Charitable Contributions Deductions In general

Substantiation and Valuation

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Substantiation and Valuation. Under long-standing regulations,105 a charitable contributions deduction is only available if proper substantiation is maintained by the donor. In some cases, this includes obtaining a “qualified appraisal” of the value of property donated.106 In 1993, Congress added two further requirements.107 The first mandates donors to obtain a “contemporaneous written acknowledgment”108 from the charitable donee for gifts of $250 or more.109 The second imposes bur­dens on donees, not donors, to provide written notice of the exist­­ence and amount of any quid pro quo provided to a donor of more than $75.110

Because a charitable contributions deduction is often allowed for the fair market value of donated property, disputes arise about how to fix that value. The standard definition for this purpose reads:

“The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having rea­son­able knowledge of relevant facts.”111

The determination of fair market value is very fact specific. Thus, despite a large number of litigated cases, controversies continue to emerge regularly. The Internal Revenue Service publishes a helpful valuation guide for its appeals officers.112 Special procedures apply to gifts of art,113 and an I.R.S. Art Advisory Panel meets in closed session, several times each year, in order to de­ter­mine the authenticity and fair market value of works of art. The meetings are closed in or­der to protect the confidentiality of taxpayer in­for­ma­tion pre­sented to the Panel.114

Non-Itemizers. Taxpayers may elect either to itemize their deductions or to take a “standard deduction” instead.115 Most — more than 70 percent — choose the standard de­duc­tion.116 As a result (1) they cannot claim an itemized charitable contributions deduction and (2) they are entitled instead to the simpler, and at least sometimes more generous, standard deduction.117 Because the amount of the standard deduction does not vary with actual charitable donations, and is in lieu of certain other deductions as well, it provides no incentive to make charitable gifts, and it treats equally those nonitemizers who donate to charity and those who do not. There is an unavoidable policy tension here: between simplification of taxpayer compliance burdens, on the one hand, and a desire for improved incentives and horizontal equity among taxpayers, on the other.118

From 1982 to 1986, a nonitemizer charitable contributions deduction was allowed, phasing in during the earlier years until fully effective in 1986.119 It terminated after 1986120 and later was completely repealed.121 Restoration of the nonitemizer charitable contributions deduction has since been a favorite goal of charitable organizations. The design of any such deduction should respond to the various policy considerations and tensions among them; some of these will be discussed below.122

Cross-border issues. No income tax charitable contributions deduction is allowed unless the charitable donee is organized within the United States.123 This limitation is subject to two important qualifications. First, eligible U.S. charitable donees may use their funds abroad for charitable purposes.124 Second, a donor may donate to a U.S. charity that, in turn, donates to a foreign charity.125 However, the Service has denied deductions, in such a case, if the intermediate U.S. charity is a mere conduit, i.e., if “the domestic organization is only nominally the donee” but “the real donee is the ultimate foreign recipient.”126 The deduction nevertheless may be allowed even if the intermediate U.S. donee gives funds only to a particular named foreign entity;127 such U.S. intermediate entities are sometimes called “friends of” organizations because they are frequently so named.128 The intermediate donee must not be bound, by any charter or by-law provision, to deliver the funds to the foreign charity; gifts by the intermediate donee to the foreign charity must be within the charitable mission and purpose of the U.S. intermediate entity; and the U.S. intermediate charity must exercise some appropriate level of scrutiny over the foreign donee to make sure that it qualifies as an eligible charity.129

The above place-of-organization limitation does not apply for purposes of the gift tax or estate tax.130 The Internal Revenue Code, however, generally requires charities (other than certain religious groups or very small organizations) to notify the Service, and to apply for a determination letter confirming their charitable status, within 27 months of their organization.131 This requirement applies to foreign charities unless they derive less than 15 percent of their “support”132 from U.S. sources.133 A foreign charity that is not excused from this requirement but that fails to comply with it is not “treated as an orga­nization described in section 501(c)(3)”134 and donors to it may be denied gift tax and estate tax charitable contributions deductions for their gifts.135

Because they are generally exempt from taxation, neither U.S. private foundations nor U.S. public charities need a charitable contributions deduction. They are, therefore, untouched by the place-of-formation rule136 that affects individual and corporate donors. They do, however, have other concerns when making grants to foreign charities. Domestic private foundations making grants to foreign organizations may deal with those concerns either by making a so-called “foreign equivalency” determination or by exercising expenditure responsibility. Either course of action can address the three particular issues such private foundations confront:

  1. Grants to non-operating private foundations generally are not “qualifying distributions,”137

  2. A grant to a private foundation (unlike one to a public charity) may be a taxable expenditure;138 and

  3. A grant may be a taxable expenditure if it is used by the donee for non-charitable purposes.139

If a U.S. private foundation so chooses, it may cope with each of these by analyzing whether its foreign donee is a properly qualified organization. This path requires testing how the foreign recipient is categorized under U.S. standards. To avoid the first two problems, the U.S. private foundation must conclude that its foreign donee is a public charity rather than a private foundation.140 If the foreign donee has not received an I.R.S. determination of its public-charity status, the regulations permit the U.S. foundation to make a good-faith judgment141 based either on an affidavit of the foreign donee or an opinion of counsel.142 To avoid the third problem, the U.S. private foundation must determine that the foreign donee is described in I.R.C. § 501(c)(3).143

The Service issued procedural guidance in 1992 that substantially reduced the compliance burdens of U.S. private foundations electing to follow the foreign-equivalency route.144 The revenue procedure in question applies when the foreign donee does not have a determination letter from the I.R.S.;145 it provides a simplified method for obtaining a “currently qualified” affidavit from the foreign donee. The exact language of an acceptable form for that affidavit is set forth in the revenue procedure.146 A proper affidavit generally will protect all U.S. private foundations relying on it so long as it remains “currently qualified”;147 it will remain so unless the underlying facts change or, if financial data are important, so long as they reflect the grantee’s “latest complete accounting year.”148

Because foreign equivalency determinations are often problematical,149 many U.S. private foundations instead elect to address the three issues, above, by exercising expenditure responsibility. Five steps are usually required: (1) a pre-grant inquiry to determine that the foreign grantee is able to fulfill the charitable purposes of the grant; (2) a written grant agreement; (3) annual reports from the foreign grantee; (4) notifications to the I.R.S.; and (5) ensuring that the granted funds are maintained in a segregated account.150 If the U.S. donor follows this path, it is no longer necessary to determine how its foreign donee would be characterized under U.S. law.151

A U.S. public charity, although free from the three burdens discussed above,152 may also elect to determine whether its foreign donees are charitable organizations. If they are, the U.S. donor public charity is protected in making those grants;153 if not, it must, at the risk of losing its tax-exempt status, verify that the foreign donees used the funds for charitable purposes.154 This verification often entails taking steps similar to those taken by a private foundation exercising formal expenditure responsibility. Thus, if the public charity exercises expenditure responsibility with respect to a grant to a foreign donee, it does not have to make a foreign equivalency determination.

