Contribution and Donor Issues Dave Moja, Tax Partner 8.20.15 Recent Not-for-Profit Tax Happenings 1
In the News ACT Report (EO - Form 990) issued Political Re-proposed Regs still AWOL Form 990 to have one extension 6 months starting in 2016 ALE Reporting for 2016 IRS Alert Form 1095-C Form 1094-C Senate Finance Committee Bipartisan Report on Tax Reform 2
Charitable Contributions Update Charitable Contributions Many organizations are funded almost entirely by charitable contributions IRS and Tax Court have been active Attacks on charitable contributions Supreme decision (Obergefell) Why NOT to worry! 3
Attack on Charitable Contributions Current Administration has proposed six times most recently in 2014 Budget proposal Limit value of charitable contributions to 28% or 2% floor Shift in rhetoric in recent years Support Subsidies Charitable Contributions 1. Gift of cash or property 2. Claimed in the year given 3. Unconditional and without donor benefit 4. To or for the use of the donee charity 5. Within allowable legal limits 6. Properly substantiated Contemporaneous Written 4
Charitable Contributions NOT! Personal services Rent-free use of facilities/building Donor receives benefit ( quid pro quo) Recovery by Bankruptcy courts Designated contributions Directed to a specific individual Failure to follow IRS rules 5
Substantiation Cash contributions Contributions of > $250 Quid pro quo contributions Cars, boats, planes, helicopters Noncash contributions $500 or more $5,000 or more Appraisals The receipt must show: Name of donee organization Date of receipt Date of gift Name of donor Amount of gift Whether any goods or services were provided to the donor If goods or services were provided, a description and good faith valuation of the goods/services provided to the donor, and a statement that the donor's contribution deduction is limited to the amount of the gift in excess of the value of goods/services provided to the donor 6
The receipt must show (continued): If no goods or services were provided, a statement such as: No goods or services were provided in connection with this gift Religious organization may add: except intangible religious benefits Contributions Other Considerations Unreimbursed expenses Pledges Blank checks Contributions of rebates Pre-dated checks (first week in January) Returning contributions to a donor Benevolence (needy and distressed test) Bargain sales 7
Contributions to SMLLCs The IRS issued Notice 2012-52 advising taxpayers that if all other requirements for deductibility are met, contributions to domestic single-member limited liability companies that are wholly owned and controlled by a U.S. charity will be treated as a charitable contribution to a branch or division of that charity Wording on Charitable Receipts Taxpayers claimed a charitable contribution deduction primarily made up of checks written to their church for amounts larger than $250 The church acknowledged its receipt of the contributions on a year-end statement to the taxpayers, but there was no language concerning whether any goods or services were provided in consideration for the contributions 8
Wording on Charitable Receipts The Tax Court disallowed the deduction and reminded taxpayers that the terms of the statute require an affirmative statement that no goods or services were received IRS Publication 1771 The IRS has released a revised Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements Covers new guidelines that allow charities to electronically mail documentation to donors 9
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Example 1 Organization begins a remodeling project. Jane, a carpenter, donates 100 hours to the project. She normally receives $30 per hour for her work. Jane cannot take a tax deduction for the value of her time. Example 2 Sam and Jeanette are big givers to their church. In 2013, they claimed charitable deductions of $27,000 to their church. As a matter of convenience, the church has a rubber stamp for members who want to leave the check blank as to payee. Substantiation and/or donor intent could be a problem here. 11
Example 3 Alice purchased a religious painting in 1996 for $3,000. It is worth $8,000 today. She donated the painting to her church in May 2012. The church prominently displayed the painting in the prayer chapel. In March 2014, the church sold the painting for $12,000. How shall the church receipt this painting? What IRS requirements might there be? Example 4 You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. The project is sponsored by a charitable organization. In most circumstances, you cannot deduct your expenses. [You can deduct travel expenses necessarily incurred while you are away from home providing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel.] 12
