Transcript Document

IRS “SPECIAL” RULES & REGS;
CASE COUNTING GUIDELINES
John Taylor
North Carolina State University
Session Etiquette
• Please turn off all cell phones.
• Please keep side conversations to a minimum.
• If you must leave during the presentation, please do so
as quietly as possible.
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Topics/Agenda
• Background on IRS Regulations
– What’s a Quid and Does one Hurt?
– DAF and Family Foundation Issues
• Miscellaneous IRS Issues/Concerns
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Auctions
Sponsorships
Events
Donor Control
Gift Myths
• Update on CASE Counting Guidelines
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What’s New for 2013?
• We Didn’t Fall Off the Cliff!
– Actually, the “cliff” was simply pushed out a couple months
• IRA Rollovers are BACK!
– Retroactive to 1/1/2012 – through 12/31/2013
– Folk who didn’t take a qualified charitable distribution (QCD) in
2012 can do so through 1/31/2013
– Folk who received a required minimum distribution (RMD) in
12/2012 can transfer those to charities in 1/2013 and avoid
paying tax
• Is eliminating/limiting the charitable deduction off the
table?
• Updated “low-cost article” and “insubstantial benefit” –
stay tuned for details!
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IRS Regulations
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IRS issued final and temporary regulations in 1995 to
clarify(?) a clarification issued the previous year that
clarified a new section of tax code
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IRS final FINAL regulations issued on 12/16/96
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IRS clarification of the clarified clarification of the final
regulations – Revised IRS Publication 1771 (3/2002)
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IRS Regulations
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And then they revised it again 7/2005! AND AGAIN
7/2007; AND AGAIN 3/2008; AND AGAIN 6/2010; AND
AGAIN 9/2011
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Two primary areas of interest/concern:
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Written acknowledgement requirements;
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Value of Goods & Services (quid pro quo)
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Written Acknowledgments . . .
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Required for all contributions of $250 or more in order
to claim a charitable deduction. Canceled checks are
no longer sufficient ABOVE this amount but ARE below!
Absolutely, positively, must issue a receipt for cash
donations of any amount.
Donor is responsible for obtaining.
Substantiation to donor must be contemporaneous
(typically mailed by 1/31). But must be received by the
day they file their taxes .
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“Gospel” According to John?
• Mail the receipt before the donor asks for one
• Mail the receipt within 48 hours of receiving the gift
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Written Acknowledgments
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Written acknowledgments must provide the amount
contributed (or description, not value, of non-cash
property) and a statement indicating whether or not any
goods or services were provided in exchange for the
gift.
Neither the donor SSN nor your tax ID are required –
Except for gifts of vehicles!
Payroll Deductions - Only applies to single deductions
of $250 or more. Not required, period, if employer
evidences the amount withheld (pay stub) and provides
a “no goods or services” statement (pledge card).
– No similar rules for other recurring gifts
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What’s In A Date?
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A “gift date” is NOT required
“Official bank record”?
Postmarks do not always prove a gift date
Pub 1771 suggests a “received date”
John Taylor suggests a “processed” date - and had that
confirmed by IRS nonprofit section head in the late
1990’s and 3 tax attorneys since
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Where Can We Find Safe Harbors?
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Safe Harbor Rules
Quid Pro Quo receipts are not required when:
• Fair market value of all benefits received in connection
with the payment does not exceed the lesser of 2% of
the gift amount or $102 (2013)
• Gift is $51.00 or more and the cost of all token benefits
given does not exceed the IRS “low-cost articles”
minimum of $10.20 (2013)
– For gifts below $51.00, RULE #1 APPLIES
– The only benefit the donor received consisted of token items
bearing the institution’s name or logo
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Value of Goods & Services . . .
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Quid Pro Quo receipt required: Gift exceeds $75 where
part of the payment is for goods or services received,
and part is a contribution
If payment is under $75, QPQ requirements still apply,
just no mandated receipt
Disclosure must inform donor that the tax deductible
amount is limited to the excess of the amount
contributed over the value of goods or services
provided. Must also provide donor with a good-faith
estimate of the value of such goods or services
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QPQ Specifics
• FMV Defined
• Low-Cost Defined
• 80/20 Rule Applications
– Which comes first, the benefit or the percent reduction?
– Other seating applications?
• And what about membership ($75 or less) benefits?
