Income Tax Review

Income Tax Review

Technical Report posted in Income Tax on 6 May 2003| comments
audience: National Publication | last updated: 12 April 2015
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Abstract

Examines the types of gifts that are deductible, how to determine the donor's allowable charitable income tax deduction, percentage limitation and reduction rules, substantiating deductions and compliance penalties.

What Types of Charitable Contributions are Deductible?

­In general, in order for a charitable contribution to be deductible for income, gift, or estate tax purposes, the donor must transfer their entire interest in the contributed property.1 This is commonly referred to as the "partial interest rule."

Exceptions to the Partial Interest Rule

There are, however, several important exceptions to the partial interest rule that form the foundation for many planned and deferred gifts. Following is a listing of these exceptions along with links to comprehensive discussions of each:

  • a contribution of a remainder interest in a personal residence or farm (commonly referred to as a "life estate agreement");
  • a contribution of an undivided portion of the taxpayer's entire interest in property (also known as an "undivided fractional interest");
  • a qualified conservation contribution (commonly referred to as a "conservation easement"); and
  • certain qualified transfers of remainder or income interests in trust

Qualified Transfers of Remainder Interests in Trust

Certain transfers in trust also qualify for deduction. If the contribution is of a remainder interest, it must be in the form of:

  • charitable remainder annuity trust
  • charitable remainder unitrust (described in section 664), or
  • pooled income fund (described in section 642(c)(5))

Qualified Transfers of Income Interests in Trust

If the transfer is of an income interest, the trust must provide a:

  • guaranteed annuity amount (charitable lead annuity trust), or 
  • guaranteed unitrust amount (charitable lead unitrust).

In order for the contribution of an income interest to be deductible for income tax purposes, the grantor must be treated as the owner of such interest under the grantor trust rules of section 671.

It is important to note that even though this section is primarily devoted to discussing the income tax charitable deduction, the partial interest rule applies equally to the income, gift, and estate tax charitable deductions. If a gift is deemed complete but fails the partial interest rule test, the donor will not only lose the charitable income tax deduction, but may also have made a taxable gift to charity.

Examples of Nonqualified Contributions of Partial Interests

Contributions of the Use of Property

The most common example of a nonqualified gift of a partial interest is a contribution of the right to use property. Examples include the rent-free use of commercial, office, or residential real property to charity; a free loan of artwork to a museum; and the rent-free use of automobiles to an educational organization for use in driver education programs.2

The main reason for disallowing a deduction to eliminate the possibility of a double tax benefit:

1) a charitable income tax deduction for the rental value contributed, and

2) the avoidance of recognition of rental income.3

As previously mentioned, donors must be careful that a nonqualified gift of a partial interest does not give rise to a taxable gift. Rev. Rul. 70-477 held that the gift of the rent-free use of real property was not a completed gift because the transfer was not legally enforceable conveyance of a present interest in the jurisdiction in which the property is located.

Contributions with Retained Rights

Contributions with strings attached frequently conflict with the partial interest rules. Examples include contributions of:

  • stock with the retained right to vote the stock4
  • the cash value of a life insurance policy with the retained right to name the beneficiary and to assign the death benefit differential of the policy5
  • real property with retained mineral rights6
  • artwork with retained copyright or royalty7
  • In some cases, the Service has ruled that a retained interest that is "insubstantial" does not violate the partial interest rule. One example is a retained right by the donor to use contributed real property to train his dog.8

Determining the Donor's Allowable Charitable Income Tax Deduction

Once the amount of the charitable contribution has been determined, the planner must determine to what extent it is deductible for income tax purposes, subject to the reduction and annual percentage limitation rules applicable to charitable contributions under IRC §170. The rules for gifts of remainder interests are the same, with few exceptions, as are the rules for direct transfers.

