Regarding Charitable Contributions of Property other than Cash or
\nStock<\/p>\n
THE FOLLOWING summary of the U.S. tax laws concerning charitable
\ncontributions was recently commissioned by the Caliph. It was prepared
\nby a qualified C.P.A. in New York, who was asked to elucidate the
\nsubject without bogging down in technical references and jargon — in
\nthis he succeeded pretty well. Its publication here cannot serve in
\nplace of counsel of ones’ own tax accountant or attorney, but is
\nnevertheless a useful guide to how to help the Order without
\nunnecessary sacrifice. — Ed.<\/p>\n
Individual’s Charitable Contributions<\/p>\n
An individual is allowed a deduction from his gross income for
\ncontributions to or for thed use of a charitable, religious,
\neducational, public or scientific organization or the United States or
\nother governmental unit specified. To be deductible the gift must be
\nmade by the taxpayer. There is a deduction ceiling on an individual’s
\ncontributions.<\/p>\n
The maximum deduction for gifts is 50% of adjusted gross income for
\ncontributions to (but not for the use of) most public charities and
\neven some private foundations.<\/p>\n
Substantiating Charitable Contributions<\/p>\n
Certain information must be furnished in the income tax return to
\nsupport a deduction for contributions.<\/p>\n
A corporate or individual taxpayer making a charitable contribution
\nof money must keep a cancelled check or a receipt or, in the absence
\nof a cancelled check or receipt, other reliable written records
\nshowing the name of the donee, the date of the contribution, and the
\namount of the contribution. A letter or other communication from the
\ndonee acknowledging receipt of the contribution and showing the date
\nand amount of the contribution constitutes a receipt. The regulations
\nindicated that this information may have to be reported on a
\ntaxpayer’s return where required.<\/p>\n
The regulations also require a corporate or individual taxpayer
\nmaking a charitable contribution of property other than money to have
\na receipt from the donee charitable organization and a reliable
\nwritten record of specified information with respect to the donated
\nproperty. The receipt must include the name of the donee, the date and
\nlocation of the contribution, and a description of the property in
\ndetail reasonable under the circumstances, including the value of the
\nproperty, in cases where it is impractical to obtain a receipt (such
\nas leaving property at charity’s unattended drop site), the taxpayer
\nis nevertheless required to maintain a reliable written record of
\nspecified information with respect to each item of donated property.<\/p>\n
A reliable written record should include the following information:<\/p>\n
1. name and address of the donee organization.<\/p>\n
2. date and location of the contribution,<\/p>\n
2. a description of the property in reasonable detail, including the
\nvalue of the property at the time the contribution was made, method
\nused to determine that value and a signed copy of any appraisal
\nobtained,<\/p>\n
2. in the case of ordinary income property, the cost or basis of the
\nproperty,<\/p>\n
2. if less than the entire interest in the property is contributed,
\nthe total amount claimed as a deduction for the tax year and for prior
\nyears and the name of any person other than the donee organizaiton
\nthat has actual possession of the property,<\/p>\n
2. The terms of any agreement entered into by the taxpayer relating to
\nthe use, sale, or other disposition of the contributed property.<\/p>\n
Moreover, where a taxpayer claims a charitable contribution
\ndeduction in excess of $500 with respect to property, the taxpayer
\nmust also maintain a written record as to (1) the manner of
\nacquisition (e.g., by purchase) and the approximate date of purchase
\nor manufacture and (2) the cost or other basis of property held less
\nthan six months and, where available, similar information for property
\nheld six months or more.<\/p>\n
Contributions of Property<\/p>\n
Generally, the deduction for gifts of property is measured by the fair
\nmarket value, which is defined as the price at which property would
\nchange hands between a willing buyer and a willing seller, neither
\nbeing under any compulsion to buy or sell, and both having reasonable
\nknowledge of the relevant facts.<\/p>\n
However, limitations apply to the contribution of appreciated
\nproperty, and the amount of the deduction may be subject to reduction.
\nWhether there is a reduction, and how much of a reduction there is,
\ndepends on the type of property donated (ordinary income or capital
\ngain property), the donee of the property, and the use to which the
\nproperty is put.<\/p>\n
Fair Market Value<\/p>\n
The income tax regulations dealing with charitable contributions jare
\nsilent as to whether property must be valued on a bulk or an
\nindividual basis and as to the market that should be used. Where these
\nissues arose, the Tax Court looked to the federal estate and gift tax
\nregulations. Those regulations indicate that the fair market value is
\nto be determined by the sale price of the item in the market in which
\nsuch an item is most commonly sold to the public.<\/p>\n
Appraisals<\/p>\n
Temporary regulations have been issued that apply to contributions of
\nproperty and publicly traded securities if the aggregate claimed or
\nreported value of such items of property (and all similar items of
\nproperty for which deductions for charitable deductions are claimed or<\/p>\n
reported by the same donor for the same taxable year whether or not
\ndonated to the same donee) is in excess of $5,000. The temporary
\nregulations apply to deductions claimed by an individual, closely held
\ncorporation, or personal service corporation for charitable
\ncontributions of such property made after 1984.<\/p>\n
To substantiate such a contribution, the donor must obtain a
\nqualified appraisal and attach an appraisal summary to the return on
\nwhich a deduction for such contribution is first claimed, in addition
\nto complying with the general substantiation requirements. In the case
\nof nonpublicly traded stock, the claimed value of which exceeds $5,000
\nbut does not exceed $10,000, the donor does not have to obtain a
\nqualified appraisal and can file an abbreviated appraisal summary.<\/p>\n
A qualified appraisal is an appraisal document that:<\/p>\n
1. relates to an appraisal that is made not earlier than 60 days prior
\nto the date of contribution of the appraised property;<\/p>\n
2. is prepared, signed and dated by a qualified appraiser;<\/p>\n
2. does not involve a prohibited type of appraiser fee, such as when a
\npart or all of the fee arrangement is based on a percentage (or set of
\npercentages) of the appraised value of the property (except for
\ncertain fee arrangements with not-for-profit associations that
\nregulate appraisers, and<\/p>\n
2. includes the following information:<\/p>\n
a) a description of the property,<\/p>\n
a) in the case of a tangible property, the physical condition of the
\nproperty,<\/p>\n
a) the date of contribution,<\/p>\n
a) the terms of any agreement entered into by the donor which relates
\nto the use, sale or other disposition of the contributed property,<\/p>\n
a) the name, address, and taxpayer identification number of the
\nqualified appriasier and the appraiser’s employer or partnership.<\/p>\n
Value of an article may be substantially higher than the amount or
\namounts received by the charity, and a deduction can be claimed for
\nthe higher value. In such cases, an appraisal may be in order.<\/p>\n
