In a case that provides an important lesson about the role of charitable deductions, The Ninth Circuit recently affirmed a tax court’s decision to sustain a deficiency against an estate because the estate had overstated its amount of charitable deductions. In the case, Ahmanson Foundation v. United States, the Ninth Circuit emphasized that a person who creates an estate is only allowed a deduction for estate tax purposes for what the charity actually received.
In addition to estate planning, taxpayers in the United States have relied on charitable donations for years to reduce their taxable income. The Tax Policy Center even reports that approximately 20 percent of people who file their taxes utilize charitable donations. Unfortunately, not every contribution that a person makes to a charity qualifies for tax deductions. As a result, this article reviews some of the various ways that a person can transfer assets to a charity and not qualify for a tax deduction.
# 1 – Contribution of Services
The time or services that a person profites to a charity are not tax deductible. As a result, it is wise to avoid the myth that a person can deduct any time donated to a charity. If it is difficult to determine whether a person profited a gift of property or services, it is important to remember to then determine the main nature of what a person provided.
# 2 – Earmarked Gifts
Earmarked contributions are given for a specific person or group of people and do not constitute charitable contributions. Instead, charitable contributions are classified as private gifts and do not qualify as deductible contributions.
# 3 – Foreign Charitable Organizations
Gifts to charitable organization outside of the country will not qualify or deduction. As a result, foreign charities often established intermediaries in the United States to avoid discouraging people from donating.
# 4 – Partial Property Interest
Partial gifts of property are not deductible unless a person meets the requirements for a charitable remainder or the property interest is an undivided portion of a person’s entire estate.
# 5 – Charitable Pledges
Pledges refer to promises by a person to make a gift at some time in the future. Gifts are not deductible at the time of promise. Instead, a gift must actually be made to the charity before it is tax deductible.
# 6 – Quid Pro Quo Gifts
If a charity provides a person with something of value in exchange for a donation, it is only the amount of the donation that is greater than the item exchanged that is deductible. In situations where a charity provides a person with an item greater than $75 in value, the charity must provide the donor with a written disclosure about the estimated fair market value of the benefit that is received.
Speak with an Experienced Estate Planning Lawyer
Charitable deductions are just one of the complex issues involved with estate planning. Fortunately, at Ettinger Estate Planning, our attorneys have substantial experience with the numerous obstacles that can arise during the estate planning process. Contact our law office today to schedule a free initial consultation.