Prior to immersion in the deduction limitation rules, the following Tax Court and Court of Appeals excerpts should set the tone. In deciding the percentage deduction limitation applicable to a gift of property to a veteran's organization (in favor of the government), Judge Swift stated:

"Trying to understand the various exempt organization provisions of the Internal Revenue Code is as difficult as capturing a drop of mercury under your thumb. There are currently 23 categories of exempt organizations under section 501(c) and five categories of organizations recognized as qualifying donees of tax deductible contributions under section 170(c)."

Weingarden v. Comm'r, 86 T.C. 669

On appeal, Circuit Judge Merrit opined:

"Although we believe that the taxpayer's argument of the technical interpretation of the statute is more persuasive than the Commissioner's, it is obvious that at best the statutory scheme is ambiguous. The general canon of construction is that statutes imposing a tax are interpreted liberally (in favor of the taxpayer). But provisions granting a deduction or exemption are matters of legislative "grace" and are construed strictly (in favor of the government). A special rule applies to charitable deductions, however, because these provisions are an expression of "public policy" rather than legislative grace. Provisions regarding charitable deductions should therefore be liberally construed in favor of the taxpayer. Given this rule of interpretation, we construe the hopeless ambiguity created by this statutory scheme in favor of the taxpayer."

Overview of Deduction Limitations

The amount of income tax charitable contribution deduction a donor can claim in any tax year for a direct or partial interest transfer to charity is based on the five following factors:

  • the statutory limitation
  • the type of organizational donee
  • the type of property being contributed
  • whether the gift is "to" or "for the use of" the charitable donee, and
  • the carryover provisions

The facts of each contribution are applied against these criteria with the smallest applicable percentage limitation governing the use of the deduction.

Statutory Limitation

The Code imposes a ceiling on the amount of charitable contribution deduction that may be claimed in any tax year.

An individual may deduct charitable contributions to the extent of 50% of their contribution base in any tax year.9 The term, contribution base means adjusted gross income without regard to any net operating loss carryback into the year of the gift. In other words, a NOL carryback into a prior year in which a charitable contribution was made will not retroactively reduce the permissible charitable contribution deduction that was claimed that year due to an adjustment to the donor's adjusted gross income.

For C-corporations, deductible contributions are limited to 10% of taxable income without regard to the charitable contribution deduction, any net operating loss or capital loss carrybacks, and certain special deductions.10 In addition, amounts in excess of this limitation may be carried forward for the next five succeeding taxable years. S-corporations can pass deductions through to shareholders subject to the limitations of IRC §1366(d)(1).11

Type of Charitable Organization

The 50% statutory ceiling can be reduced depending on the type of organization receiving the gift.

Contributions to public charities, supporting organizations, private operating foundations, pass-through foundations, and common fund private foundations are deductible to the extent of 50% of the donor's contribution base in any tax year. These organizations are referred to as 50%-Type Organizations.12

Contributions to private non-operating foundations are deductible to the extent of 30% of the donor's contribution base in any tax year. These organizations are referred to as 30%-Type Organizations.13

Contributions to Pooled Income Funds

In the case of contributions made to a pooled income fund, the applicable percentage limitation is dependent on the status of the charitable remainderman. Because pooled income funds can be established only by a public charity, contributions are considered made to a 50%-Type Organization.

Contributions to Charitable Remainder Trusts

In the case of a charitable remainder trust, in the event the trust names a 50%-Type Organization as remainderman, the gift is subject to the 50% limitation. Conversely, or if the trust names a 30%-type organization as remainderman, or if the possibility exists that one could be named, the transfer is considered made to a 30%-Type Organization even though the trust initially names a 50%-type organization. A possibility of naming a 30%-type organization will exist if the trustor retains a power of substitution in the trust instrument whereby a 30%-type organization could be substituted for a 50%-type organization. Charitable remainder trusts also contain a mandatory provision that calls for the naming of an alternative remainderman in the event the named remainderman does not qualify as a charitable organization when the trust terminates. The model trust forms printed in the Revenue Procedures provide language that would permit the trustee to select an organization as described under IRC §170(c). This section includes 30%-type organizations.

This unintentional loss of 50%-type organization status could have a devastating effect on the trustor's income tax deduction. For example, if long-term capital gain property with a $0 cost basis were contributed, the trustor's deduction would be reduced to $0.

