Читать книгу The Tax Law of Charitable Giving - Bruce Hopkins R., Bruce R. Hopkins, David Middlebrook - Страница 27

As noted, when a transaction involves consideration, so that the erstwhile donor receives something of value approximate to the amount transferred, there is no gift. This is because the person received a quid pro quo in exchange for the transfer, and thus there is no true gift at all. (There are several sets of circumstances in which a transfer is partially a gift and partially a sale or exchange;⁶⁶ these circumstances are discussed elsewhere.⁶⁷)

In one case, a manufacturer of sewing machines sold the machines on a discounted basis (bargain sales) to schools and other charitable organizations. The issue was whether the company was entitled to a charitable deduction for the gift element in the transactions. The court formulated the appropriate test as follows:

[I]f the benefits received, or expected to be received, are substantial, and meaning by that, benefits greater than those that inure to the general public from transfers for charitable purposes (which benefits are merely incidental to the transfer), then in such case we feel the transferor has received, or expects to receive, a quid pro quo sufficient to remove the transfer from the realm of deductibility [as a charitable gift].⁶⁸

In application of this standard, the court differentiated between the discounts allowed to schools and those for other charities. As to the former, the court concluded that the discounts were offered “for the predominant purpose of encouraging those institutions to interest and train young women in the art of machine sewing; thereby enlarging the future potential market by developing prospective purchasers of home sewing machines and, more particularly [the company's] machines—the brand on which the future buyers learned to sew.”⁶⁹ Thus, these discounts were held not to be of a charitable nature, with the court convinced that the company's “predominant reason for granting such discounts was other than charitable” in that it “expected a return in the nature of future increased sales.”⁷⁰ By contrast, as to the bargain sales of sewing machines to charitable organizations other than schools, the court was of the view that “any benefits to be derived from such discounts were merely incidental to the charitable nature of the transfer and, therefore, do not destroy the claimed charitable contribution deduction.”⁷¹ The incidental effect of this giving policy was the “development and maintenance of a favorable public image for [the company] in the eyes of those [charitable] organizations and their members.”⁷²

In another case, a company was denied a charitable contribution deduction for the transfer of land to a high school district, on the ground that the conveyance was made with the expectation that, as a consequence of the construction of public access roads through the property, it would receive substantial benefits in return.⁷³ Indeed, that is what occurred. The court wrote that the “receipt or expected receipt of substantial benefits in return for a conveyance precludes a charitable contribution [deduction].”⁷⁴ The court found that the company “knew that the construction of a school and the attendant roads on its property would substantially benefit the surrounding land, that it made the conveyance expecting its remaining property to increase in value, and that the expected receipt of these benefits at least partially prompted [the company] to make the conveyance.”⁷⁵ The court concluded that “this is more than adequate reason to deny [the company] a charitable contribution for its conveyance.”⁷⁶

In a similar circumstance, two property owners conveyed a parcel of real estate to a corporation, taking back a note secured by a deed of trust on the property. The next year, these individuals delivered a quitclaim deed for a one-half interest in the note and deed of trust to a school and claimed a charitable deduction for the value of the transfer. Two years later, as part of a settlement, the individuals assigned the note to a creditor. They advised the school of the situation, causing the school to quitclaim its interest in the note and trust to the creditor. The next year, these individuals made a cash payment to the school and claimed a charitable deduction for that payment. The court held that the portion of the gift of money equal to the value of the interest in the note and trust that the school quitclaimed to the creditor was not a gift and thus was not deductible; the excess was found to be a charitable gift.⁷⁷ This was the outcome because, had the school not executed the quitclaim, the individuals would have been obligated to pay an additional and comparable sum of money to the creditor. “Under such circumstances,” wrote the court, “it can only be concluded that [the individuals] received a benefit of equal value when [the school] executed the quitclaim.”⁷⁸

In another instance, an individual canceled certain property interests and a purchase option in a manner that favored a university. A charitable deduction was claimed for the transfer of this benefit for charitable purposes. The court, however, refused to view that transaction in isolation, or as occurring in advance of other related transactions, but instead regarded it as an integral part of a series of transactions in which the individual benefited. Indeed, the court valued the interests passing to the university at $276,500. At the same time, however, the court found that the individual received a quid pro quo from the transaction in the amount of $295,963.⁷⁹