– Free or discounted admission
– Free or discounted parking
– Preferred access to and/or discounts on goods/services
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Who Is the Donor Poll
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Check received from the Charitable Gift Fund of the
Triangle Community Foundation, indicating that we
should send an acknowledgment to Jane Smith (whose
family also has a separate fund at TCF). Who is the
legal donor:
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Jane Smith
Charitable Gift Fund
The Smith Family Foundation from whom we have previously
received gifts
Triangle Community Foundation
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Who Is the Donor?
It Depends!
It actually could be the Family Foundation (no such legal
entity, BTW) or the Triangle Community Foundation, but
is more likely a gift from a Donor-Advised Fund
(Charitable Gift Fund)
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Donor-Advised Funds
• A donor sends an asset to a qualified tax-exempt arm of
an organization AS A DONATION TO THAT ENTITY
• The assets are now under the name, and control, of that
entity
• The donor contacts the entity and ADVISES them to
make a gift to a qualified nonprofit organization
• The entity is the legal donor
• BTW, why do donors give this way instead of directly to
us?
• It’s partly our fault!
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Donor-Advised Fund Issues
• Pledge Payments
• No Way!!!!!!!!!
• BTW, this is also true for gifts from Family (private)
Foundations but for a different reason – self-dealing –
more in a bit
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Straight from the IRS:
• “A charitable pledge is an obligation of the donor to give
money or property to a charity at a future time. Where a
charity (including a charitable organization of which a
donor advised fund is treated as a component part)
relieves a donor of a substantial obligation by satisfying
the donor’s pledge, the charity is providing the donor
with an impermissible benefit. Accordingly, a donor’s
charitable pledge may not be fulfilled by a single
payment or a series of payments from the charity.”
• In other words – it is income to the individual!!!
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Legal Opinion
Attorney Statement Pertaining to Donor-Advised Funds:
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“Gifts through donor advised funds should not be applied to satisfy
pledges nor linked to a donor [other than perhaps to acknowledge a
gift from a foundation at the direction of the donor]. Here are some
of the reasons:
1. “the donor will take a deduction when the gift to the conduit
foundation is made
2. “the donor cannot take a double deduction and therefore does not
need a receipt
3. “if you have recorded a pledge by the donor, then while that pledge
is on your records, a gift from a 3rd party [the conduit foundation]
which satisfies that pledge is in effect a gift to the donor by the 3rd
party [lots of cases on this] which in theory may be treated as an
improper transfer by the foundation [non-profit] to the donor [nonqualified donee] and may also be treated as income to the donor
In summary, it will be very difficult to make a "safe" gift to a nonprofit
through a conduit foundation to satisfy a pledge.
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Legal Opinion
• “Although I will not provide an opinion regarding this
matter, it would appear that if a donor has a pledge on
the books, one way to proceed might be for you to
voluntarily cancel the pledge before the gift from the
conduit Foundation is made [and without any legally
binding agreement tying the cancellation to the
Foundation gift]. This could be very risky, however, and
the donor is assuming all of the risk. The only safe
procedure is to make sure donors understand that a
pledge may not be satisfied except by a direct gift. The
conduit foundations [e.g. Fidelity, Community
Foundations] were established as and intended to be the
donee charity and therefore there can be no linkage.”
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Donor-Advised Funds – And Their Donors
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Do the donors know the rules?
They aren’t YOUR rules!
But do our donors really NOT know the rules?
You bet they do, or should (but might not care – and
should!)
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Community Foundation Statement
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Private Foundations & Self-Dealing
• Cannot enter into any sort of financial relationship with
“disqualified persons”:
officer/director/trustee/employee/donor
• Lengthy list of “prohibited transactions” for these folk,
which includes satisfaction of a pledge & purchases,
e.g.:
– Family pledges are personal debts, and if a disqualified person
makes such a pledge, its an act of self-dealing for a foundation
to pay that debt
– If the foundation buys a ticket to a fundraising event, and the
ticket price includes payment for goods and services (dinner and
entertainment), the ticket cannot be used by a disqualified
person
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A Bit of This & That
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What Is A Gift?
• Gifts & Grants are synonymous (for CASE and CAE
reporting purposes)
• A gift is the irrevocable transfer of property or money to a
qualified organization and has no donor-imposed
restrictions, conditions, or control
– You cannot un-gift a gift!
