On March 11, 2022, the Joint Committee on Taxation published its 49-page report (the “Report”) relating to the federal tax treatment of charitable contributions. The Report was the subject of a public hearing held on March 17, 2022 where the Senate Committee on Finance considered economic issues relating to federal tax incentives for charitable giving and data relating to charitable contributions. See hearing at Hearing | Hearings | The United States Senate Committee on Finance.
Overall, the Report is a useful resource, although it is not “law” and there are many intricacies that the Report does not address or that may be addressed, just not in full detail. This Insights article provides a brief summation of some key statistics and content of the Report.
- As of September 30, 2020, there were approximately 1.75 million Section 501(c) organizations registered with the IRS, 1.4 million of which were eligible to receive deductible charitable contributions pursuant to Section 170, Title 26 of the Internal Revenue Code (“Code”).
- Charitable giving in the U.S. à $471.44 billion in 2020, $324 billion of which was from individuals, with the remainder from foundations, estates, and corporations.
- As a group, religious organizations received the most of all charitable donations (28%), followed by educational institutions (15%), human services organizations (14%), grantmaking foundations (12%), and health organizations (9%).
- Giving to donor-advised funds has grown at a rate that far exceeds the rate of growth in overall charitable giving, indicating an increase from $31 billion to $141 billion (an increase of 356%) between 2006 and 2019.
- For 2018, the categories of non-cash contributions was dominated by corporate stocks and other investments ($42.69 billion), with the next highest being conservation easements ($6.5 billion).
- $217.6 billion is the estimated amount that will be claimed as charitable contribution deductions in 2022.
Section 170 of the Code (26 U.S.C. § 170(a)(1)) allows for the deduction of any charitable contribution made within the taxable year. For deductibility purposes, a “charitable contribution” must generally meet these qualities:
- Contribution of money or property (the value of contributed services is not a deductible contribution);
- Given to an organization that is eligible to receive deductible charitable contributions;
- The donor must have “charitable intent” or “gratuitous intent”;
- There must be no expectation of a return benefit of substantial economic value;
- The transfer must be complete and, with few exceptions, must be a transfer of donor’s entire interest in the contributed property; and
- The amount of the deduction must be within the percentage of income permitted by the Code for deductions of charitable contributions.
Each of the above factors or elements to a charitable contribution has its own intricacies and requirements to qualify for deductibility purposes. The Treasury Regulations go into much detail on these requirements. See, e.g., Treas. Reg. § 1.170A-13.
The Report addresses these qualities of a charitable contribution, substantiation requirements, and how deductions may be calculated for the individual and corporate donor, as well as for purposes of estate and gift tax purposes. The Report also provides information on the valuation of contributions that may be in the form of inventory, food, vehicles, patents and other intellectual property, and household items, such as clothing and furniture.
The Report contains a table comparison of selected rules applicable to limitations on deductibility of contributions to public charities, nonoperating private foundations, and donor-advised funds.
Like this Freeman Law Insights blog site, the Report includes a portion on charitable contributions in the form of a conservation easement. The Code generally disallows a charitable contribution deduction for a gift of real property that consists of less than the taxpayer’s entire interest in such property. But, there is an exception for the donation of conservation easements. See 26 U.S.C. § 170(f)(3)(A)-(B)(iii).
Charitable contribution deductions for the value of conservation easements are under close scrutiny by the IRS. This is evident in numerous recent opinions out of the U.S. Tax Court and notices from the IRS. See IRS Notice 2017-10. The Report (pg. 40) identifies the policy concerns relating to conservation easement deductions, mainly with regard to (i) inflated valuations of easements (which then turns into the amount used for deduction) and (ii) the requirement that the restriction for conservation purposes be “in perpetuity.”
Below are links to recent Freeman Law Insights blog articles on the subject of conservation easements:
- Pickens Decorative Stone, LLC v. Comm’r – Syndicated Conservation Easements and “In Perpetuity”
- Corning Place Ohio, LLC v. Comm’r – Non-cash Charitable Contributions and Conservation Easements
- Syndicated Conservation Easements (and Other Tax Schemes) Be Ware
- The Art of an IRS APA Defense: Conservation Easements and Hewitt
- Recent Tax Court Conservation Easement Decision Demonstrates Continued IRS Enforcement Efforts and Penalty Defenses
Insights: The tax-exempt sector is a major play in the global economy, with nearly 2 million organizations organized pursuant to Section 501(c) registered with the IRS. However, not all of those tax-exempt organizations are qualified to receive deductible charitable contributions, and the donor-taxpayer should take due care to make sure that the contributions intended for charitable contribution deduction are indeed deductible under Section 170 of the Code and related Treasury Regulations. Charitable intent is important, and the donor-taxpayer must be prepared to substantiate any amount claimed as a charitable contribution deduction. For contributions in the form of conservation easements, donor-taxpayer should be prepared to “dot the i’s and cross the t’s” as the IRS and the Joint Committee on Taxation have each identified conservation easements as a source for potential valuation issues and other improper qualities that could destroy requirements for deductibility.
Every nonprofit is different, that’s why we collaborate with our nonprofit clients to identify and meet their unique needs. Freeman Law represents associations & 501(c)(6) organizations, churches and other religious organizations, foundations, private foundations, 501(c)(3) organizations, and other nonprofit clients. While nonprofits encounter many of the same economic concerns and administrative challenges as any business, they also face many unique challenges. Schedule a consultation or call (214) 984-3000 to discuss your nonprofit concerns or questions.