In order to protect the trustor's 50%-type organization percentage limitation, the trust instrument should clarify that only organizations as described under IRC §170(b)(1)(a) may be selected as substitute or alternate charitable remaindermen.

Contributions in Exchange for Charitable Gift Annuities

In the case of contributions made in exchange for a charitable gift annuity, the limitation is based on the status of the issuing organization.

Gifts of a Remainder Interest in Personal Residence or Farm

In the case of a transfer of a remainder interest in a personal residence or farm, the limitation is also based on the status of the charitable remainderman.

Verifying the Tax Status of a Charitable Organization

The most reliable way of verifying the tax status of a charitable organization is by reference to IRS Publication No. 78. Known as the Cumulative List, the publication provides a comprehensive listing of organizations described in section 170(c) and further distinguishes between public foundations, private operating foundations, and private non-operating foundations.

Donors can also request the charitable organization to provide a copy of its IRS Letter of Determination granting it charitable status. A copy of a determination letter should not be relied on as sole evidence of an organization's tax status because qualification could have been subsequently revoked. Donor's should also request a letter from an authorized representative of the organization stating that the status represented in the determination letter is still in effect. Status should further be confirmed by reference to the Cumulative List. The Service has ruled that such reference can be relied on by the donor unless the donor has personal knowledge that revocation of status has been made and an announcement is imminent, or if the donor was responsible for or aware of the cause of disqualification.14 Revocations of an organization's status are published in the Internal Revenue Bulletin.

Gifts To or For the Use Of Charity

The third limitation applicable to charitable contributions is based on the use to which the contribution is placed. These are described as gifts to or gifts for the use of charity. Outright gifts and gifts of a remainder interest (as produced by a contribution to a pooled income fund, charitable remainder trust, charitable gift annuity, or life estate agreement) are considered, with one exception discussed below, gifts to charity.

Gifts to 50%-type organizations are subject to the 50% limitation.

Gifts to 30%-type organizations are subject to the 30% limitation.

Although the regulations do not provide specific examples of gift for the use of charity, the following forms are generally accepted examples:

  • contribution of an income interest via a grantor charitable lead trust
  • payment on indebtedness on property contributed to or owned by charity
  • direct payment of premiums on an insurance policy owned by charity
  • unreimbursed expenses incurred in connection with volunteering charitable services
  • a gift of a remainder interest to charity where, upon termination of the retained noncharitable interest's measuring term, the remainder interest is to be held in trust for the benefit of the organization.15

Gifts for the use of 50%-type organizations are subject to the 30% limitation. Gifts for the use of 30%-type organizations are subject to the 20% limitation.

Type of Property Being Contributed

Further limitations are imposed on deductible contributions based on the type of property being contributed. The rules are complex in that not only are there three categories of percentage limitations (50%, 30%, and 20%), there are also rules that reduce the amount of the deductible portion of the gift property itself. These limitations and corresponding reduction rules are most easily described on an integrated basis as follows:

Transfers to 50% Type Organizations

Cash

Contributions of cash are deductible to the extent of 50% of donor's contribution base.

Ordinary Income Property

Ordinary income property includes short-term capital gain property, inventory in a business, the portion of property subject to depreciation recapture, IRC §?306, 341, and 1248 stock, original issue discount debt instruments, market discount obligations, listed options, and other property, the sale of any of which would produce ordinary income to the donor.

In determining the deductible portion, the net fair market value of the property is reduced by the amount of gain that would not have been long-term capital gain had the property been sold at its fair market value on the date of contribution. The remaining amount is deductible to the extent of 50% of donor's contribution base.16

Long-Term Capital Gain Property

The full fair market value of long-term capital gain property is deductible to the extent of 30% of donor's contribution base.17

Special Election: An individual may elect to have all 30% limitation capital gain property contributions and carryover contributions into the election year treated as being IRC §170(e)(1)(B) property subject to the 50% limitation. However, the cost of this election is the reduction of the deduction from fair market value to the lesser of fair market value or adjusted cost basis.18

Tangible Personal Property

The deductibility of transfers of tangible personal property present special issues.