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Let’s Talk About “Control”
• Once a gift always a gift
– Cannot give a gift back – 1099s? What if the gift was matched?
– Retain gift after a restricted program is canceled
• Scholarship recipient selection
– Donor’s involvement
• Certainly cannot have a majority vote
• Control based on position/power
• Cannot require institution to take action it otherwise
would not take
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Common Gift Myths
• Donation of time or service. While truly a charitable act,
only a volunteer’s REQUIRED out-of-pocket expenses
(mileage, parking, supplies, etc.) may be deducted.
– FASB/GASB may recognize as an asset
– Expressly forbidden as a charitable donation per IRS Publication
526
– Donated advertising space is a “service” per IRS Revenue
Ruling 57-462
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Common Gift Myths
• The use of a donor’s property by a charitable
organization (partial interest – IRS Pub 526)
– Vacation home for charity auction
– Office space in lieu of rent
– One-time display of artwork (fractional gifts are the exception –
and are legal!)
– Use of software
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How Will This Benefit Us?
• What’s the determining factor for acceptance of a gift-inkind?
– Related use: The GIK must be useful to the institution in fulfilling
the purpose or mission for which the institution was granted taxexempt status
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How Will This Benefit Us?
– Unrelated use: May still qualify as a gift-in-kind (that you
can count and the donor can deduct – sort of), provided it
was given specifically to be sold (charity auction)
– “the Treasury Regulations under section 170 provide that if
a donor contributes tangible personal property to a charity
that is put to an "unrelated use", the donor's contribution is
limited to the donor's tax basis in the contributed property”
– “The term "unrelated use" means a use that is unrelated to
the charity's exempt purposes or function . . . The sale of
an item is considered unrelated, even if the sale raises
money for the charity to use in its programs”
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Unrelated Gifts – Charity Auctions
• Not many specific IRS rules here! But what rules there
are can be found at:
http://www.irs.gov/Charities-&-Non-Profits/CharitableOrganizations/Charity-Auctions
This is where you will find those previous quotes
• Purchaser MUST “know” the FMV in advance and pay in
excess
– Quid pro quo receipt
• Donor’s item must (?) sell – NO receipts until AFTER the
auction
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Auction Receipts
• Donor of item may be able to claim a deduction
– Only if it is a gift (not a service or partial interest)
– Only if it sells (?)
– The receipt should only describe the gift
• Buyer of an item may be able to claim a deduction
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Only if the FMV was published or known in advance
Only if they paid more than that
Does not matter if the donated item was not a gift
Quid pro quo receipt is required
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Sponsorships
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Sponsorships Described
• See Federal Register, Vol. 67 No. 80, page 20433
• Or just go to the IRS documents section of the
FundSvcs.org download site!
• But if you would rather read about it in “plain English”,
download the American Society of Association
Executives (ASAE) interpretation of the IRS regulations,
also at FundSvcs.org
• All of the above pertain to “taxation” – or not – of
sponsorship payments. We translate that to mean “no
gift” or “gift.” If the payment could be considered taxable
income, then no gift
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Sponsorships Defined
• Calling something a sponsorship does not always mean
the sponsor gets something of value in exchange
• Sponsorships are typically encouraged when you want to
have an event underwritten
• You do need to handle standard quid pro quo benefits
such as receiving a “table” or a certain number of tickets
to the event
• Usually, all a sponsor is really looking for is name
recognition
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“Free” Recognition A Sponsor Can Receive
• Mention of location, phone number, website
• Value-neutral descriptions, including displays or visual
depictions, of the sponsor’s product line or services
• Displays of brand or trade names and product or service
listings
• Logos or slogans that are an established part of the
sponsor’s identity
• Mere display or distribution (free or at a cost) of the
sponsor’s product at a sponsored activity
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Recognition Cannot Include:
• Qualitative or comparative language
• Price information or other indications of savings or value
(John wonders how, then, they can sell the item as
suggested on the previous slide?)
• An endorsement or inducement to purchase, sell, or use
the sponsor’s service, facility, or product
• A single message containing advertising and
acknowledgement is considered 100% advertising
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So What Is a “Good” Sponsorship?
• Any payment by any person engaged in a trade or
business with respect to which there is no arrangement
or expectation that the person will receive any
substantial return benefit
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Sponsorship “Worry Words”
• Try to keep words out of sponsorship documents that are
red flags to the IRS: sponsorship agreement;
partnership; joint venture; royalty agreement; advertising
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Can Participants Claim a Deduction?
