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Tax Exempt Organizations
University of Florida School of Law
Willis, Steven J.

Professor Willis
Fall 2011
Tax-Exempt Organizations
 
I.                   Introduction
A.    Tax Consequences of Charitable Contributions
(a)    Income Tax–§170(a) allows deduction for charitable contributions if made to permitted recipients in §170(c)
(1)   Income Tax Deduction
§170(a) General Rule There shall be allowed as a deduction any charitable contribution (as defined §170(c)) payment of which is made within the taxable year.
·          Note–requires payment therefore limits use to cash method taxpayers
-Exception §170(a)(2) Accrual Method Corporate T.P. may get deduction if: (i) payment authorized during year; (ii) paid within 2.5 months of year end and (iii) election filed
·          18 T.C. 31 (1952) Kahler®payment includes payment by check that clears in ordinary course of business (payment on date of delivery)
§170(c) Permitted Recipients
(1)   State, possession of US, any political subdivision of any foregoing or US or DC, but only if contribution or gift is made for exclusively public purposes
(2)   A corporation, trust, or community chest, fund or foundation–
(A)  created or organized in the US or in any possession thereof, or under the law of the US, any state, the DC or any possession of the US
(B)  organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or to foster national or international amateur sports competition for the prevention of cruelty to animals
(C)  no part of the net earnings of which inures to the benefit of any private shareholder or individual
(D) which is not disqualified by §501(c)(3) by reason of attempting to influence legislation
A contribution or gift by a corporation to a trust, chest, fund or foundation shall be deductible by reason of this paragraph only if it is used within the US or any of its possessions exclusively for religious, charitable, scientific, literary, or educational purposes or to foster national or international amateur sports competition for the prevention of cruelty to animals.
(3)   Post or Organization for War Veterans–(A) orgainzed in the US or any of its possessions and (B) no part of the net earnings of which inures to the benefit of any private shareholder or individual
(4)   If gift by an individual, a domestic fraternal society, order or association . . . .but only if such contribution is used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to animals
(5)   Cemetery Company
(2)   Income Tax Exemption for Organization §501(c)/§115®allows the listed entity to not report income tax which correspond to listed entities in §170(c)
·          §115 State and Local Govt® §170(c)(1)
·          §501(c)(2)®Corporation §170(c)(2)

·          §501(c)(19)®War Veterans Post §170(c)(3)
·          §501(c)(10)®Domestic Fraternal Order §170(c)(4)
-Does not include Fraternity but Elks Lodge (see ZBT 87 T.C. No 23 1986)
-Fraternities®covered by §501(c)(7) social clubs, but such clubs although tax exempt may not receive tax deductible donations, but a social club may control an organization under §501(c)(3) to which contributions would be deductible under §170(c)(2)
·          §501(c)(13)®Cemetery Company §170(c)(5)
-Note®if contribution not listed in §170(c) contributions are not deductible
-No federal requirement that organization be a non-profit
(b)   Gift/Estate Tax®note that different requirements, therefore do not assume just because exempt under §170 would also be exempt under estate and gift
(c)    State/Local Taxation–registration and regulation
B.     Problems
·          Question 1 – 3 (slide 10 – 12)®see effect of differences b/w different statutes
·          Percentage Limitations:
(1)   For 2001 John has Gross Income of $200,000 and AGI of $180,000 with no net operating loss carryovers
a.       What is the maximum deduction for charitable contributions in 2001?
§170(b) General Rule®if made to one of the listed 8 organizations 50% of contribution base
-Contribution Base §170(a)(1)(F)–AGI computed without regard to net operating losses
-Answer = $90T
b.      What is the maximum deduction for a charitable contribution to a Private Foundation, other than those found in §170(b)(1)(E)?
-Private Foundation §509®30% after subtracting out contributions to public charities
-§170(b)(1)(B)–Any charitable contribution other than a charitable contribution to which §170(b)(1)(A) applies shall be allowed to the extent that the aggregate of such contributions exceed the lesser of–(i) 30% of the t.p. contribution base or (ii) the excess of 50% of the t.p. contribution base for the taxable year minus the amount of charitable contributions allowed under (A)
            Formula lesser of 30% or [(.5 x AGI) – contributions] Answer = $54,000
c.       Maximum amount for contributions of Capital Gain Property?
-§170(b)(1)(C)®30%
d.      Maximum amount for contributions to private foundations other than those described in §170(b)(1)(E) of capital gain property?
-§170(b)(1)(D)®20%
(2)   For both 2000 – 2001 Jim has a contribution base of $300,000 and no charitable contributions for years prior to 2000.  During 2000 he gave $200,000 cash to a public charity described in §170(b)(1)(A)(ii) and no other contributions for the year
a.       How much may he deduct for 2000? 2001?
·          2000®$150,000 [limited by 50% contribution limitation in §170(b)(1)(A)] ·          2001®§170(d)(1)(A)–carryover of amount by which contribution exceeds contribution base for 5 succeeding years.
-Timing®charitable contribution deductions are taken: (i) current year; (ii) oldest
-Answer®$50T b/c §170(d) allows taking of carryover pursuant to §170(a)(1)/§170(b)(1)(A) to extent of 50% of AGI
b.      If Jim also gave $150,000 to school for 2001?
-Answer®$50T b/c §170(d) allows taking of carryover pursuant to §170(a)(1)/§170(b)(1)(A) to extent of 50% of AGI
c.       Jim gave $100,000 cash to school in 2000 and $100,000 cash to PF (not described in 170(b)(1)(E)) and also $150,000 in 2001.
·          2000
-$100,000 cash to school §170(b)(1)(A)(ii) wholly deductible
-PF deduction allowed to lesser of 30% (90T) or AGI x 50% – contributions (50T)®therefore $50T.
·          2001 ®entire $150,000 is deductible, and $50T is carried over to next year
d.      Jim gave each year to school $150,000 cash plus undeveloped land with FMV of $100,000.
·          2000®$150T uses up contribution base
-Land–§170(b)(1)(C)(i) limits deduction to contribution base x 30%. 
Note®(b)(1)(C)(i) specifically provides that it applies only if (E)(1)(B) does not (mutually exclusive
Effect®(E)(1)(B) drops contribution to A/B of property but only applies if: (i) tangible personal property or (ii) t.p. elects to have it apply to capital gain property pursuant to §170(b)(1)(C)
-Note®in problem is irrelevant, because cash uses up entire contribution base and as a general rule, cash contributions always come first even if election made and the 30% limitation does not apply.
·          2001
II.                §170(b) Contributions and Limitations
A.    Analysis
1.      Start with FMV of property donated §1.170A-1(c)
·          Amt. FMV §1.170A-4(c)(2)  “Willing Buyer/Willing Seller
2.      Apply §170(e)(1)(A) The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced . . . by the amount of gain which would not have been long term capital gain if the property contributed had been sold by the t.p.

