DATE: March, 2002

ARCHIVES OF PAST MONTHS

Increase in Value of Series E Bonds Not Avoided by Donating

A writer to a Philadelphia Daily News columnist recently spoke about a lesson learned in making assumptions regarding charitable gifts. It seems that the writer had recently learned through first-hand experience that by donating an appreciated asset, such as stock, the donor avoids paying capital gain taxes on the stock's appreciation. At the same time, the donor does get a tax deduction based on the current (time of donation) value of the stock.

The writer incorrectly assumed the same would be true of Series E bonds. After receiving a 1099 from the government regarding the bond's interest as taxable, the writer asked Columnist Harry Gross who said that the stock's appreciation is a capital gain but the Series E bond's appreciation is ordinary income. Therein lies the difference, and as the rules do not include the deduction of ordinary income, the donor must pay taxes on the Series E appreciation (which is ordinary income) but still gets to deduct the value of the gift as a charitable donation.
From Phillynews.com

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Recession Over?

Economists and government officials said today that the recession had almost certainly come to an end but that it remained unclear how strong and sustained the recovery would be. White House officials said the economy was growing at a modest but accelerating rate and again credited the tax cut President Bush signed into law last year for minimizing the depth and duration of the downturn.

Unlike most recessions, which are characterized as much by downturns in consumer spending as in business activity, this one was marked by relative strength in consumer spending. But capital spending by companies on equipment like computers, software and telecommunications technology plummeted.

As the recovery unfolds, the economy is not likely to get much of a lift from the consumer because consumer spending never weakened much, economists said. So the big question is how strongly capital spending will bounce back.
Taken from ny times Business 2/21/02

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Teaching Children about Philanthropy

The U.S. has for years maintained a robust third sector - nonprofit and non-private organizations. Learning to Give, a project of the Council of Michigan Foundations, wants to keep it that way. To do so, Learning to Give has developed a cirriculum for grades kindergarten through high school to teach teach children about helping and supporting others through philanthropy.

The basis for the program, according to Learning to Give, is " … the United States has difficulty answering questions from emerging democratic nations because, until recently, the transmission of the philanthropic tradition from one generation to the next was informal, and so effective as to be transparent. There has never been a formal curriculum for teaching the facts or inculcating the values of the independent sector."

Lessons range from sharing when resources are scarce (the Give a Cookie lesson is aimed at kindergarten through third graders) to teaching high school students about foundations, how they work, the different types and the role they play in America.

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Charitable Giving Increases

The Internal Revenue Service (IRS) released statistics recently that highlight the growth of charities in the U.S. as well as the increase in the number of deductions taken by taxpayers. The IRS reported that taxpayers claimed $125.8 billion in charitable deductions in 1999. It represents a 15.2 percent increase from the $109.2 billion claimed in 1998.

“We are encouraged that more and more Americans are giving to charities,” said Paulette V. Maehara, CFRE, CAE, president & CEO of the Association of Fundraising Professionals (AFP). “We expect this trend to continue as Congress works to enact even more charitable giving incentives in the coming weeks.”
Taken from AFP news release

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Charity Aid, Relief, and Empowerment Act of 2002 (CARE)

(2/7/02) The Treasury announced Thursday (2/7/02) a bipartisan charitable giving compromise bill that included some of the administrations goals including tax incentives and faith-based charity support incentives. The bill is entitled the Charity Aid, Relief, and Employment Act of 2002 (CARE). The provisions in this bill are limited to the years 2002 and 2003 (unless further legislation extends them).

Key aspects would allow certain IRA holders (those over 67 years old) to make tax-free charitable distributions from their IRA accounts, would allow charitable deductions on tax returns for non-itemizers (a deduction would be permitted for the lesser of actual gifts or $400 for a single return, $800 for a joint return), would allow the creation of up to 900,000 Individual Development Accounts (IDA's) by lower income Americans who would see matching contributions by sponsoring financial institutions (both would not be subject to income tax) and would encourage charitable contributions from corporations by increasing the percentage limit.

"In the aftermath of September 11(Th.), many Americans have eagerly reached out to support their favorite charities and non- profits. At the same time, the recent decline in the economy has pinched many hardworking Americans' pocketbooks making it more difficult to contribute those precious dollars that charities rely on to continue their good works," said Secretary Paul O'Neill. "As the economy begins to rebound, we must seize this window of opportunity to provide incentives to encourage all Americans to support charities."

The proposal to allow tax-free withdrawals from IRAs for individuals over the age of 67 is seen by many in the nonprofit community as significant. Because current law requires donations from IRAs to be included in taxable income and then offset by a charitable donation, some taxpayers who are unable to deduct all their charitable donations are discouraged from making donations from their IRA. This proposed bill would allow direct donations as well as indirect donations, such as those using a charitable remainder trust, charitable gift annuity or pooled income fund, to be made without including the amount as taxable income.

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Stimulus Plan Dead In Senate

(2/6/02) Amid reports that the economy was beginning to pick up on its own, the Senate failed to pass any legislation that will boost the economy but did manage to increase unemployment benefits.

Republicans and Democrats, after weeks of seeking political advantages, failed to bring an economic stimulus bill to the table and the likelihood of any such action appears to be slim. Besides disagreeing on the methods to stimulate the economy, it appeared both sides wanted to have the opportunity to take credit for any improvement in the economy during the coming congressional elections, which may have a significant impact on which party has control.

However, both sides were able to come together to pass a measure extending unemployment benefits for an additional 13 weeks. This would place the limit on benefits at 39 weeks instead of the current 26. This now goes to the House for consideration.

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Bush Pushes Volunteerism

Volunteerism was a central component of President George W. Bush's State of the Union address. Bush announced the creation of the USA Freedom Corps, a partnership of volunteer organizations including the Citizens Corp, AmeriCorps, Senior Corps and Peace Corps.

In his annual address to Congress, Bush asked Americans to "commit at least two years, 4,000 hours over the rest of your lifetime, to the service of your neighbors and your nation." The Freedom Corps will focus, among other things, on homeland security and emergency response to major catastrophes.

In addition to announcing the Freedom Corps initiative, Bush stated that the administration hopes to recruit more than 200,000 new volunteers for the existing AmeriCorps and Senior Corps programs. Moreover, he renewed a promise to double the number of volunteers to the Peace Corps in the next five years.

Bush also touted the importance of nonprofits and their impact on local communities. He urged Congress to consider the philanthropic sector's needs in the coming session. "Members, you and I will work together in the months ahead on other issues: productive farm policy, a cleaner environment, broader home ownership, especially among minorities and ways to encourage the good work of charities and faith-based groups," said Bush.
From AFP News

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Religious School Tuition Payments Not Deductible

In a recently announced decision, the Ninth Circuit Court of Appeals held that tuition paid to a religious school was not deductible. In Michael Sklar, et ux. v. Commr., No. 00-70753 (29 Jan 2002), the Ninth Circuit Court of Appeals found that the Sklars could not prove excess value justified a "quid pro quo" deduction in that the tuition payments were comparable to other private schools.

In addition, the court found that the constitution bars the government from making any determination of a deductible and nondeductible portion of the tuition without "an excessive government entanglement with religion." The Sklars had attempted to show that a percentage of the education is purely religious and in addition to the percentage that is comparable to a public school education.

The Sklar's children are attending a private school that teaches the basic tenets of their orthodox faith and the school requires tuition payments for attendance.

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