Transfer taxes. Charitable contributions are deductible for purposes of both the estate tax and the gift tax.155 Although there are minor linguistic differences within and between the relevant sections,156 those do not portend significant legal differences for most purposes. Under both the estate and the gift tax regimes:

  • The deductions are unlimited,157 so there is no need for any carryover provisions;

  • The special reduction rules that apply for income tax purposes158 do not apply;

  • The deduction floor that applies for income tax purposes159 does not apply;

  • The special donation-substantiation rules that apply for income tax purposes160 do not apply (although general substantiation-of-deduction requirements are applicable);161 and

  • As in the case of the income tax, no deduction is permitted for charitable gifts of partial interests,162 except for: (i) donations in the form of charitable lead annuity trusts or unitrusts, charitable remainder annuity trusts or unitrusts, or pooled income funds;163 (ii) gifts of a undivided interest in the donor’s entire property,164 (iii) re­mainder interests in personal residences165 and farms,166 and (iv) certain qualified conservation interests.167

A Venn diagram of the income tax, gift tax, and estate tax charitable deduction provisions would show a considerable overlap, but also areas of each that differ from the others. It is often desirable to draft documents to focus on the intersection to ensure that the charitable donations qualify under each and all of the regimes. In almost all cases, inter vivos transfers should attempt to qualify for both income and gift tax purposes, lest an income tax deduction be allowed but a gift tax be imposed or vice-versa.

Recent legislation provides for the phase-down of both estate and gift tax rates168 and the eventual repeal of the estate (but not the gift) tax.169 The repeal, scheduled to be effective on January 1, 2010,170 is itself scheduled to lapse on January 1, 2011, thus fully restoring the estate tax to the Code.171 Because this risible state of affairs makes it very difficult to do sensible estate planning,172 it is very likely that Congress will revisit this and will revise either the estate tax repeal or its scheduled restoration.

Policy issues. The charitable contributions deduction may be viewed either as base-defining or as an incentive (or subsidy) for charitable giving. The most widely-accepted definition of the proper tax base for an income tax — the Haig-Simons definition — states that income for any period is the sum of (1) amounts spent by the taxpayer on personal consumption during the period and (2) the change in the taxpayer’s net worth during the period.173 Because amounts given to charity no longer appear in the taxpayer’s net worth, the question becomes whether such giving should be viewed as personal consumption. If not, the deduction for charitable gifts is an appropriate policy response for defining net income subject to tax, and should not be viewed as a subsidy.174

Even if the base-defining rationale is accepted, allowing a deduction for the appreciation in value of property donated to charity, without including that increase in the income of the donor, cannot be so justified.175 To that extent, it must be supported, if at all, on the grounds that it is an incentive or subsidy for giving. If it were thought desirable to preserve the deduction generally, but eliminate the harder-to-justify deduction for appreciation in value of property donated, three routes to achieve that could be followed:

  1. The deduction could be limited to the adjusted basis of the property donated, i.e., the deduction for the unrealized appreciation in value could be denied, or

  2. The deduction could be allowed for the full fair market value of the property donated, but the gain inherent in the property could be included in the donor’s income at the time of the gift, or

  3. A deduction could be permitted for the full fair market value of the property donated, but the charitable donee could be required to pay tax on the unrealized appreciation in value at any later time when it sells or disposes of the property.176

The first route is similar to some already in the Code for charitable gifts;177 the second and third would be novel in that context.178 The second approach requires donors to pay tax even though they do not receive any cash or property in exchange for the donated property; this is sometimes deemed undesirable as a matter of tax policy. The third route not only defers, perhaps indefinitely, the imposition of any tax on the unrealized appreciation in value, but would subject it to tax, upon later disposition of the property, at the tax rates of the donee rather than those of the donor. Consideration might be given to making the first route the default rule, but allowing donors to elect to apply the second or (with the consent of the donee) the third route in lieu of the first.

The deduction for charitable gifts can be viewed as a government matching program.179 For example, if a donor who itemizes deductions and whose top marginal tax bracket is 35 percent makes a $100 gift to charity, and deducts that amount from his income, the net cost or “price” of the gift is $65.180 The government, from this viewpoint, is making a $35 matching grant to the charity chosen by the donor. The size of the matching grant varies directly with the top tax bracket of the donor. Thus, the government offers a higher match to wealthier, higher-income taxpayers than to less-wealthy, lower-income taxpayers. This regressivity is objectionable to some on tax policy grounds; defenders support it as merely an appropriate base-defining rule.181

If it were thought desirable to eliminate this regressivity, a credit could be provided in lieu of the deduction.182 The amount of the credit could be calculated, at least approx­imately, so as to involve any chosen amount of revenue loss and to simulate an equivalent deduction at any selected target tax rate. While this would eliminate the regressivity (because the government’s “matching grant” would then be the same at all income levels), it would not be possible to justify a credit of this sort under a base-defining rationale.183

There is uncertainty about how much the income tax deduction for charitable giving affects amounts given to charity.184 Economists analyze this in terms of “price elasticity”: the extent (expressed as a decimal ratio) by which a reduction in the “price” of giving increases such giving.185 The price of a $1 donation for itemizers is one minus the donor’s top marginal tax rate.186 If the price declines by 10 percent (e.g., because of an increase in the donor’s top marginal tax rate), and if donations, as a result, increase by the same 10 percent, the price elasticity would be -1.0. If, however, a 10 percent reduction in price produces only an 8 percent increase in donations, the price elasticity would be -0.8. There is general agreement that the lower the price of giving, the more is given to charity, but quantifying the effect has proved to be extremely difficult.187 The more recent economic literature has produced estimates of price elasticity ranging from -0.5 to -1.75;188 the former number suggests that a 10 percent decline in the price of giving would increase long-run charitable giving by only 5 percent; the latter suggests that a price decline of 10 percent would increase long-run charitable giving by 17.5 percent.189 Analyzing prior writings, and taking into account other effects — particularly the so-called “crowding out” effect of tax-financed contributions — beyond price elasticities, one economist has concluded that tax incentives are treasury efficient if they exceed -0.99 (using low estimates for the amount of crowding out) or -0.56 (using high estimates).190

Using newly-available panel data,191 several leading scholars have found differing price elasticities for “transitory,” as opposed to “permanent,” tax rate changes,192 concluding that the former are significantly smaller in absolute terms than the latter, which fall in the range of -0.79 to -1.26.193 The authors concede that their research is only a “first step,” and that much further work has to be done with panel data “to address how chan­ges in expectations of future tax policies . . . affect current individual [charitable] behavior.”194

Price elasticities may differ for large donors and small donors. Many believe that the price elasticity is lower for lower income donors, including those now generally electing to use the standard deduction in lieu of itemizing deductions.195 If so, in estimating the impact of providing a deduction for nonitemizers, it is more likely that the revenue foregone would be greater than the additional donations stimulated; however, not all observers agree.196

Designing a sound nonitemizer deduction197 requires confronting and balancing conflicting policies:

  • The standard deduction is intended to provide nonitemizers an implicit deduction in an amount sufficient to substitute for itemized de­ductions, including the charitable contributions deduction. Permitting nonitemizers to deduct charitable contributions thus raises two concerns: (1) would this erode the simplification of com­pli­ance burden fostered by the standard deduction, and (2) if a nonitemizer charitable deduction is permitted, should the amount of the standard deduction be reduced to take that into account and prevent “double dipping”?