                                        v.                §1223 Holding Period?
                                                                               vi.                If gain would be LTCG at hypothetical sale, reduce FMV by amount of LTCG
·          Rule®if a gift of property is to a private foundation, the amount of the charitable donation will always be the A/B, b/c the gain is either not LTCG or it is LTCG, and both are reduced by (e)(1)(A) and (b)(1)(B)(ii) respectively
CONCLUSION #1–DETERMINED AMOUNT OF CONTRIBUTION, NOW APPLY PERCENTAGE LIMITATIONS
5.      Determine Contribution Base §170(b)(1)(F) = AGI
6.      Apply §170(b)(1)(A)(1) General Rule In the case of an individual, the deduction provided in §(a) shall be limited as provided in the succeeding chapters . . . Any charitable contribution . . . [to a public listed charity] shall be allowed to the extent of that the aggregate contributions do not exceed 50% of the t.p. contribution base.
7.      Apply §170(b)(1)(B) Other Contributions Any charitable contribution other than a charitable contribution to which (A) applies [contribution to an entity other than a public charity or a (b)(1)(E) private foundation] shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of–(i) 30% of the t.p. contribution base or (ii) excess of 50% of the t.p. contribution base over the amount of charitable contributions allowable under (A) (determined without regard to §170(b)(1)(C))
·          Formula Limitation–Amount of Contribution Limited to lesser of 30% X AGI or (50% X AGI) – Contributions to Public Charities
·          Effect of Parenthetical Language®if t.p.’s contribution to a public charity is limited to 30% b/c it is capital gain property other than that listed in §170(e)(1)(B), the limitation of §170(b)(1)(B) is not adjusted b/c of that reduction.  Therefore, such contribution is subtracted in full and up to 50% of contribution base, and not only up to 30% of contribution base.  Thereby, not allowing the “other contributions” to pick up the 20% remaining base.
8.      Apply §170(b)(1)(C)  In the case of charitable contributions to public charities in (A) of capital gain property to which (e)(1)(B) does not apply [not tangible personal property used for unrelated purpose] the total amount of contributions of such property which may be taken into account under (a) for any taxable year shall not exceed 30%.  For purposes of this subsection, contributions to which this subparagraph applies shall be taken into account after all other charitable contributions (other than (D))
·          Capital Gain Property (C)(iv)  For the purposes of this paragraph . . . any capital asset the sale of which at its FMV at the time of contribution would have resulted in gain which would have been long term capital gain.  Any property used in a T/B as defined in §1231 shall be treated as a capital asset
·          Election Provision–§170(b)(1)(C)(iii) T.P. may elect to have §170(e)(1) apply to the contribution.