts

*§ 1.3 Principles of Charitable Organizations Law Philosophy

*§ 1.4 Statistical Profile of Charitable Sector

*§ 1.3 PRINCIPLES OF CHARITABLE ORGANIZATIONS LAW PHILOSOPHY

p. 14, note 37. Insert following existing text:

In a situation where a partnership intended to make $4.75 million in charitable contributions but the gifts were, due to a clerical error, made by means of a business corporation's checks and the matter was corrected, a court refused to uphold the IRS’s disallowance of the deduction, declaring that [t]o disallow a charitable deduction simply because of a clerical error goes against the liberal policy of encouraging charitable giving (Green v. United States, 2016 WL 552964 (W.D. Okla. 2016)). Likewise, (Green v. United States, 2015 WL 1482508 (W.D. Okla. 2015)).

§ 1.4 STATISTICAL PROFILE OF CHARITABLE SECTOR

p. 23, second complete paragraph, seventh line. Delete in the following and substitute below.

*p. 23, second complete paragraph, last line. Delete 2012 and substitute 2015; delete $316 and substitute $373.

*p. 26, second and third complete paragraphs. Delete and substitute:

Charitable giving in the United States in 2015 is estimated to have totaled $373.3 billion.¹²⁰ Giving by individuals in 2015 amounted to an estimated $264.6 billion; this level of giving constituted 71 percent of all charitable giving for the year. Grantmaking by private foundations is an estimated $58.5 billion (16 percent of total funding). Gifts in the form of charitable bequests in 2015 are estimated to be $31.8 billion (9 percent of total giving). Gifts from corporations in 2015 totaled $18.5 billion (5 percent of total giving for that year).

Contributions to religious organizations in 2015 totaled $119.3 billion (32 percent of all giving that year). Gifts to educational organizations amounted to $57.48 billion (15 percent); to human service entities, $45.21 billion (12 percent); to foundations, $42.26 billion (11 percent); to health care institutions, $29.8 billion (8 percent); to public-society benefit organizations, $26.9 billion (7 percent); to international affairs entities, $15.75 billion (4 percent); to arts, culture, and humanities entities, $17 billion (5 percent);