Related Use Look-Through Rule

The amount of the available charitable contribution and the percentage limitation applicable to its use depends on the relation of the tangible personal property to the tax-exempt purpose of the charitable donee.

If property is considered related, the deduction is based on fair market value and available to the extent of 30% of the donor's contribution base.

If property is considered unrelated, the deduction is based on the lesser of its fair market value and its cost basis, and is available to the extent of 50% of donor's contribution base.19

Future Interest Rule

Payment of a charitable contribution that consists of a future interest in tangible personal property is treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in IRC §?267(b) or 707(b).20

Outright contributions do not run afoul of the future interest rule as long as the property is physically delivered to the charitable donee.

Application of Related Use and Future Interest Rules to Pooled Income Funds and Charitable Remainder Trusts

The use by a trust of tangible personal property contributed to it for the benefit of a charitable organization is an unrelated use if the use by the trust is one that would have been unrelated if made by the charitable organization.21

Presumably, because a charitable remainder trust will not place the property to a related use but, rather, will most likely sell it in due course, such a use normally falls outside the tax-exempt purpose of most organizations.

Special Rule: A charitable contribution income tax deduction may not be available if the charitable remainderman purchases tangible property from the trust and a related individual or entity as described in IRC §267 has direct or indirect control of the recipient tax-exempt organization.22

With respect to the future interest rule, gifts of tangible personal property made to a pooled income fund or charitable remainder trust are considered gifts of a future interest. When does the "intervening interest" in tangible property held by such vehicles expire thereby triggering the donor's deduction? Arguably, because the income interest is retained in the fund or trust and not in the tangible property, the interest should expire when the fund or trust sells the property to an unrelated party. This argument has finally been validated by the Service with respect to charitable remainder trusts in a private letter ruling.23 Other commentators believe the deduction should be permitted at the time the property is transferred to the fund or trust based on the fact that the self-dealing rules prohibit the use of the property by the donor after it is transferred to the trust. The Service has not validated this conclusion, however.

Inventory

Inventory is not a capital asset but, rather, is property held by a taxpayer primarily for sale to customers in the ordinary course of a trade or business.24

If inventory property is transferred to a charity, the present value of the deduction is based on the lesser of fair market value and the cost of goods sold (ordinary income property). The resulting amount is deductible to the extent of 50% of the donor's contribution base.

Transfers to 30%-Type Organizations

Cash or Ordinary Income Property

The deduction is based on the lesser of fair market value and adjusted cost basis. The resulting amount is deductible to the extent of 30% of donor's contribution base.

Qualified Stock

Qualified stock is long-term capital gain stock for which market quotations are readily available on an established securities market. Qualified appreciated stock includes publicly traded mutual fund shares.25

In 1984, Section 170(e)(5) of the Code was enacted to create an exception to the general rule for qualified appreciated stock. Under this section, donors can deduct the fair market value for gifts of qualified appreciated stock to a private non-operating foundation against 20% of their contribution base. However, this rule does not apply to the extent the gift represents more than ten percent of the total outstanding shares of the corporation (after aggregating gifts of family members and prior gifts of the donor).

Exception for Restricted Securities: In a letter ruling, the Service declared that when restricted securities cannot be sold by the charitable donee because of holding period requirements, they are not "qualified securities" as described in IRC §170(e)(5).26 A subsequent ruling confirms that when there are no holding period restrictions in effect at the time of the gift, such securities are qualified.27

Since its enactment, Section 170(e)(5) has been subject to various sunset provisions that would have eliminated it, only to be reinstated or extended by subsequent legislation. The Tax and Trade Relief Extension Act of 1998 makes the section permanent.