Example 5 A donor gives a charitable organization $100 in exchange for a concert ticket with a fair market value of $40. In this example, the donor s tax deduction may not exceed $60. Because the donor s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount does not exceed $75. Token Items Token items. You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true 1. You receive only a small item or other benefit of token value. 2. The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. 13
Form 8282 Who Must File? Original and successor donee organizations must file Form 8282 if they sell, exchange, consume, or otherwise dispose of (with or without consideration) charitable deduction property (or any portion) within 3 years after the date the original donee received the property Form 8282 Charitable Deduction Property Any donated property (other than money and publicly traded securities) if the claimed value exceeds $5,000 per item or group of similar items donated by the donor to one or more donee organizations. This is the property listed in Section B on Form 8283. 14
Form 8282 Who must file 3-year rule Exceptions Items values at $500 or less Items consumed or distributed for charitable purpose When to file Within 125 days after the date of disposition Awareness within 60 days after the date it becomes aware it was liable 15
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IRS Publication 4302 Written Acknowledgment for Vehicle Contribution Deduction of More Than $500 Charity Sells the Vehicle Charity Intends a Significant Intervening Use of the Vehicle Charity Intends to Make a Material Improvement to the Vehicle Charity Intends to Give or Sell the Vehicle to a Needy Individual Penalties! Form 1098-C Penalties EXAMPLE 1: A charity that delivers food and other needed goods to the rural poor in remote locations receives a donation of a subcompact car that has been driven more than 100,000 miles. The charity needs three large vehicles suitable for delivering heavy loads across rugged terrain. The subcompact is not suitable for the charity s use. The charity provides an acknowledgment to the donor falsely certifying that it intends to make significant intervening use of the car. 17
Form 1098-C Penalties EXAMPLE 1, continued: Based on this acknowledgment, the donor claims a deduction of $2,300, the fair market value of the car. The charity is subject to a penalty for knowingly furnishing a false or fraudulent acknowledgment to the donor. The amount of the penalty is $5,000, because that amount is greater than $805, the product of the claimed value ($2,300) and 35%. Gift Acceptance Policy Schedule M (Form 990), Line 31 Land issues S Corp stock gifts Form 8282 Unrelated Business Activities 18
Schedule M Purpose of the Schedule Schedule M (Form 990) is used by an organization that files Form 990 to report the types of noncash contributions received during the year by the organization and certain information regarding such contributions. The schedule requires reporting of the quantity and the reported financial statement amount of noncash contributions received by type of property. Report noncash donated items even if sold immediately after received. Do not report noncash contributions received by the organization in a prior year. Do not report donations of services or the donated use of facilities, equipment, or materials donated. 19
Schedule M Who Must File An organization that answered Yes to Form 990, Part IV, lines 29 or 30, must complete Schedule M (Form 990) and attach it to Form 990. This means an organization that reported more than $25,000 of aggregate noncash contributions on Form 990, Part VIII, line 1g, or that during the year received contributions of art, historical treasures, or other similar assets, or qualified conservation contributions, regardless of whether it reported any revenues for such contributions in Part VIII. If an organization is not required to file Form 990 but chooses to do so, it must file a complete return and provide all of the information requested, including the required schedules. Taxidermy Property If you donate taxidermy property to a qualified organization, your deduction is limited to your basis in the property or its fair market value, whichever is less. This applies if you prepared, stuffed, or mounted the property or paid or incurred the cost of preparing, stuffing, or mounting the property. Your basis for this purpose includes only the cost of preparing, stuffing, and mounting the property. 20
IRS Contribution/Donor Resources Publication 1771 Publication 526 Publication 4302 Publication 4303 Form 8283 Form 8282 www.irs.gov/eo Questions? 21
Thank you. Dave Moja, Tax Partner CapinCrouse LLP dmoja@capincrouse.com 321.258.9907 Twitter! Follow Dave Moja on Twitter: @Nonprofittax 22