CHARITABLE VERIFICATION | PENDING LEGISLATION IN CALIFORNIA | PROPOSAL FOR TAXPAYERS WHO DON'T ITEMIZE | DOT COM BILLIONAIRE JUMPS INTO PHILANTHROPY

It's tax time - Do you know where your charitable verifications are?

As you gather your papers for the annual chore of filing your taxes, one item not to overlook is a verification statement for any donation of $250 or more. The IRS requires taxpayers to have a written statement verifying each donation of $250 or more from a charity. The verification statement does not have to be part of your tax filing, but it must be available in case of an audit or the IRD will automatically void your deduction. A cancelled check is not considered proof of the donation according to the IRS.

The verification needs to be from the charity and disclose the amount of the donation and whether or not you received any benefits (such as goods or services) in exchange for your donation. Receiving a benefit does not disallow the entire contribution, but it does reduce the contribution by the value of the benefit received. For instance, suppose you contributed $500 to an organization and received an autographed copy of the founder's latest book in return (a value of $20). In the eyes of the IRS, your deductible contribution would really be $480 (the total donation minus the value of the book received) and the charity should supply you with that information.

This ruling applies to contributions of $250 or more made to the same charity on the same day, not to the total of several or many donations during the tax year. So a weekly tithe to your local church is considered as fifty-two separate gifts, as is a payroll deduction to the American Heart Association, for example. Of course, if any of the separate gifts equal or exceed $250, then the verification is required. While the IRS requires the verification statement, there is no standard format required as long as the information is provided. If the organization does not automatically send a letter out, it is the responsibility of the donor to obtain it.

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Pending Legislation in California

A new bill making its way through the California Legislature will make an important change involving charitable giving if enacted. The pending legislation is Senate Bill 1760, sponsored by California State Senator Jackie Speier and, among other things, it will bring California into compliance with federal tax law regarding the treatment of gifts of long-term capital gain property.

California tax law has differed in respect to the inclusion of charitable gifts of appreciated long-term capital gain property in the calculation of AMT (Alternative Minimum Tax) since 1993. It was then that federal tax law was changed so that donors would no longer include the appreciated portion of their charitable gift as income in calculating AMT. The disparity in the California and federal tax laws has created confusion and a resulting hesitancy among donors who possibly thought such gifts would subject them to state AMT tax according to charities.

If enacted by the California Legislature, SB 1760 would bring the state into compliance with federal tax law by not including charitable gifts of appreciated property under California AMT.

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Proposal regarding charitable deductions for taxpayers who do not itemize

Senators Rick Santorum (REP-PA) and Paul Coverdell (REP-GA) have placed a bill (S. 2077 "Charitable Giving Tax Relief Act") before Congress that, if passed, would allow taxpayers who do not itemize to deduct 50 % of the amount of their annual charitable deductions that exceed $500. It would "...apply to taxable years beginning after the date of the enactment of this Act." The Bill has been referred to the Committee on Finance.

Another Dot Com Billionaire jumps into philanthropy

Michael Saylor, the 35 year-old Chief Executive of MicroStrategy whose paper worth approximates $13 billion, has announced he will start the funding of an online university with a down payment of $100 million. With this announcement and his donation, he becomes another dot-com billionaire to start distributing his wealth. Steve Case, founder of AOL, has funded his foundation with over $100 million. Microsoft founder Bill Gates has publicly pledged $1 billion in scholarships to minorities, among other donations. Many others who have shared in the phenomenal appreciation of high-tech shares have also, perhaps more quietly, supported causes that are important to them.

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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.