  • Because the amounts covered by a nonitemizer deduction are relatively modest but the number of people claiming it would likely be large, the already-lean I.R.S. resources might not be able to audit those returns effectively, thus giving rise to the perception, if not the reality, of more tax fraud.198

These concerns could be ameliorated, albeit not eliminated, by permitting a nonitemizer deduction only above a certain floor amount.199

* Copyright © 2002 Harvey P. Dale. All rights reserved. This paper does not reflect changes in the law subsequent to 2002.

1 Donations by partnerships, S corporations, and certain other pass-through entities are allowed to the partners, shareholders, etc., rather than being allowed to the entity. See, e.g., I.R.C. §§ 703(a)(2)(C), 702(a)(4), 1366(a)(1). Charitable donations by trusts or estates are subject to a different regime under I.R.C. § 642(c).

2 War Revenue Act, ch. 63, § 1201(2), 40 Stat. 300, 330 (1917).

3 I.R.C. § 170(b)(1)(A). An individual’s “contribution base” is his or her adjusted gross income computed without any net operating loss carrybacks. I.R.C. § 170(b)(1)(F).

4 I.R.C. § 170(b)(2). See note Error: Reference source not found, infra.

5 A helpful publication is also available from the Internal Revenue Service: I.R.S. Pub. No. 526, Charitable Contributions (Rev. December 2000).

6 A selected bibliography of helpful sources is provided in an appendix to this chapter, under the heading “Planned Giving.”

7 See text accompanying notes Error: Reference source not found-Error: Reference source not found, infra.

8 AAFRC Trust for Phil­an­thropy, Giving USA 2000 18 (2000). See also Murray S. Weitzman, et al., The New Nonprofit Almanac and Desk Reference 52-89 (2002).

9 For example, in Bob Jones University v. United States, Mr. Justice Powell, concurring, wrote:

“Federal taxes are not imposed on organizations ‘operated exclu­sively for religious, charitable, scientific, testing for public safety, literary or educational purposes . . . .’ 26 U.S.C. § 501(c)(3). The Code also permits a tax deduction for contributions made to these organizations. § 170(c).” 461 U.S. 574, 605 (1983).

See also Regan v. Taxation With Representation of Washington, 461 U.S. 540, 543 (1983) (“Taxpayers who contribute to § 501(c)(3) organizations are permitted by § 170(c)(2) to deduct the amount of their contributions on their federal income tax returns . . . .”).

10 Rev. Rul. 65-61, 1965-1 C.B. 234; G.C.M. 32,399 (Sept. 21, 1962), modified by G.C.M. 32,519 (Feb. 20, 1963).

11 The five numbered paragraphs of I.R.C. § 170(c) refer to (1) states, possessions, political subdivisions, and the District of Columbia, (2) charitable organizations (in language virtually identical to that of I.R.C. § 501(c)(3)), (3) posts or organizations of war veterans, (4) do­mestic fraternal societies, and (5) cemetery companies. Further conditions on eligibility are imposed under each of these paragraphs.

12 I.R.C. § 170(c)(2)(B). The quoted language is identical to that in I.R.C. § 501(c)(3) with the exception that organizations that test for public safety are included in the latter but not in the former. See text accompanying note Error: Reference source not found, supra.

13 I.R.C. § 170(c)(2)(A). See text accompanying notes Error: Reference source not found-Error: Reference source not found, infra.

14 I.R.C. § 170(c)(2)(C).

15 I.R.C. § 170(c)(2)(D); Treas. Reg. § 1.170A-1(j)(5).

16 Bob Jones Univ. v. United States, 461 U.S. 574 (1983).

17 I.R.S. Pub. No. 78, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986, issued annually, lists all eli­gible charities on the IRS Master File.

18 See Rev. Proc. 82-39, 1982-2 C.B. 759, for a general discussion of the extent to which such reliance will be protected. The I.R.S. reserves the right to challenge deductions, even if the donee organization was listed in I.R.S. Pub. No. 78, op. cit. supra note Error: Reference source not found, if the donor knew of the revocation of the charity’s exempt status, was aware that it was imminent, or was in part responsible for or aware of the actions giving rise to the revocation. Id. at § 3.01.

19 I.R.C. § 170(c).

20 I.R.C. § 102, excluding gifts from the income of the donee.

21 Com­missioner v. Duberstein, 363 U.S. 278, 286 (1960). See, e.g., DeJong v. Commission­er, 309 F.2d 373 (9th Cir. 1962) (applying the subjective Duberstein test).

22 See, e.g., Singer Co. v. United States, 449 F.2d 413 (Ct. Cl. 1971), declining to apply the Duberstein test.

23 United States v. American Bar Endowment, 477 U.S. 105, 118 (1986). Three years later, the Court commented approvingly on the American Bar Endowment objective test, saying “This practice has the advantage of ob­vi­­ating the need for the IRS to conduct impre­cise inquiries into the mo­ti­va­­tions of individual taxpayers.” Her­nandez v. Commis­sioner, 490 U.S. 680, 690-91 (1989). See generally Douglas A. Kahn & Jeffrey H. Kahn, “Gifts, Gafts, and Gefts” — The Income Tax Definition and Treatment of Private and Charitable “Gifts” and a Principled Policy Justification for the Exclusion of Gifts from Income, 78 Notre Dame L. Rev. 441, 495-524 (2003).

24 Treas. Reg. § 1.170A-1(h)(1), adopted by T.D. 8690, 61 Fed. Reg. 65946 (Dec. 16, 1996).

25 United States v. American Bar Endowment, 477 U.S. 105, 116 (1986) (emphasis added). Because of the substantiation requirements discussed below (see text accompanying notes Error: Reference source not found-Error: Reference source not found, infra), the first leg of the test is not likely to have much practical significance.

26 See text accompanying notes Error: Reference source not found-Error: Reference source not found infra.

27 See, e.g., Rev. Rul. 73-1, 1973-1 C.B. 117 (donor’s retained option to require repayment of donated amounts fatal to deduction); Rev. Rul. 77-305, 1977-2 C.B. 72 (donor’s power to compel donee to sell donated property and accept cash instead fatal to deduction); Briggs v. Commissioner, 72 T.C. 646 (1979) (conditions on donated property not negligible; held: deduction denied), aff’d without opinion, 665 F.2d 1051 (9th Cir. 1981); 885 Inv. Co. v. Commissioner, 95 T.C. 156 (1990) (court found it “doubtful” that condition on use of donated property would be met; held: deduction denied). See also United States v. Dean, 224 F.2d 26, 29 (1st Cir. 1955). See generally Johnny Rex Buckles, The Case for the Taxpaying Good Samaritan: Deducting Earmarked Transfers to Charity Under Federal Income Tax Law, Theory and Policy, 70 Fordham L. Rev. 1243 (2002); John McGown, Jr., Major Charitable Gift — How Much Control Can Donors Keep and Charities Give Up?, 91 J. Tax’n 279 (1999); Ronald W. Blasi & Richard A. Denesha, Avoiding Disallowance of Earmarked Charitable Contributions, 9 Rev. Tax’n Individuals 160 (1985).