• Maybe! But you need to be clear and concise in
advance
• Remember, it matters not if the event has been
underwritten. What matters is the fair market value of
what participants receive
• The dreaded golf tournament? Quite likely. But entry
“fee” must exceed the value of the round of golf, cart,
balls, food/drink, ball towels, etc.
• $1000/plate dinner? Sure. But a $25 reception? Don’t
split hairs – probably best to call it a:
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Proceeds to Benefit Event
• A nonprofit conducts an event where the gift amount is
negligible or difficult to determine or it is just too much
work to produce receipts. Walk-a-thons and such are
good examples
• The FMV of benefits received equal the “price of
admission,” but some or all of the event expenses are
covered by a donor or group of donors. Those donors
are making a gift. However, since the attendees are
receiving something of equal or greater value, they are
not making a gift
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One More Type
• An event hosted by a completely independent entity, with
no involvement by the nonprofit, who sends any left-over
cash to a charity. The organizer of such an event is
making a gift for the amount sent to charity, but the
attendees are not
• Can that same entity claim a gift-in-kind for all of the
food/beverages/preparations? Maybe, but usually only if
event was originally sanctioned by the organization. If
so, you need proof of what was purchased
(reasonableness check), and proof of payment
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The Old
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The CASE Guidelines
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Now, You Too Can Count Bequest Expectancies
• Irrevocability no longer required – too difficult to manage
(State laws varied), and donor-unfriendly to request
• Pledged/Executed (not found) during campaign
• Should consider age and variable valuation:
– Under 50 - $0
– 50-69 – Present value
– 70+ - Face value
• Report separately from outright and irrevocable deferred
gifts
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Back to the Future for Irrevocable Deferred Gifts
• May once again count at face value (3rd edition went
strictly present value)
• Separate goals should be created for these as well – You
can bring in more! But more here does not mean less
“there”
• The issue of transparency suggests that you still report
the present value (IRS deduction) of these, too, but face
value counts towards goal
– Only the present value counts for VSE purposes
• Minimum ages should be considered
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Conditional Pledges
• Reasonable expectation that the conditions will be met
during the campaign. Examples include
– Challenges – I’ll give you mine if you raise the other
– Capital Commitments – If you build it I will pay
• Appropriate documentation
• Recorded as, and with, revocable gifts/commitments and
thus counted separately
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Counting Government Funds
• Actually, no change – you never count government
funding from any government for any reason
• 4th edition review committee did, however, take the issue
up again
• Acknowledgement that government funds are helpful in
achieving strategic goals, can be leveraged to secure
private gifts, and recognize that some fundraising staff
help secure
• However:
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Counting Government Funds
• Counting emphasis has always been on raising
charitable donations from the private sector
• Impossible to level the playing field when looking at large
public research universities compared to small private
colleges; not to mention that only half of the States offer
a State matching program
• Thus, securing government funds does not qualify as a
private philanthropic act, however we most certainly can
and should recognize its value in achieving institutional
goals
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What Doesn’t Count*
• Advertising revenue
• Alumni membership dues/fees
• Appraisal costs and other expenses associated with
conveying a gift
• Contract revenues (including clinical trial funds)
• Contributed services
• Partial interest
• Standard discounts on purchases (does not include true
bargain sales)
• Earned income transfer payments from money earning
programs/businesses
• Gifts or pledges counted before; payments on pledges or
bequests made before
*Applies to Campaigns AND VSE
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What Doesn’t Count*
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Gifts to social organizations
Governmental funds – ALL kinds
Oral pledges (except telethon!)
Written-off pledges
Investment earnings on gifts – includes gains/losses on
sales of stock/other property
• Funds from exclusive vendor relationships: Affinity credit
cards, pouring rights, royalties, or other contractual
obligations
• Non-gift portion of QPQ transactions
• Surplus income from ticket-based operations
*Applies to Campaigns AND VSE
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Additional Resources
• John’s listserv “FundSvcs”
• Advancement Services Download Site
– www.FundSvcs.org
• Association of Advancement Services Professionals
(AASP – Advserv.org)
• 2007 Advancement Services book
• CASE Reporting Standards & Management Guidelines & 10/2011 Clarification
• IRS Publications 526, 561, & 1771
• [email protected]
• 919.513.2954
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