Académique Documents
Professionnel Documents
Culture Documents
A. The facts
In the first case, Max Weitz and Sylvia Weitz v. the Commissioner of
the Internal Revenue, T.C. memo 1989-99, Max and Sylvia Weitz
donated several pieces of medical equipment to a hospital.
Their accountant had created a scheme.
The broker bought medical equipment at bankruptcy auctions for
significantly lower prices than the items usual retail prices.
The investors held the equipment for more than 12 months and
then donated it to designated charitable institutions.
The broker had a warehouse where the purchasers stored the
equipment.
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C.
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. Impact of intent on a
charitable deduction
The second case deals with individuals who
acquired medical equipment for the purpose of
helping a new hospital. Their court case, Daniel
L. Herman and Barbara J. Herman v. the United
States and Paul Brown v. United States of
America, goes into considerable detail on this
very different type of situation.
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B.
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The conclusion
If an individual is purchasing assets for the purpose of making a
profit by acquiring the materials and then selling them to others,
they are unquestionably in a trade or business.
. Other individuals have a deep commitment to help others by
alleviating illness and disease. They purchase assets to help
existing organizations and, immediately upon their acquisition,
donate them to charitable entities.
If the entities to which they donate are approved 501(c)(3)
public charities, the individuals are entitled to a deduction.
If they have owned the materials for less than a 12-month
period, their deductions will be limited to their cost or basis.
A qualified appraisal by a
qualified appraiser
Although Albert and his wife have donated artwork, jewelry, business
equipment, and many other items to various charities over a long period of
time, they had not donated any of these items in the past three years.
A. The facts
1. The taxpayers knew they were required to have a qualified appraisal for
any donated asset that is valued at more than $5000. Since individuals such
as their jeweler and art dealer held themselves out to the public as
appraisers for insurance purposes, the couple assumed that they were
qualified to do the appraisals.
2. In 2007 the taxpayers once again began to donate art, jewelry, and other
items.
They followed the same guidelines that they had used before.
3. The couple received a letter advising them that the IRS was
examining its 2007 tax return. Since Albert and his wife had filed
Form 8283, Noncash Charitable Contributions, and submitted
declarations by the appraisers for Part III of the form.
4. During the examination, the agent asked the couple if the
appraisers were members of any professional appraiser
organization or if they had completed the minimum education
experience requirements under IRS regulations.
5. The couple responded that the appraisals were done by experts
who were active in associations of jewelers and art galleries.
B. The mistake
1. On October 19, 2006 the IRS issued Notice 2006-96, which
defines what constitutes a qualified appraisal and appraiser for
purposes of substantiating property for which a charitable
contribution deduction is in excess of $5000.
A qualified appraisal must be conducted in accordance with
generally accepted appraisal standards.
A qualified appraiser is one who has been certified by a
professional appraisal licensing organization such as the American
Society of Appraisers (ASA) or the International Society of
Appraisers (ISA).
A qualified appraiser must meet minimum education
requirements.
An individual will not be considered a qualified appraiser for
any specific appraisal unless he demonstrates verifiable
education experience in valuing the type of property
C. The law
1. I.R.C. 170(f)(11)c, 170(f)(11)d, and 170(f)(11)(E)(i)
2. I.R.C. 6695(a)
3. IRS Notice 2006-96
D. The conclusion
1. Donations of tangible property valued over $5000 now
require a qualified appraisal by a qualified appraiser.
2. Before they filed their return, Albert and his wife
should have consulted a tax professional who was
familiar with recent tax changes.
Holding Period
To yield LTCG an asset must be held one year.
Exception is livestock which has a 24-month
holding period
Non-LTCG Property
Short-term capital-gain property
Inventory
Recapture property
Other ordinary income property
Conditions of a Gift
Must be complete and irrevocable.
Cannot be tied to the occurrence of a subsequent event.
If at later date governmental or similar authority deems it
impermissible, gift still allowed as charitable deduction.
If a reversion provision returns the property because the
donee did not achieve goals, the deduction is not
allowable.
Earmarked Gifts
Passing a gift through a charity for a specific
person is not permissible.
The organization must have control of the funds.
Earmarking funds through an organization for
missionary children is not permitted. (Davis vs.
United States)
Letter of Credit
Donor may have a bank issue a charity a letter of credit
on which the charity may draw as it sees fit.
In a technical advice IRS ruled that, if the letter is
irrevocable, the donor could deduct the full amount in the
year the letter of credit was issued even though the
charity did not draw the funds until the following year.
Out-of-pocket Expenses
Auto expenses either 14 cents a mile or actual
expenses with no insurance or depreciation.
Expenses as a delegate to a convention
Volunteers working with children
Civil defense duties
Sponsoring cocktail or dinner parties to promote a
charitable organization
Expenses of volunteer pilots performing services for
charity
Interest-free Loans
A donors interest-free loan to a charity would be
a contribution to the extent of the interest not
charged.
Although the two amounts would normally offset
each other, it is not the case when the donors
contributions are not fully deductible because of
the percentage limitation.
Loans of Artwork
In prior years would have been subject to gift tax
Certain loans of this type no longer treated as
taxable gifts
Must be qualified art
Use must be related to the charitys or privateoperating foundations exempt purpose
A. The facts
Big Bargain Company took a deduction for its cost/basis of the
donated property on its Form 1120 tax return.
The company did not know about 170(e)(3) that allows C
corporations to take enhanced deductions for their donations of
inventory to a public charity.
Code section 170(e)(3) allows a charitable deduction up to the
fair market value of the donated property reduced by one-half of
the amount, which would constitute noncapital gain if the
property was sold, but in no event to exceed two times the
donors basis in such property.
Either inventory sold to consumers or depreciable tangible
property used in the taxpayers trade or business may be
contributed.
B. The mistake
If it had given its excess inventory to an entity that
complied with 170(e)(3), Big Bargain Company could
have qualified for a larger deduction.
Instead of giving its assets to organizations that merely
sell them, a business should strive to donate to
organizations that will use the items in their exempt
purpose
A business should consult with its professional tax
practitioner prior to making donations of this type.
Summary
It is not immoral, unethical, or illegal to profit
from wise charitable planning.
Intent is a major criterion for charitable tax
planning.
Instead of spending time only on estate tax
planning, spend some time on charitable gift tax
planning too.