28 Treas. Reg. § 1.170A-1(e); accord, Treas. Reg. § 1.170A-7(a)(3). The quoted language leaves room, however, for certain conditions so long as the likelihood of their occurrence is deemed “so remote as to be negligible.” The regulation goes on to confirm this:

If an interest in property passes to, or is vested in, charity on the date of the gift and the interest would be defeated by the subsequent performance of some act or the happening of some event, the possibility of occurrence of which appears on the date of the gift to be so remote as to be negligible, the deduction is allowable. For example, A transfers land to a city government for as long as the land is used by the city for a public park. If on the date of the gift the city does plan to use the land for a park and the possibility that the city will not use the land for a public park is so remote as to be negligible, A is entitled to a deduction under section 170 for his charitable contribution.

Treas. Reg. § 1.170A-1(e). Pre-1972, the regulations had used the phrase “highly improbable” instead of “so remote as to be negligible.” T.D. 6285, 23 Fed. Reg. 1759, 1760 (Mar. 14, 1958). The change to the current language was made by T.D. 7207, 37 Fed. Reg. 20676, 20773 (Oct. 4, 1972).

29 See, e.g., Rev. Rul. 77-148, 1977-1 C.B. 63, supported by G.C.M. 36,980 (Jan. 11, 1977) (gift of timberland on condition that land would revert to donor if within 90 years donees attempted to sell land or remove trees; held: because donees were conservation organization and the United States, both accepting gift of land for use as wildlife preserve, possibility of reverter was so remote as to be negligible, so current deduction allowed).

30 See, e.g., Rev. Rul. 85-99, 1985-2 C.B. 83, supported by G.C.M. 39,380 (July 9, 1985) (gift of land to agricultural college on condition it was to be used only for agricultural purposes; held: deduction allowed, but land valued as agricultural even though worth more if free of that restriction). Accord, Deukmejian v. Commissioner, 41 T.C.M. (CCH) 738, T.C. Memo 1981-21 (condition insisted on by donee); Fargason v. Commissioner, 21 B.T.A. 1032 (1930) (reviewed by the Board) (condition imposed by donor).

31 I.R.C. § 170(f)(3); Treas. Reg. § 1.170A-7(a)(1). See, e.g., Rev. Rul. 2003-38, 2003-11 I.R.B. ___.

32 I.R.C. § 170(f)(2)(A). This includes pooled income funds as well as charitable remainder annuity trusts and charitable remainder unitrusts.

33 I.R.C. § 170(f)(2)(B).

34 I.R.C. § 170(f)(3)(B)(ii); Treas. Reg. §§ 1.170A-5(a)(2), 1.170A-7(b)(1)(i). If, however, the donor subdivides property for the purpose of avoiding this rule, no deduction is then allowed even for a donation of the entire subdivided property. Treas. Reg. § 1.170A-7(a)(2)(i).

35 I.R.C. § 170(f)(3)(B)(i); Treas. Reg. §§ 1.170A-7(b)(3) (personal residence), 1.170A-7(b)(4) (farm).

36 I.R.C. § 170(f)(3)(B)(iii); 1.170A-7(b)(5) and 1.170A-14.

37 Treas. Reg. § 1.170A-1(g).

38 See, e.g., Rev. Rul. 67-246, 1967-2 C.B. 104, and Rev. Rul. 68-432, 1968-2 C.B. 104.

39 Treas. Reg. § 1.170A-1(h)(1).

40 Treas. Reg. § 1.170A-1(h)(4).

41 Treas. Reg. § 1.170A-13(f)(8)(i), referring to Rev. Proc. 90-12, 1990-1 C.B. 471, amplified by Rev. Proc. 92-49, 1992-1 C.B. 987, and modified by Rev. Proc. 92 102, 1992 2 C.B. 579.

42 See I.R.C. § 6115(b). I.R.S. Pub. No. 1771, Charitable Contributions — Substantiation and Disclosure Requirements 5 (2002), states:

“What are ‘intangible religious benefits?’ Generally, they are benefits provided by a tax exempt organization operated exclusively for religious purposes, and are not usually sold in commercial transactions outside a donative (gift) context. Examples include admission to a religious ceremony and a de minimis tangible benefit, such as wine used in a religious ceremony. Benefits that are not intangible religious benefits include education leading to a recognized degree, travel services, and consumer goods.”

43 E.g., Rev. Rul. 68-432, 1968-2 C.B. 104; Rev. Rul. 73-407, 1973-2 C.B. 383; Rev. Rul. 77-367, 1977-2 C.B. 193. See also Treas. Reg. §§ 1.509(a)-3(f)(3), Example; 53.4941(d)-2(f)(2); 53-4941(d)-2(f)(4) Example (4).

44 Rev. Rul. 78-189, 1978-1 C.B. 68.

45 Her­nan­dez v. Commissioner, 490 U.S. 680 (1989), a five-to-two decision with two Justices recusing.

46 E.g., Church of Scientology of California, 83 T.C. 381 (1984), aff’d on other grounds, 823 F.2d 1310 (9th Cir. 1987), cert. denied, 486 U.S. 1015 (1988).

47 Rev. Rul. 93-73, 1993-2 C.B. 75.

48 The 9th Circuit Court of Appeals recently analyzed the Service’s unwillingness to disclose the Scientology closing agreement, and, after lengthy discussion, rejected the government’s view “that the closing agreement made with the Church of Scientology, or at least the portion establishing rules or policies that are applicable to Scientology members generally, is not subject to public disclosure.” Sklar v. Commissioner, 282 F.3d 610, 618 (9th Cir. 2002), affirming T.C. Memo. 2000-118.

49 The full text of the closing agreement can be found at 19 Exempt Org. Tax Rev. 227 (1998). None of the parties to the closing agreement has authenticated the text, but none has denied its accuracy either.

50 See text accompanying note Error: Reference source not found, supra.

51 I.R.C. §§ 170(b)(1)(A) & (B). The third sen­tence of Treas. Reg. § 1.170A-8(b) reads, “To qualify for the 50-percent limita­tion the contributions must be made ‘to’, and not merely ‘for the use of’, one of the specified organizations.”

52 Davis v. United States, 495 U.S. 472, 485 (1989). See also Rockefeller v. Commissioner, 676 F.2d 35 (2d Cir. 1982), acq. 1984-2 C.B. 2.

