Joint Committee on Taxation Report on Tax Treatment of Charitable Contributions

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Cory D. Halliburton

Cory D. Halliburton

Attorney

214.984.3658
challiburton@freemanlaw.com

Cory Halliburton serves as general counsel and business adviser to a nationwide nonprofit / tax-exempt client base, as well as for multi-state professional service companies. He is a results-oriented attorney, with executive-level strategy and an understanding of the intersection of law and business judgment. With a practical upbringing, he pushes for process-driven results in internal governance, strategy and compliance with employment law, and complex or unique contracts and business relationships.

He dedicated the first ten years of his practice to mainly commercial litigation matters in West Texas and the Dallas-Fort Worth Metroplex. During that experience, Mr. Halliburton transitioned his practice to a more general counsel role, with an emphasis on nonprofit and tax-exempt organizations, advising those organizations through formation, dissolution, litigation, governance, leadership succession, employment law, contracts, intellectual property, tax exemption issues, policy creation, mergers and other. He has served as borrower’s counsel for tax-exempt bond and loan transactions near $100 million aggregate; some with complex pre-issue construction, debt payoff and other debt financing challenges.

Mr. Halliburton also serves as outside legal and business advisor for executive professionals in multi-state engineering firms, with a focus on drafting and counsel on significant service agreements, employment law matters, and protection of trade secrets.

Joint Committee on Taxation Report on Tax Treatment of Charitable Contributions

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.

Key Statistics

Overview

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:

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:

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.