Other Long-Term Capital Gain Property

The deduction for a gift of nonqualified long-term capital gain property is based on the lesser of fair market value of the property and its adjusted cost basis. The resulting deduction is available against 20% of donor's contribution base.28

Related Use Long-Term Tangible Personal Property

The deduction for gifts of related use tangible personal property is based on the lesser of fair market value of the property and its adjusted cost basis. The deduction is available against 20% of donor's contribution base.

Special Rule: A charitable deduction may not be available if the charitable donee purchases tangible property from charitable remainder trust and a related individual or entity as described in IRC §267 has direct or indirect control of the recipient charitable organization.29

Unrelated Use Tangible Personal Property

The deduction for gifts of tangible personal property that are unrelated to the charitable donee's tax-exempt purpose is limited to the lesser of fair market value and adjusted cost basis. The deduction is available against 30% of donor's contribution base.30

Carryover of Excess Charitable Deductions

Contributions to or for the use of charity in excess of the applicable percentage limitation in the year of contribution are treated as being made in the five years following the year of contribution.31 In other words, to the extent the donor cannot, by virtue of the percentage limitations, deduct the entire amount of the gift in the year of contribution, any remaining deduction can be carried forward up to an additional five years, if needed.

Whether the donor can use carryovers depends on the income generated and additional charitable contributions made in those subsequent five years. Excess contribution carryovers are subordinated to current year contributions in determining a donor's current year allowable contribution deductions. See IRS Publication 561.

Carryover Deductions for Qualified Stock: What happens when a donor has carryover contributions applicable to a gift of qualified stock to a private non-operating foundation that was made in a year in which the gift was deductible at fair market value, yet in subsequent years such a gift would be deductible only to the extent of the donor's basis?

Section 170(b)(1)(D)(ii) provides, in part, that to the extent the donor's contributions of capital gain property to a private non-operating foundation exceed the percentage limitation under section 170(b)(1)(D)(i), the excess shall be treated as a charitable contribution of capital gain property in each of the five succeeding taxable years in order of time.

The Service has ruled privately that carryovers of excess charitable contributions for gifts of qualified stock originating prior to January 1, 1995 are deductible at fair market value even though a deduction is not otherwise allowable for the capital gain element of the gift if it is made after December 31, 1994.32 Presumably, the same reasoning would apply to transfers made between June 30, 1996 and May 31, 1997.

Effect of Itemized Deduction Reduction on Charitable Contributions

Taxpayers with adjusted gross incomes exceeding a specified minimum floor must reduce the amount of their claimed itemized deductions by 3% of adjusted gross income that exceeds the limitation floor.33 Many contributors, however, do not feel the effect of the reduction on the charitable contribution deduction because they have other fixed deductions such as home mortgage interest, or state and local taxes that bear the brunt of any reduction each year. Under these circumstances the charitable deduction will not be reduced unless the donor has a combination of high income and large charitable contributions in relation to other itemized deductions.

Substantiation of Charitable Gifts

IRC §?170 and 6115 and the Regulations thereunder govern the substantiation rules for charitable contributions.

Charitable Income Tax Deduction

If a donor fails to comply with the contemporaneous written substantiation requirements of IRC §170(f)(8) and Regulation §1.170A-13(f) for contributions of $250 or more, the donor may lose his or her charitable income tax deduction. The statement must specify the amount of cash contributed and must describe, but not value, any property other than cash contributed. There is an exception where the charity reports the required information on a return as provided in the Regulations.

Transfers to charitable remainder and charitable lead trusts are exempt from the substantiation requirements of IRC §170(f)(8) but transfers to pooled income funds are not exempt. A charity that knowingly gives a donor a false written substantiation statement may be subject to penalties under IRC §6701 for aiding and abetting an understatement of income tax liability. Regulation §1.170A-13 includes additional record keeping, appraisal and substantiation rules for charitable gifts, depending on the value of the gift and the type of property involved.

Quid Pro Quo

IRC §6115 requires a charity that receives a quid pro quo contribution exceeding $75 to provide a written statement to the donor informing the donor that his or her charitable income tax deduction is limited to the excess of the contribution over the value of the goods or services provided by the charity. The statement must also give the donor a good faith estimate of the value of the goods and services the charity is providing.