53 Treas. Reg. § 1.170A-8(a)(2).

54 Id.

55 Rev. Rul. 84-61, 1984-1 C.B. 39, accepting the result in Rockefeller, note Error: Reference source not found supra. This position is now enshrined in the regulations. Treas. Reg. § 1.170A-1(g).

56 I.R.C. § 170(b)(1)(C)(i).

57 I.R.C. § 170(b)(1)(C)(iv).

58 I.R.C. § 170(b)(1)(C)(iii). The election is made by attaching a statement to D’s tax return, referring to I.R.C. § 170(b)(1)(C)(iii) and Treas. Reg. § 1.170A-8(d)(2)(iii). It must cov­er all contributions of 30 percent property during the year, per Treas. Reg. § 1.170A-8(d)(2)(i)(a). It has been held generally to be irre­vocable. Woodbury v. Commissioner, 900 F.2d 1457 (10th Cir. 1990); Grynberg v. Commissioner, 83 T.C. 255 (1984).

59 I.R.C. § 170(b)(1)(B). Donations to certain subsets of private foundations, however — including private operating foundations and so-called pass-through or conduit foundations — qualify for the larger 50 percent limitation. I.R.C. §§ 170(b)(1)(A)(vii), 170(b)(1)(E); Treas. Reg. §§ 1.170A-9(f), (g), and (h). See Bruce R. Hopkins, The Tax Law of Charitable Giving § 4.3(b) (1993).

60 See text accompanying note Error: Reference source not found, infra.

61 I.R.C. § 170(b)(1)(D)(i).

62 I.R.C. § 170(b)(2). Taxable income for this purpose is computed without regard to net operating loss carrybacks, deductions for dividends received, capital loss carrybacks, the charitable contributions deduction, and certain other deductions. Ibid.; Treas. Reg. § 1.170A-11(a). The limitation had been 5 percent; it was increased to 10 percent by the Economic Recovery Tax Act of 1981, § 263(a), Pub. L. No. 97-34, 95 Stat. 172, 264.

63 I.R.C. § 170(a)(2). The election is made by attaching a written declaration to the corporation’s tax return for the year. Treas. Reg. § 1.170A-11(b)(2). Prudence suggests careful compliance even though the courts and the Service have shown some flexibility in forgiving procedural foot-faults. Columbia Iron & Metal Co. v. Com­mmissioner, 61 T.C. 5 (1973), acq. 1979-2 C.B. 1. The election may be made as to a portion as well as to all of the donations made during the 2½ month window. Rev. Rul. 57-228, 1957-1 C.B. 506.

64 Rev. Rul. 2000-43, 2000-2 C.B. 333.

65 I.R.C. §§ 170(d), 170(b)(1)(B), 170(b)(1)(C)(ii), 170(b)(1)(D)(ii).

66 See, e.g., Treas. Reg. §§ 1.170A-10 (for individuals) and 1.170A-11(c) (for corporations).

67 I.R.C. § 170(e)(1)(A).

68 Treas. Reg. §§ 1.170A-4(a)(1) and 1.170A-4(b)(1) (which specifically states that “a work of art created by the donor” is “ordinary income property”). Accord, Maniscalo v. Commissioner, 37 T.C.M. 1174 (1978), aff’d per curiam, 632 F.2d 6 (6th Cir. 1980), denying the taxpayer a charita­ble contributions deduction for a gift to charity of three portraits he painted.

69 I.R.C. § 170(e)(1)(B)(i).

70 Treas. Reg. § 1.170A-4(b)(3)(i). I.R.C. § 6050L requires do­nees to report to the I.R.S., with a copy to the donor, if any donated property is sold or disposed of within two years after its receipt.

71 G.C.M. 38,804 (October 15, 1981).

72 Treas. Reg. § 1.170A-4(b)(3)(i) (emphasis added).

73 Treas. Reg. § 1.170A-4(b)(3)(ii).

74 I.R.C. § 170(e)(1)(B)(ii).

75 I.R.C. § 170(e)(5). This exception has had a stuttering history: it was enacted by the Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 301(b), 98 Stat. 494, 778; it expired at the end of 1994, but was re-enacted, effective July 1, 1996, in § 1206(a) of the Small Business Job Protection Act of 1996, Pub. L. No. 104-188, 110 Stat. 1755, 1776, with a new “sunset” date of May 31, 1997. That 1997 sunset date, in turn, passed without legislative extension, but the Taxpayer Relief Act of 1997, § 602(a), Pub. L. No. 105-34, 111 Stat. 788, 862, retroactively revived it and extended it to June 30, 1998. It again expired on June 30, 1998, but was once more retroactively resuscitated and this time made permanent by the Tax and Trade Relief Extension Act of 1998, § 1004(a), 112 Stat. 2681, 2681-888, which amended I.R.C. § 170(e)(5) by striking from it subparagraph D, that had contained the sunset provision. This last amendment was made effective for “contributions made after June 30, 1998.”

76 As of 1998, the total fair market value of assets in charitable lead trusts amounted to approximately 11 percent of the total fair market value of assets in all split-interest charitable trusts. Interview with Melissa J. Belvedere, Economist, Special Studies Special Projects Sec­tion, Statistics of Income Division, Internal Revenue Service (Feb. 8, 2002).

77 See generally I.R.C. § 642(c)(5) and Treas. Reg. § 1.642(c)-5. For further discussion of pooled income funds, see John H. Clymer, Pooled Income Funds: A Good Vehicle for Smaller Charitable Gifts, 24 Est. Plan. 310 (1997); Lawrence P. Katzenstein, Using Char­itable Remainder Trusts and Pooled Income Funds, 10 Prac. Tax Law. 15 (1996); Conrad Teitell, The Internal Revenue Service has Released a Spe­ci­men Pooled Income Fund Plan and Gift Agreements That Supposedly Meet Sec. 642(c)(5) Requirements, 128 Tr. & Est. 70 (1989); Ronnie C. Mc­Clure, Everybody Into the Pool: Recent Guidelines From the IRS Concerning Pooled Income Funds Makes for a “Win-Win-Win” Situation for the Individual, the Trust and the Charity, 127 Tr. & Est. 28 (1988); Joseph A. Veres, Using Pooled Income Funds to Pass ITC And Depreciation Through to Life Income Donors, 61 J. Tax’n 28 (1984); Eugene E. Peckahm & Jona­than M. Lichter, A Comparison After ERTA of Charitable Remainder Trusts and Pooled Income Funds, 122 Tr. & Est. 18 (1983); Anna C. Fowler, Char­­itable Remainder Trusts and Pooled Income Funds — Using Computer Simu­lation to Rank the Benefits, 11 Tax Adviser 68 (1980).

78 Melissa J. Belvedere, Charitable Remainder Trusts, 1998, Statistics of Income Bulletin, Winter 2000-01, at 58. These data were derived from more than 20,000 returns filed by charitable remainder annuity trusts and nearly 65,000 returns filed by charitable remainder unitrusts. Id. at 60, 64.