Likewise, a court held that a contribution of a house to a volunteer fire department, for firefighter and police training exercises and eventual demolition, did not give rise to a charitable contribution deduction, inasmuch as the donors received a substantial return benefit and failed to show that the fair market value of the property contributed, encumbered with restrictions and conditions,⁸⁰ exceeded the value of the benefit they received.⁸¹

Several other court opinions contain applications of the quid pro quo rationale in this setting.⁸² This rationale is, of course, that the transferor is receiving goods, services, and/or other benefits of value comparable to the money and/or property transferred, and thus the transaction is a purchase rather than a gift.⁸³

This rationale is followed by the Internal Revenue Service.⁸⁴ An illustration of the IRS's application of these rules appears in its guidance concerning the deductibility of payments to a private school when the “donor” is a parent of a child attending the school.⁸⁵ Basically, payments of tuition to a school are not deductible as charitable gifts.⁸⁶ The general standard in this context is this:

Whether a transfer of money by a parent to an organization that operates a school is a voluntary transfer that is made with no expectation of obtaining a commensurate benefit depends upon whether a reasonable person, taking all the facts and circumstances of the case into account, would conclude that enrollment in the school was in no manner contingent upon making the payment, that the payment was not made pursuant to a plan (whether express or implied) to convert nondeductible tuition into charitable contributions, and that receipt of the benefit was not otherwise dependent upon the making of the payment.⁸⁷

The IRS generally presumes that these payments are not charitable contributions when one or more of the following factors are present: (1) the existence of a contract under which the parent agrees to make a “contribution” and that contains provisions ensuring admission of the parent's child, (2) a plan allowing parents either to pay tuition or to make “contributions” in exchange for schooling, (3) the earmarking of a contribution for the direct benefit of a particular student, and (4) the otherwise unexplained denial of admission or of readmission to a school of children of parents who are financially able but do not contribute to the school.

Moreover, in other cases, although no single factor may be determinative, a combination of several factors may indicate that a payment is not a charitable contribution. In these cases, both “economic and noneconomic pressures placed upon parents” are taken into account.⁸⁸

The factors that the IRS will ordinarily take into consideration, but will not limit itself to, are: (1) the absence of a significant tuition charge, (2) substantial or unusual pressure to contribute applied to parents of children attending a school, (3) contribution appeals made as part of the admissions or enrollment process, (4) the absence of significant potential sources of revenue for operating the school other than contributions by parents of children attending the school, and (5) other factors suggesting that a contribution policy has been created as a means of avoiding the characterization of payments as tuition.

Nonetheless, the IRS concluded: “However, if a combination of such factors is not present, payments by a parent [to a school attended by a child of the parent] will normally constitute deductible contributions, even if the actual cost of educating the child exceeds the amount of any tuition charged for the child's education.”⁸⁹

A federal court of appeals upheld the IRS's disallowance of a charitable deduction for tuition payments made to a religious school where the children of the payors were in attendance, rejecting the arguments that there was a gift or that enactment of the rules as to intangible religious benefits changed the law in this area.⁹⁰ A set of parents claimed charitable contribution deductions for a portion of their tuition payments, with the “gift” element ostensibly being equal to the proportion of the school day allocated to religious education. The appellate court ruled that the additions to the tax law of charitable giving of the charitable gift substantiation requirements⁹¹ and the quid pro quo contribution rules⁹² did not change the substantive definition of a charitable contribution, but rather added “procedural provisions regarding the documentation of tax return information.” These rules include exceptions for contributions for which solely religious benefits are received.⁹³

A comparable issue can arise with seminars for which there is no enrollment or entrance fee. At the conclusion of the seminar, the participants may be given the opportunity to make a contribution to the educational organization that conducted it. The organization may suggest, but not require, that participants contribute a specified amount to cover the costs incurred by the organization in providing the seminar. A “contribution” of this nature is not a gift and is not deductible as a charitable contribution.⁹⁴

Likewise, a payment to a home for the elderly or similar institution or organization is generally not a gift when the payor has a dependent parent who is a resident of the home.⁹⁵ However, an unrestricted contribution to a combined charity fund by a payor in this circumstance is deductible when the fund distributes the contributions to member organizations, which include the home, according to a formula.⁹⁶

