December, 2002

The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.

NEWS SOURCES | ARCHIVES OF PAST MONTHS

The Supreme Court agreed today (11/4/02) at the request of a number of states to look at clarifying the boundary separating consumer fraud from charitable fund-raising. The case arises out of an attempt by the State of Illinois to prosecute a Vietnam War veteran charity that uses telemarketing to raise funds and keeps 85% of the gifts it receives.

While attempting to prosecute for consumer fraud, the state's case was dismissed by the Illinois Supreme Court who ruled that charitable solicitation is a form of free speech. Historical decisions by the Supreme Court established that principle in regards to charitable solicitation and forbid states from establishing a legitimacy percentage in regards to the amount of proceeds going to charity.

Illinois, supported by seventeen other states, have asked the Court to review the decisions and to consider "whether a professional fund-raiser has a First Amendment right to mislead people into giving money by representing that it will be used for charitable purposes, when actually the fund-raiser keeps the vast majority of all money donated."
Taken from the New York Times 11/4/02 by Linda Greenhouse

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IRS Revises Ruling Regarding Donated Vehicle Valuation

The IRS has just released a ruling on vehicle donations (Rev. Rul. 2002-67). Following are the holdings from the ruling.

(1) For purposes of § 170, a donor's transfer of a car to a charity's authorized agent may be treated as a transfer to the charity.
(2) The contemporaneous written acknowledgment required by § 170(f)(8) may be provided to the donor by the charity's authorized agent.
(3) A donor may use an established used car pricing guide to determine the fair market value of a single donated car if the guide lists a sales price for a car that is the same make, model, and year, sold in the same area, and in the same condition, as the donated car. However, a donor may not use an established used car pricing guide to determine the fair market value of a single donated car if the guide does not list a sales price for a car in the same condition as the donated car. In such a case, the donor must use some other method that is reasonable under the circumstances to determine the value of the car.

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End of Year Gifts

As the end of the year approaches, often the question of how does one determine the proper date for a gift arises, as making sure a gift is included in the current tax year might be very important for the donor.

Certainly having a receipt for a tangible gift from a charity dated in the current year would establish the date of the gift. But what about last minute planning that involves sending a check or a stock certificate (properly signed over to the charity)? For private carriers, such as Federal Express, the date of receipt (date received by the charity) establishes the date of the gift for tax purposes. "If the donor sends securities by special courier such as Federal Express, the date the organization receives the securities is the date of the gift."*

However, for the USPS (United States Postal Service), it is the date of mailing - the postmark for first-class mail or the receipt date for Express Mail. The USPS thus has a slight advantage in terms of establishing a gift on the last business day of the year or for those attempting to "time" the market with a donation of stock.

Some questions have arisen concerning a donor directing a broker to deliver securities to a charity and the date of the gift under those circumstances. To be sure there will not be a question, make sure the broker is delivering the securities into an account maintained by the designated charity. Should the broker transfer the securities to an omnibus account for later transfer to the charity, there is a real question as to whether the gift has yet been made and received by the charity. Until the designated charity has control over the securities, it can be argued that the gift has not been made.
* p. 90 Planned Giving, Management, Marketing and Law by Jordan and Quynn, c1995

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Political Update - Tax Cuts and Gifts of Retirement Assets to Charity

The incoming Chairman of the Senate Finance Committee, Senator Charles Grassley (R-IA), stated today (Nov. 11, 2002) that making the tax cuts (established in the 2001 Tax Act and due to expire in 2011) permanent will be his first priority. In addition, Representative Bill Thomas (R-CA) and Chairman of the House Ways and Means Committee, discussed "much-needed reforms," to include:

Ari Fleischer, the White House press spokesman, spoke about two areas of importance for the administration. He stated they are to make the 2001 Tax Act reductions permanent and to work for passage of HR 7 - the Charity Aid, Recovery and Empowerment Act (CARE Bill).
Source - GiftLaw 11/11/02

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Treasury Chief Promises New Economic Plan

Nov. 25 (Bloomberg News) President Bush will offer a plan to help accelerate the United States economic recovery, Treasury Secretary Paul H. O'Neill said today. "Early next year President Bush will propose new action for economic growth and job creation," said Mr. O'Neill without citing any specifics.

According to the report, "Mr. O'Neill said he was also continuing to draft proposals to reduce the length of the tax law and free billions of dollars for investment. If the tax system were simplified, he said, the United States could recover an estimated $400 billion a year that is now lost to tax avoidance and the cost of complying with the tax laws. Mr. O'Neill, who again called the United States tax system 'an abomination,' said Mr. Bush shared his view that the tax code was too complicated. He stopped short of saying the president would endorse a complete overhaul, however."

The President has stated he will seek to make the 2001 Tax Act cuts permanent. Other areas that have been brought to the administration to consider are a 75 percent write-off for equipment purchases, which will aid businesses and reconsidering the current pension fund reforms that will require billions to shore up company plans. In addition, investors have asked that the "double taxation" of dividends be addressed.
Source Bloomberg News

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ACGA Board Approves Reduction in Gift Annuity Rates

At a special meeting on October 16, 2002, the Board of the American Council on Gift Annuities approved a reduction in suggested gift annuity rates, effective January 1, 2003. The new schedule of rates can be found on ACGA's web site: www.acga-web.org.

The effective date is deferred until the first of the year to give software vendors, publications companies, and charities time to incorporate the new rates in their programs and literature. Some charities, concerned about the current rates, may choose to implement the reduction immediately.

Even though the rates will be lower, they should continue to be attractive to donors because interest rates on fixed-income investments have also gone down. For instance, the ACGA rate for a 70-year-old will decrease from 7.2% to 6.7%, but in the course of the year the 10-year Treasury bond has decreased from 5.25% to approximately 4.75%, and the 5-year-CD at many banks has decreased from about 4.6% to less than 4.0%.
Taken from 10/16 Memo from the American Council on Gift Annuities

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