79 I.R.C. §§ 664(d)(1) and (2) respectively.

80 I.R.C. §§ 664(d)(1)(A) and (C), 664(d)(2)(A) and (C).

81 I.R.C. §§ 664(d)(1)(A), 664(d)(2)(A).

82 I.R.C. §§ 664(d)(1)(D), 664(d)(2)(D).

83 I.R.C. § 664(d)(1)(A).

84 I.R.C. § 664(d)(2)(A). If the trust holds assets that do not have a readily-ascertainable fair market value, they must be appraised either by an independent trustee or a qualified appraiser. Treas. Reg. § 1.664-1(a)(7).

85 The income tax deduction is available under I.R.C. §§ 170(a)(1), 170(c), and 170(f)(2)(A). A gift tax deduction is available under I.R.C. §§ 2522(a) and 2522(c)(2)(A). An estate tax deduction is available under I.R.C. §§ 2055(a) and 2055(e)(2)(A). CRTs may be, and commonly are, created by testa­mentary gift as well as during a donor’s life. It is often prudent, in drafting the CRT documents, to restrict the eligible charitable beneficiaries to organizations that meet all of the relevant definitions, i.e., for income and gift and estate tax purposes; this insures eligibility for each of those tax regimes.

86 I.R.C. § 170(f)(2)(A) denies the income tax deduction; see also Treas. Reg. § 1.170A-6(b)(1). I.R.C. § 2522(c)(2)(A) denies the gift tax deduction, and I.R.C. § 2055(e)(2)(A) denies the estate tax deduction. A deduction is allowed for donations to pooled income funds, as the above subparagraphs of the Code confirm, but (as mentioned above) pooled income funds are outside the scope of the current discussion.

87 A deduction is permitted, however, for a contribution to a CRUT that either pays (a) the lesser of income or a fixed percentage of the value of its assets (I.R.C. § 664(d)(3)(A)), or (b) that lesser amount with an extra payment out of income in a later year to make up for earlier year shortfalls when trust income was less than the unitrust amount (I.R.C. § 664(d)(3)(B)). The former exception is sometimes referred to as a “net income CRUT” or “NICRUT”; the latter is sometimes referred to as “net income with make-up CRUT” or “NIMCRUT.” The donor’s charitable contribution deduction remains the same whether or not the make-up provision is included. I.R.C. § 664(e). Recently-finalized regulations approve a further variety of CRUT, a so-called “flip” CRUT, in which only income is paid to the lead, non-charitable beneficiary for a prescribed period, following which the trust changes to a standard, fixed-percentage-of-value payout. Treas. Reg. § 1.664-3(a)(1)(i)(c), added by T.D. 8791, 63 Fed. Reg. 68,188, 68,192 (Dec. 10, 1998); see also the examples in Treas. Reg. § 1.664-3(a)(1)(i)(e). In all of these cases, however, the non-charitable bene­ficiary’s interest is a unitrust interest, albeit modified by a trust-income limitation. As noted in the text, a pure income lead interest will not qualify the split-interest trust as a CRT and no deduction will be permitted to a donor to such a trust.

88 This is not an effort to determine the present value of what the charitable remainderman will ultimately receive; indeed, it is highly unlikely that the amount of the permitted charitable contributions deduction will ever match, on a present-value basis, the amount actually turned over to charity upon the termination of the lead non-charitable interest.

89 I.R.C. § 7520(a)(2), by cross-reference to I.R.C. § 1274(d)(1), requires that the interest rate for any month is calculated: (1) by determining the average market yield during the prior month for U.S. obligations with a maturity of more than three but not more than nine years, (2) by multiplying that average yield by 120 percent, and (3) by rounding that result to the nearest 2/10ths of one percent. The I.R.S. issues a monthly ruling setting the rate. A donor is permitted to elect to use the interest rate for the month in which the donation is made to a CRT, or the rate for either of the prior two calendar months. I.R.C. § 7520(a); Treas. Reg. § 1.7520-2(a)(2).

90 Treas. Reg. § 1.170A-8(a)(2). This adopts the result in Alice Tully v. Commissioner, 48 T.C. 235 (1967). If, however, the remainder interest is not paid over outright to the charity, but is instead held in continuing trust for the charity, the gift will be treated as “for the use of” the charity.

91 Of course, the property donated must otherwise be eligible for the 50 percent limitation, so, e.g., capital gain property will not qualify. See text accompanying notes Error: Reference source not found-Error: Reference source not found, supra.

92 I.R.C. § 664(c). Even a scintilla of unrelated business income, however, destroys the CRT’s tax exemption on all of its income for the year in question. See Treas. Reg. § 1.664-1(c) and Leila G. Newhall Unitrust v. Commissioner, 105 F.3d 482 (9th Cir. 1997), affirming 104 T.C. 236 (1995).

93 I.R.C. §§ 4947(a)(2), 4947(b)(3)(B); Treas. Reg. § 53.4947-1(c)(1)(ii). The annuity or unitrust payments to any lead, non-charitable beneficiary do not violate the self-dealing prohibitions or the other private-foundation rules. Treas. Reg. § 53.4947-1(c)(2)(i).

94 These latter rules apply if there is a charitable lead beneficiary in addition to one or more lead, non-charitable beneficiaries. I.R.C. §§ 4947(a)(2), 4947(b)(3)(B).

95 I.R.C. § 664(b). Thus, gain realized by the trust upon sale of donated appreciated property may, under some circumstances, be taxed in whole or part to the lead, non-charitable beneficiary.

96 Treas. Reg. §§ 1.664-1(d) and (e). See generally Leo L. Schmolka, Income Taxation of Charitable Remainder Trusts and Decedents’ Estates: Sixty-Six Years of Astigmatism, 40 Tax L. Rev. 1, 58-60 (1984); Carolyn M. Osteen & Martin Hall, Tax Aspects of Charitable Giving ¶ 1402.1.10 (2d ed. 2000); Bruce R. Hopkins, The Tax Law of Charitable Giving § 11.3 (1993).

97 The Service has provided a lot of guidance on how to draft CRTs. The advice is of two kinds — mandatory and optional. The mandatory rules are in Rev. Rul. 72-395, 1972-2 C.B. 340. That ruling has been modified by three subsequent rulings — Rev. Rul. 80-123, 1980-1 C.B. 205; Rev. Rul. 82-128, 1982-2 C.B. 71; and Rev. Rul. 88-81, 1988-2 C.B. 127 — and was also “clarified” by Rev. Rul. 82-165, 1982-2 C.B. 117. See also Rev. Rul. 92-57, 1992-2 C.B. 123. The optional rules, in the form of safe-harbor provisions that the I.R.S. will automatically accept, are contained in five revenue procedures: Rev. Proc. 89-21, 1989-1 C.B. 842, as amplified by Rev. Proc. 90-32, 1990-1 C.B. 546 (for CRATs); Rev. Proc. 89-20, 1989-1 C.B. 841, as amplified by Rev. Proc. 90-30, 1990-1 C.B. 534 (for CRUTs); and Rev. Proc. 90-31, 1990-1 C.B. 539 (for NICRUTs and NIMCRUTs).

