Bill Would Modify Rules for Gifts of Fractional Interests in Tangible Personal Property

Bill Would Modify Rules for Gifts of Fractional Interests in Tangible Personal Property

News story posted in Legislative on 19 August 2009| 1 comments
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Summary

S. 1605, introduced by Charles Schumer (D-NY), would amend the Internal Revenue Code to reform the rules relating to fractional charitable donations of tangible personal property.

Full Text:

111TH CONGRESS
1ST SESSION

S. 1605

To amend the Internal Revenue Code of 1986 to reform the rules relating to fractional charitable donations of tangible personal property.

IN THE SENATE OF THE UNITED STATES

AUGUST 6, 2009

Mr. SCHUMER (for himself, Mr. ISAKSON, Mr. KERRY, and Mr. UDALL of
New Mexico) introduced the following bill; which was read twice and
referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to reform the rules relating to fractional charitable donations of tangible personal property.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. MODIFICATIONS TO RULES FOR FRACTIONAL GIFTS.

(a) INCOME TAX. --

(1) ADDITIONAL REQUIREMENTS FOR DEDUCTION. -- Paragraph (1) of section 170(o) of the Internal Revenue Code of 1986 is amended to read as follows:

"(1) DENIAL OF DEDUCTION IN CERTAIN CASES. --

"(A) IN GENERAL. -- No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless --

"(i) all interests in the property are held immediately before such contribution by --

"(I) the taxpayer, or

"(II) the taxpayer and the donee,

"(ii) in the case of an initial fractional contribution, such contribution is an undivided portion of not less than 10 percent of all interests in the property,

"(iii) in the case of an initial fractional contribution, the contribution is made pursuant to a written binding contract which requires the donor --

"(I) to contribute not less than 20 percent of all interests in the property on or before the date that is 11 years after the date of the initial fractional contribution, and

"(II) to contribute all of the interests in such property to the donee (or if such donee is no longer in existence, to any person described in subsection (c)) on or before the earlier of the date of the death of the donor or the date which is 20 years after the date of the initial fractional contribution, and

"(iv) if the value of the tangible personal property with respect to which the undivided portion of the taxpayer's entire interest relates is greater than $1,000,000 (or such greater amount as determined by the Secretary), the taxpayer attaches to the return for the taxable year in which such contribution is made a statement of value obtained from the Internal Revenue Service.

"(B) EXCEPTIONS. -- The Secretary may, by regulation, provide for exceptions to subparagraph (A)(i) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons. Such regulations may modify the requirements of clauses (ii) and (iii) of subparagraph (A) to the extent necessary to carry out the purposes of this subparagraph.".

(2) VALUATION OF SUBSEQUENT GIFTS. -- Paragraph (2) of section 170(o) of such Code is amended to read as follows:

"(2) VALUATION OF SUBSEQUENT GIFTS. -- In the case of any additional contribution, the fair market value of such contribution shall be determined by multiplying --

"(A) the fair market value of all of the donor's interest in the property immediately before the additional contribution, and

"(B) the interest in the property (expressed as a percentage) contributed in such additional contribution.".

(3) RECAPTURE OF DEDUCTION. -- Paragraph (3) of section 170(o) of such Code is amended --

(A) by redesignating subparagraph (B) as subparagraph (C), and

(B) by striking subparagraph (A) and inserting the following:

"(A) RECAPTURE. -- The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property --

"(i) in any case in which the donor fails to meet the requirements described in paragraph (1)(A)(iii), and

"(ii) in any case where such property is not in the physical possession of the donee and used in a use which is related to a purpose or function constituting the basis for the donee organization's exemption under section 501 during any applicable period for a period of time which bears substantially the same ratio to 5 years as --

"(I) the percentage of the undivided interest of the donee in the property (determined on the day after such contribution was made), bears to

"(II) 100 percent.

"(B) APPLICABLE PERIOD. -- For purposes of subparagraph (A), the applicable period means --

"(i) the 5-year period beginning on the date of the later of the initial fractional contribution, and

"(ii) each subsequent 5-year period occurring during the 20-year period described in paragraph (1)(A)(iii)(II).".

(b) ESTATE TAX. -- Paragraph (1) of section 2055(g) of the Internal Revenue Code of 1986 is amended to read as follows:

"(1) VALUATION OF SUBSEQUENT GIFTS. -- In the case of any additional contribution, the fair market value of such contribution shall be determined by multiplying --

"(A) the fair market value of all of the donor's interest in the property immediately before the additional contribution, and

"(B) the interest in the property (expressed as a percentage) contributed in such additional contribution.".