The Regulations provide guidance under this Section and include a provision indicating that the charity may use any reasonable methodology for the valuation as long as it is applied in good faith. If the charity fails to provide the required quid pro quo statement, it will be subject to noncompliance penalties under IRC §6714 unless it can meet the reasonable cause exception. The penalty is $10 for each contribution for which the charity failed to make the required disclosure up to a maximum of $5,000 with respect to a particular fundraising event or mailing. IRC §170(f)(8) also contains a requirement that quid pro quo be described in order for the donor to obtain a charitable income tax deduction for a contribution of $250 or more.

Partnership and S Corporation

If a partnership or an S Corporation makes a charitable contribution of $250 or more, the partnership or S Corporation will be treated as the taxpayer for purposes of §170(f)(8). Therefore, the partnership or S Corporation must substantiate the contribution with a contemporaneous written acknowledgment from the donee organization before reporting the contribution on its income tax return for the year in which the contribution was made and must maintain the contemporaneous written acknowledgment in its records. A partner of a partnership or a shareholder of an S Corporation is not required to obtain any additional substantiation for his or her share of the partnership's or S Corporation's charitable contribution.34

Civil Tax Penalties

In addition to the private foundation excise taxes that may apply under Chapter 42 (such as, self dealing, jeopardy investment and excess business holdings), other penalties under the Code may apply. Taxpayers must pay particular attention to these rules when "hard-to-value" assets such as privately-held business interests or real property interests are transferred.

Accuracy Related Penalties

The Code includes several accuracy-related penalties that could be imposed on Charitable Organizations with respect to their tax returns. IRC §6662(a) imposes a 20% penalty on the portion of an underpayment of tax attributable to a negligent disregard of rules and Regulations, a substantial understatement of income tax, a valuation understatement for estate or gift tax purposes, a substantial valuation misstatement or a substantial overstatement of pension liabilities. The penalty is 40% if there is a gross valuation misstatement.

Negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the Code and the term disregard includes any careless, reckless, or intentional disregard. A substantial understatement of income tax occurs when the amount of the understatement for the taxable year exceeds the greater of 10% of the tax required to be shown on the return for the taxable year, or $5,000. A substantial understatement of estate or gift tax occurs when the value of any property claimed on any return for tax imposed by Subtitle B of the Code (the estate and gift tax provisions) is 50% or less of the amount determined to be the correct amount of such valuation.

IRC §6664(c)(2) provides that the reasonable cause exception only applies to substantial or gross valuation overstatements with respect to charitable deduction property if the claimed value of the property was based on a qualified appraisal made by a qualified appraiser and the taxpayer made a good faith investigation of the value of the contributed property. In addition to these accuracy-related penalties, a civil fraud penalty equal to 75% of the underpayment is imposed under IRC §6663(a) if any part of any underpayment of tax required to be shown on a return is due to fraud. Fraud means fraud with intent to evade tax. The Service has the burden of proving a taxpayer's fraud by clear and convincing evidence.

Return Preparer Penalties

A variety of penalties may also apply to tax return "preparers." Generally, a preparer is defined as anyone who prepares or employs someone to prepare all or a substantial portion of a tax return or claim for refund for compensation. Under certain circumstances, if advice and information furnished to a taxpayer or another return preparer is so substantial that it results in the actual return preparation being merely ministerial, the person who provided the advice and/or information may be treated as a return preparer even though he or she may never have seen the actual tax return.

A fiduciary of a trust may prepare a return for the trust without being considered a return preparer. IRC §6694 penalizes income tax return preparers who knew or reasonably should have known that a position causing an understatement of liability on a return or a claim for refund does not have a realistic possibility of being sustained on its merits. Exceptions apply if the position was properly disclosed and was not frivolous or there was reasonable cause for the understatement and the preparer acted in good faith. IRC §6695 penalizes income tax return preparers who fail to comply with certain requirements, such as the requirement to sign the return. The abusive tax shelter penalties may also apply to return preparers.