98 I.R.C. § 68(a). Not all itemized deductions are included for this purpose: medical expenses, investment interest, and casualty or theft losses are excluded. I.R.C. § 68(c). I.R.C. § 68 was added to the Code by the Omnibus Budget Reconciliation Act of 1990, § 11103, Pub. L. No. 101-508, 104 Stat. 1388, 1388-406-07.

99 I.R.C. § 68(b)(1).

100 I.R.C. § 68(b)(2).

101 Rev. Proc. 2001-59, § 3.08, 2001-52 I.R.B. 623, 626.

102 Economic Growth and Tax Relief Reconciliation Act of 2001, § 103(a), Pub. L. No. 107-16, 115 Stat. 38, 44, adding I.R.C. §§ 68(f) and (g).

103 Economic Growth and Tax Relief Reconciliation Act of 2001, § 901(a)(1), Pub. L. No. 107-16, 115 Stat. 38, 150.

104 For an insightful discussion of the floor, see Reed Shuldiner & David Shakow, Lessons from the Limitation on Itemized Deductions, 93 Tax Notes 673 (2001).

105 Treas. Reg. § 1.170A-13 is cap­tioned “Recordkeeping and return require­ments for deductions for char­itable contributions.” It is about 16 pages long and was adopted in substantially its current form on Dec. 26, 1984, by T.D. 8002, 49 Fed. Reg. 50,663 (Dec. 31, 1984). The second sentence of I.R.C. § 170(a)(1) cautions that “[a] charitable contribution shall be allowable as a deduction only if veri­fied under regu­lations prescribed by the Secretary.”

106 Treas. Reg. § 1.170A-13(c), dealing with deductions in excess of $5,000 for certain charitable contributions of property.

107 Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, §§ 13172, 13173, 107 Stat. 312, 455-57, adding I.R.C. §§ 170(f)(8), 6615, and 6714. I.R.S. Pub. No. 1771, Charitable Contributions — Substantiation and Disclosure Requirements (2002), provides guidance on these provisions for donors and for donee charities. See also Robert A. Boisture, IRS Issues Final Regulations Clarifying Rules on Valuing and Substantiating Charitable Contributions, 16 Exempt Org. Tax Rev. 457 (1997).

108 To be “contemporaneous” the acknow­ledg­ment be received by the date the donor’s tax return is filed or due to be filed. I.R.C. § 170(f)(8)(C); Treas. Reg. § 1.170A-13(f)(3). In the wake of the September 11, 2001, terrorist attacks, the Service extended the deadline to October 15, 2002, for donors who made gifts after that date. Notice 2002-25, 2002-15 I.R.B. ___.

109 I.R.C. § 170(f)(8). The legislative history makes clear that “[t]axpayers may not rely sole­ly on a canceled check as substantia­tion for a dona­tion” above the threshold amount. H.R. Rep. No. 103-111, at 785 (1993); H.R. Conf. Rep. No. 103-213, at 565 (1993). The older (and now obsolete) portion of the regulations continues to refer to cancelled checks but the more recent portion requires the donee’s written acknowledgement. Compare Treas. Reg. § 1.170A-13(a)(1)(i) with Treas. Reg. § 1.170A-13(f)(1).

110 I.R.C. §§ 6115 and 6714. The $75 is a gross figure, i.e., the new require­ments apply when­ever the gross amount transferred exceeds $75, even though — after deducting the value of the quid-pro-quo amount — the charitable contributions deduction is less than $75.

111 Treas. Reg. § 1.170A-1(c)(2). Similar, if not identical, language appears in several other places in the regulations, e.g., Treas. Reg. §§ 1.412(c)(2)-1(c)(1), 1.611-1(d)(2), 1.631-1(d)(2), 1.897-1(o)(2)(ii), 1.1445-1(g)(7), 20.2031-1(b), 20.2031-6(a), 25.2702-2(c)(1).

112 IRS Valuation Guide for In­come, Estate and Gift Taxes — Valuation Training for Appeals Officers, published periodically by the I.R.S., is avail­able through various sources, including leading publishers of major loose-leaf tax services. See also IRS Pub. 561, Determining the Value of Donated Property; Anno., Federal In­come Tax Charit­able De­ductions: Fair-Mar­ket-Value Determinations, 90 A.L.R. Fed. 402 (1988).

113 See Rev. Proc. 96-15, 1996-1 C.B. 627, modified by Ann. 2001-22, 2001-11 I.R.B. 895.

114 Although the proceedings are confidential, notes taken at the meetings may be disclosed to the owners of the particular art being discussed. See Bernardo v. Commissioner, 104 T.C. 677, 694 (1995).

115 I.R.C. § 63(e).

116 “For 2001, an estimated 110.3 million returns, or 72.1 percent of all filers, will utilize the standard deduction, while an estimated 42.7 million returns, or 27.9 percent of all filers, will itemize.” II Staff of Joint Comm. on Tax’n, Study of the Overall State of the Federal Tax System and Recommendations for Simplification, Pursuant to Section 9022(3)(B) of the Internal Revenue Code of 1986 (JCS-3-01) 34 (Comm. Print 2001).

117 For taxable years beginning in 2001, the standard deduction is $4,550 ($7,600 for a joint return of married individuals) for individuals who are less than 65 years old and are not blind. I.R.C. § 63(c). Individuals or couples whose charitable contributions exceed those limits are likely to elect to itemize their deductions to claim those higher deductions. However, because the standard deduction is in lieu of certain other deductions as well as the charitable contributions deduction, and because there is some cost in preparing the more-detailed tax return required to be filed by itemizers, there is not a one-to-one correspondence between the amounts given to charity and the decision whether to itemize.

118 For a thoughtful analysis of the history of, policy considerations affecting, and possible legislative amendments to the nonitemizer charitable contributions deduction, see Ellen P. Aprill, Churches, Politics, and the Charitable Contribution Deduction, 44 B.C. L. Rev. 843 (2001). See also Staff of Joint Comm. on Tax’n, Description and Analysis of Present Law and Proposals to Expand Federal Tax Incentives for Charitable Giving (JCX-13-01) (Comm. Print 2001).

119 The Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, § 121(a), 95 Stat. 172, 196, added section 170(i) to the Internal Revenue Code and made conforming changes to other relevant Code sections. Section 170(i) provided for a nonitemizer charitable contributions deduction subject to phase-in and limitation, as follows: for taxable years beginning in 1982 or 1983, the deduction was 25 percent of the donation not to exceed $100; for taxable years beginning in 1984, the deduction was 25 percent of the donation not to exceed $300; for taxable years beginning in 1985, the deduction was 50 percent of the donation with no limitation; and for taxable years beginning in 1986 and thereafter, the deduction was 100 percent of the donation with no limitation.