(c) GIFT TAX. --

(1) ADDITIONAL REQUIREMENTS FOR DEDUCTION. -- Paragraph (1) of section 2522(e) of the Internal Revenue Code of 1986 is amended to read as follows:

"(1) DENIAL OF DEDUCTION IN CERTAIN CASES. --

"(A) IN GENERAL. -- No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless --

"(i) all interests in the property are held immediately before such contribution by --

"(I) the taxpayer, or

"(II) the taxpayer and the donee,

"(ii) in the case of an initial fractional contribution, such contribution is an undivided portion of not less than 10 percent of all interests in the property,

"(iii) in the case of an initial fractional contribution, the contribution is made pursuant to a written binding contract which requires the donor --

"(I) to contribute not less than 20 percent of all interests in the property on or before the date that is 11 years after the date of the initial fractional contribution, and

"(II) to contribute all of the interests in such property to the donee (or if such donee is no longer in existence, to any person described in section 170(c)) on or before the earlier of the date of the death of the donor or the date which is 20 years after the date of the initial fractional contribution, and

"(iv) if the value of the tangible personal property with respect to which the undivided portion of the taxpayer's entire interest relates is greater than $1,000,000 (or such greater amount as determined by the Secretary), the taxpayer attaches to the return for the taxable year in which such contribution is made a statement of value obtained from the Internal Revenue Service.

"(B) EXCEPTIONS. -- The Secretary may, by regulation, provide for exceptions to subparagraph (A)(i) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons. Such regulations may modify the requirements of clauses (ii) and (iii) of subparagraph (A) to the extent necessary to carry out the purposes of this subparagraph.".

(2) VALUATION OF SUBSEQUENT GIFTS. -- Paragraph (2) of section 2522(e) of such Code is amended to read as follows:

"(2) VALUATION OF SUBSEQUENT GIFTS. -- In the case of any additional contribution, the fair market value of such contribution shall be determined by multiplying --

"(A) the fair market value of all of the donor's interest in the property immediately before the additional contribution, and

"(B) the interest in the property (expressed as a percentage) contributed in such additional contribution.".

(3) RECAPTURE OF DEDUCTION. -- Paragraph (3) of section 2522(e) of such Code is amended --

(A) by redesignating subparagraph (B) as subparagraph (C), and

(B) by striking subparagraph (A) and inserting the following:

"(A) RECAPTURE. -- The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property --

"(i) in any case in which the donor fails to meet the requirements described in paragraph (1)(A)(iii), and

"(ii) in any case where such property is not in the physical possession of the donee and used in a use which is related to a purpose or function constituting the basis for the donee organization's exemption under section 501 during any applicable period for a period of time which bears substantially the same ratio to 5 years as --

"(I) the percentage of the undivided interest of the donee in the property (determined on the day after such contribution was made), bears to

"(II) 100 percent.

"(B) APPLICABLE PERIOD. -- For purposes of subparagraph (A), the applicable period means --

"(i) the 5-year period beginning on the date of the later of the initial fractional contribution, and

"(ii) each subsequent 5-year period occurring during the 20-year period described in paragraph (1)(A)(iii)(II).".

(d) RETURN REQUIREMENT. -- Section 6033 of the Internal Revenue Code of 1986 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:

"(m) ADDITIONAL PROVISIONS RELATING TO ORGANIZATIONS DESCRIBED IN SECTION 170(c). -- Every organization described in section 170(c) shall, on any return required under subsection (a), list each charitable contribution received by the organization during the period covered by the return which represents a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property and provide such other information with respect to such contribution as required by the Secretary.".

(e) EFFECTIVE DATE. --

(1) IN GENERAL. -- Except as provided in paragraph (2), the amendments made by this section shall apply to contributions, bequests, and gifts made after the date of the enactment of this Act.

(2) RETURN REQUIREMENT. -- The amendments made by subsection (d) shall apply to returns for taxable years ending after the date of the enactment of this Act.

(f) TRANSITION RULE. -- In the case of any additional contribution (as defined in section 170(o)(4) of the Internal Revenue Code of 1986) with respect to an initial fractional contribution (as defined in such section) made after August 17, 2006, and before the date of the enactment of this Act --

(1) except for purposes of determining the fair market value of such contribution under sections 170(o)(2), 2055(g)(1), and 2522(e)(2) of the Internal Revenue Code of 1986 (as such sections were amended by this Act), such contribution shall be treated as an initial fractional contribution (as so defined) subject to the amendments made by this section, and

(2) sections 170(o)(3)(A)(i) and 2522(e)(3)(A)(i) of such Code (as in effect before the date of the enactment of this Act) shall not apply with respect to any prior contribution of an undivided portion of the taxpayer's interest in the property.

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Comments

What the @#$%^&

If Chuck Schumer ever again complains about the length or complexity of the Code, we should all laugh him out of town for unleashing this monstrosity. Wouldn't it be simpler, more transparent and more effective to impose a flat 75% Excise/Estate Tax on works of Art and give a 100% tax deduction for gifts to museums? More income tax games on this subject are symptomatic of the problem with accretive tax policy fixes. Mark B. Weinberg Weinberg & Jacobs, LLP 11300 Rockville Pike Rockville, MD 20852 Voice 301-468-5500 Fax 301-468-5504

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