Still another example of payments that are for services rendered are those for adoption assistance. Thus, a court held that a husband and wife were not entitled to a charitable contribution deduction for payments made to a charitable organization that operated an adoption service for placement of a child in their home; the payment was deemed an adoption fee rather than a gift.⁹⁷ There is (questionable) authority to the contrary, holding that even though a charitable organization provided adoption services to the “donor,” a payment by the donor to the organization following placement of a child was a deductible charitable contribution because the organization was not authorized by law to charge for its adoption services.⁹⁸

Still another illustration of this point arose when the Chief Counsel's Office of the IRS ruled that a business corporation's contribution to a charitable organization, designated by an employee of the corporation, was not deductible as a charitable gift by the corporation because the contribution was made under a program to match the employee's contribution to the corporation's political action committee (PAC).⁹⁹ The reason for the lack of deduction was that the corporation received a quid pro quo for the payment to the charity, in the form of a contribution to its political action committee. Typically, a “charity-PAC matching program” (recognized by the Federal Election Commission¹⁰⁰) allows employees of a business to designate a charitable organization as the recipient of a contribution from the corporate employer. The contribution subsequently made by the corporation was an amount equal to the sum of the contributions that the employees made to the corporation's political action committee during the previous year.¹⁰¹

In a further illustration of this point, two courts denied contribution status to payments to the United States Olympic Team (a charitable organization) made by parents of a figure skater while accompanying her to various international competitions, because the payors were “motivated primarily by concern for their daughter rather than by an interest in the Olympic Team in general.”¹⁰² The appellate court said that “a contribution may not be deducted where the expectation of personal benefit is the primary motive.”¹⁰³

Still other illustrations of these situations, where a charitable deduction may be available if the amount paid exceeds the value of the return benefits and there is donative intent, are payments made at a charity auction and dues paid by participants in a tax-exempt booster club.

Another illustration of this point is the matter of amounts paid to charitable organizations for chances to participate in raffles, lotteries, or similar drawings or to participate in puzzle or other contests for valuable prizes. These are not gifts; the general rule is that the purchase price of a raffle ticket and the like is equal to the value of the chance to win the prize. Therefore, there is no charitable contribution deduction for the payment. (In some instances, however, an amount paid to a charity in excess of a benefit received can be a charitable gift.¹⁰⁴) Nonetheless, when an activity such as this is operated as a charitable fundraising effort such as a sweepstakes program, when a purchase by the participants is not involved, and when it is clearly stated in the promotional materials that a payment is not required to enter the promotion, the payments to the charitable organization are deductible as charitable contributions.¹⁰⁵

Other instances in which a payment to a charitable organization was regarded as other than a gift include:

 Transfer of securities to a church in trust to provide for perpetual care of the transferor's plot in the church's cemetery¹⁰⁶

 Payments to a church for the rental of a hall for the payors' child's wedding¹⁰⁷

 Payments to a charitable organization that operated an adoption agency in exchange for adoption services¹⁰⁸

 Payments to a temple for a bar mitzvah¹⁰⁹

 Payments to a museum for lectures, concerts, and exhibitions¹¹⁰

 Payments to a rabbi in connection with the payor's divorce¹¹¹

 Expenses of driving children to Girl Scouts functions, because the payor's own children were the principal beneficiaries of the transportation¹¹²

 Payments to a school for books and graduation announcements¹¹³

 Contribution of property that remained subject to the “donor's” unrestricted use and control¹¹⁴

 Payments to a charitable organization when the donor maintained control over the funds transferred, which went toward personal uses such as subscriptions, dues, and training courses¹¹⁵

 Payments to a charitable organization for tickets to a benefit concert¹¹⁶

 Payments to a charitable organization in exchange for food and drink¹¹⁷

 Ostensible transfer and reconveyance of land between a partnership and a church that was, in general, held to lack economic substance; the transaction constituted a purchase rather than a gift¹¹⁸

 Payments by parents to a charitable organization that paid their children's tuition; the payors were not allowed to deduct as charitable contributions the amounts paid to the organization in excess of the tuition payments¹¹⁹

 Payment by individuals to a charitable organization that operated a retirement community, because payment obligated the organization to build a cottage for them¹²⁰

 Payments by a minister to his church (held to be his alter ego), inasmuch as he retained control over the money and property involved¹²¹

 Payment made pursuant to a plea-bargain agreement, which was found to amount to consideration enabling the “donor” to escape incarceration¹²²

 Grant of a conservation easement to a county, which was part of a quid pro quo to cause the county commissioners to grant the “donor's” request for a subdivision exemption, which he needed to develop the property¹²³