120 The original enactment, by its own terms, did not apply “to contributions made after December 31, 1986.” Id.

121 Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, § 11801(a)(11), 104 Stat. 1388, 1388-520.

122 See text accompanying notes Error: Reference source not found-Error: Reference source not found, infra.

123 I.R.C. § 170(c)(2)(A) states that the donee must be “created or organized in the United States or in any posses­sion thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States.” This restriction derives from 1935 legislation affecting corporate donations (§ 102(c) of the Revenue Act of 1935, Pub. L. No. 74-407, 49 Stat. 1014, 1016 (1935), adding a new § 23(r) to the Revenue Act of 1934), and 1938 legislation affecting individual donations (§ 23(o) of the Revenue Act of 1938, Pub. L. No. 75-554, 52 Stat. 447, 463 (1938)).

124 The legislative history to the 1938 legislation (see note Error: Reference source not found, supra) explicitly confirmed this. H.R. Rep. No. 1860, 75th Cong., 3d Sess. 19-20 (1938). Treasury Regulations state that “all, or some portion, of the funds of the [donee] organization may be used in foreign countries for charitable or educational purposes.” Treas. Reg. § 1.170A-8(a)(1). For inexplicable reasons, however, U.S. corporate donors are only allowed a deduction for donations to a U.S. corporate charity (as opposed to a non-corporate trust, community chest, or fund) if that domestic charity in turns uses its funds abroad. I.R.C. § 170(c)(2); Rev. Rul. 69-80, 1969-1 C.B. 65.

125 Examples 4 and 5, Rev. Rul. 63-252, 1963-2 C.B. 101. See also Rev. Rul. 66-79, 1966-1 C.B. 48; Rev. Rul. 69-80, 1969-1 C.B. 65; Rev. Rul. 75-65, 1975-1 C.B. 79.

126 Examples 1, 2, and 3, Rev. Rul. 63-252, 1963-2 C.B. 101.

127 Rev. Rul. 66-79, 1966-1 C.B. 48. Cf. Rev. Rul. 74-229, 1974-1 C.B. 142.

128 See, e.g., Judith S. Ballan, How to Aid a Foreign Charity Through an “American Friends of” Organization, 23 N.Y.U. Conf. Tax Plan. for Section 501(c)(3) Org’s ch. 4 (1994).

129 See generally, Harvey P. Dale, Foreign Charities, 48 Tax Law. 657, 659-63 (1995); Kim­berly S. Blanchard, U.S. Taxa­tion of For­eign Charities, 8 Ex­empt Org. Tax Rev. 719, 726 (1993).

130 I.R.C. §§ 2055(a)(2), 2055(a)(3), and 2522(a)(2) lack the restrictive language of I.R.C. § 170(c)(2)(A). The gift tax regulations confirm that “[t]he deduction is not limited to gifts for use within the United States, or to gifts to or for the use of domestic corporations, trusts, community chests, funds, or foundations . . . .” Treas. Reg. § 25.2522(a)-1(a). The estate tax regulations, in almost identical language, agree. Treas. Reg. § 20.2055-1(a). The charitable contributions deduction allowed to estates and complex trusts, per I.R.C. § 642(c)(1), is also “determined without regard to [the place-of-formation limitation in] section 170(c)(2)(A).” The regulations again confirm this. Treas. Reg. § 1.642(c)-1(a)(2).

131 I.R.C. § 508(a) mandates the notice requirement. Treas. Reg. § 1.508-1(a)(2)(i) prescribes the use of a Form 1023 and states that it must be filed within 15 months from the end of the month of organization. Section 4.01 of Rev. Proc. 92-85, 1992-2 C.B. 490, grants an au­tomatic 12-month extension of this 15-month time period.

132 For this purpose, “support” includes gifts, grants, contributions, membership fees, gross receipts from admissions or sales or furnishing facilities, and net income from unrelated business activities, but does not include “gross investment income.” I.R.C. §§ 4948(b), 509(d) and (e). Gifts, grants, contributions, and membership fees paid by U.S. persons are treated as from U.S. sources. Treas. Reg. § 53.4948-1(b).

133 I.R.C. § 4948(b) and Treas. Reg. § 53.4948-1(b). Under certain circumstances, even such excepted foreign charities may cease to be eligible to receive donations that are deductible for gift and estate tax purposes if they engage in a “prohibited transaction” and the Commissioner so notifies them. I.R.C. § 4948(c); Treas. Reg. § 53.4948-1(c) and (d).

134 I.R.C. § 508(a).

135 I.R.C. §§ 508(d)(2)(B), 2055(e)(1), 2522(c)(1).

136 See text accompanying notes Error: Reference source not found-Error: Reference source not found, supra.

137 I.R.C. § 4942(g)(1)(A)(ii). There is an exception for certain donee pass-through private foundations, per I.R.C. § 4942(g)(3).

138 I.R.C. § 4945(d)(4). There is an exception for grants to exempt operating foundations. I.R.C. § 4945(d)(4)(A).

139 I.R.C. § 4945(d)(5), requiring that such grants be used only for purposes described in I.R.C. § 170(c)(2)(B).

140 Exceptions are mentioned in notes Error: Reference source not found and Error: Reference source not found, supra, but each requires its own even-more-precise foreign equivalency determination.

141 Treas. Reg. §§ 53.4942-3(a)(6)(i), 53.4945-5(a)(5).

142 Id.

143 Treas. Reg. § 43.4945-6(c)(2)(i) protects the U.S. donor private foundation if the foreign donee is within the § 501(c)(3) definition (whether that donee is a public charity or a private foundation). The donor may make a “reasonable judgment” for this purpose. Treas. Reg. § 43.4945-6(c)(2)(ii).

144 Rev. Proc. 92-94, 1992-2 C.B. 507.

145 Id., § 3.

146 Id., § 5.04. Variations are permitted. Id., § 5.01.

147 Id., § 4.01.

148 Id., §§ 4.02-4.05.

149 For example, relevant aspects of the foreign legal system may need to be researched; the organizational documents of the foreign donee often must be translated into English; those documents may have to be amended to insert proper provisions dealing with dissolution, lobbying, electioneering, and inurement; and in many cases, several years of financial data must be gathered. See generally John A. Edie & Jane C. Nober, Beyond Our Borders: A Guide to Making Grants Outside the U.S. (2d ed. 1999). A third edition is expected to be forthcoming in 2002.

150 For more details, see generally John A. Edie, Expenditure Responsibility Step by Step (2001).

151 Treas. Reg. §§ 53.4945-5(b)(5), 53.4945-6(c)(2)(i). The I.R.S. has confirmed that “if a private foundation makes a grant for exclusively charitable purposes to a foreign grantee and exercises expenditure responsibility . . . the grant will be a qualifying distribution for purposes of section 4942 and will not be a taxable expenditure for purposes of section 4945.” April 18, 2001, letter from Thomas J. Miller, Acting Director, Rulings and Agreements, Internal Revenue Service, to John A. Edie, Senior Vice President and General Counsel, Council on Foundations (on file at

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