Abusive Tax Shelter Penalties

IRC §6700 imposes a civil penalty for directly or indirectly promoting abusive tax shelters equal to the lesser of $1,000 or 100% of the gross income derived by the person from the activity. Specifically, the penalty applies to a person organizing, assisting in the organization of or participating in the sale of a partnership or other entity, an investment plan or arrangement or any other plan or arrangement and knowingly making or furnishing (or causing someone else to make or furnish) a false or fraudulent statement as to the allowability of a deduction, credit, exclusion or some other tax benefit with respect to holding an interest in or participating in such entity, plan or arrangement or that constitutes a gross valuation overstatement.

Aiding and Abetting Penalties

IRC §6701 imposes a civil penalty for aiding and abetting understatements of tax liability in the amount of $1,000 (or $10,000 if it involves the tax liability of a corporation). As noted above, providing a false IRC §170(f)(8) substantiation statement to a donor may subject a charity to the aiding and abetting penalty under IRC §6701.


  1. IRC 170(f)(3)(A)back

  2. Rev. Rul. 89-51, 1989-1 C.B. 89; Rev. Rul. 70-477back

  3. S. Rep. No. 91-552, 91st Congress., 1st Sess. 83, 1969-3 C.B. 423, at 477back

  4. Rev. Rul. 81-282, 1981-2 C.B. 78back

  5. Rev. Rul. 76-143, 1976-1 C.B. 63back

  6. Rev. Rul. 76-331, 1976-2 C.B. 52; Rev. Rul. 88-37, 1988-1 C.B. 97; Ltr. Rul. 7726004back

  7. Although a gift of artwork without its copyright is a nonqualified gift for income tax purposes, ERTA '81 modified the gift and estate tax rules to recognize the work and its copyright as separate assets. This distinction eliminates the potential gift or estate tax problems that might otherwise arise if an artist contributes a work but retains the copyright. Although the artist receives no income tax deduction, neither does he or she generate a taxable gift. IRC §?2055(e)(4) and 2522(e)(3); Reg. §?20.2055-2(e)(1)(iii) and 25.2522(c)-3(c)(1)(ii)back

  8. Rev. Rul. 75-66, 1975-1 C.B. 85; See also Rev. Rul. 77-148, 1977-1 C.B. 63 and Ltr. Rul. 8140002back

  9. Reg. §1.170A-8(b)back

  10. IRC §170(b)back

  11. See S-Corporations in Gift Asset Reviewback

  12. IRC §?170(b)(1)(A); 509(a)(3); 4942(j)(3); 509(a); 170(b)(1)(E)(iii); Reg. §1.170A-9(h); Ltr. Rul. 8212009back

  13. IRC §170(b)(1)(B)back

  14. Rev. Proc. 82-39, 1982-2 C.B. 759back

  15. Reg. §1.170A-8(a)(2)back

  16. IRC §170(e)(1)(A)back

  17. IRC §170(b)(1)(C)back

  18. IRC §170(b)(1)(D)(iii); Reg. §1.170A-8(d)(2)back

  19. IRC §170(e)(1)(B)back

  20. IRC §170(a)(3)back

  21. Reg. §1.170A-4(b)(3)(i)back

  22. IRC §?170(a)(3); 267(b)(9); Reg. §1.267(b)-1(a)(3)back

  23. Ltr. Rul. 9452026back

  24. IRC §1221(1)back

  25. Ltr. Rul. 9511041back

  26. Ltr. Rul. 9247018back

  27. Ltr. Rul. 9435007back

  28. IRC §170(b)(1)(D)back

  29. Small Business Job Protection Act of 1996back

  30. IRC §?170(a)(3); 267(b)(9); Reg. §1.267(b)-1(a)(3)back

  31. Ltr. Rul. 9452026back

  32. IRC §170(d)(1)back

  33. Ltr. Ruls. 9501031 and 9424040back

  34. The limitation floor for the 1999 tax year is $126,600 for individual taxpayers or $63,300 for married taxpayers filing separate returns.back

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