 Grant of a conservation easement to a county, which was part of a quid pro quo transaction, because the transferor of the easement, a real estate developer, expected a substantial benefit in the form of an increase in value of the surrounding residential lots by reason of use of the eased property as a park¹²⁴

 Dedication of real property to a city, which was part of a quid pro quo transaction to cause the city to approve a planned community development plan, with the expectation of a subsequent plan approval¹²⁵

On rare occasions, a donor will prevail in a quid pro quo contribution case. This occurred, for example, where a court rejected the government's contention that a real estate developer transferred real property to a town as inducements for a zoning board's approval of projects. The court declined to find the existence of a verbal, unenforceable agreement between the parties.¹²⁶

In a peculiar set of circumstances, a court held that an individual was not entitled to any charitable deduction for a gift of property made by a company he owned because the company had the right to transfer the property to another charity.¹²⁷ The charity this donor wanted to be the donee did not have its tax exemption recognized, so he agreed that the gift would be made to another charity, the charitable status of which was recognized. The court ruled that this restriction on transferability afforded the company a “substantial—indeed paramount—element of dominion and control over the subject of the purported gift, exercisable against [the second charity], after the transfer of legal title to it.”¹²⁸ (As it turned out, this condition was disregarded, with the property promptly transferred from one charity to the other.¹²⁹)

The quid pro quo law in the charitable contribution context gained national attention when the Department of the Treasury and the IRS used it to combat the efforts in some states to circumvent the $10,000 limit on the deductibility of state and local taxes¹³⁰ by substituting an increased charitable deduction for a disallowed state and local tax deduction. Proposed regulations were issued providing rules stating the lack of availability of federal income tax charitable contributions deductions when a transfer of money or other property is made pursuant to one of these SALT cap “workarounds.”¹³¹ These regulations were subsequently issued in final form.¹³²

The general rule, under these regulations, is that when a taxpayer receives or expects to receive a state or local tax credit in return for a payment to a charitable organization, the receipt of the tax benefit constitutes a quid pro quo that may preclude a full charitable deduction. That is, the amount otherwise deductible as a charitable contribution generally must be reduced by the amount of the state or local tax credit received or expected to be received.¹³³ Nonetheless, a taxpayer may disregard a state or local tax credit if the credit does not exceed 15 percent of the taxpayer's payment or 15 percent of the fair market value of the property transferred by the taxpayer.¹³⁴ (This quid pro quo principle does not apply in instances of dollar-for-dollar state or local tax deductions.¹³⁵) Treasury and the IRS stated, in the preamble to the proposed regulations, that “[c]ompelling policy considerations” mandate these rules, in that “[d]isregarding the value of all state tax benefits received or expected to be received in return for charitable contributions would precipitate revenue losses that would undermine and be inconsistent with the limitation on the deduction for state and local taxes adopted by Congress.”¹³⁶

The quid pro quo principle applies with respect to a contribution irrespective of whether the party providing the quid pro quo is the donee or a third party. A person is treated as receiving goods or services in consideration for the person's payment or transfer to a charitable organization if, at the time the person makes the payment or transfer, the person receives or expects to receive goods or services in return.¹³⁷ The phrase in consideration for embraces goods or services provided by the charitable donee “or any other party” in return for the payment.¹³⁸

In some circumstances, a benefit to a donor will not cause loss or reduction of a charitable contribution deduction but instead will trigger taxation of gain in addition to a tax deduction. This involves the step transaction doctrine, which is discussed elsewhere.¹³⁹ Nonetheless, it is appropriate to illustrate the point here. In one case, an individual contributed appreciated securities to a charitable organization with the understanding that the charity would liquidate the stock and purchase his yacht with the sales proceeds. The charity completed the transaction; the donor was found to be taxable on the gain realized as the result of liquidation of the stock.¹⁴⁰ The appellate court wrote that “where there is an understanding that a contribution of appreciated property will be utilized by the donee charity for the purpose of purchasing an asset of the contributor, the transaction will be viewed as a matter of tax law as a contribution of the asset—at whatever its then value is—with the charity acting as a conduit of the proceeds from the sale of the stock.”¹⁴¹ The court added: “This makes the taxpayer/putative-donor taxable on the gain of the stock though entitled to deduct the value of the asset given, whatever that value in fact is.”¹⁴²