Charitable Deduction and Other Indexed Tax Adjustments

, New York Law Journal

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Conrad Teitell
Conrad Teitell

Each year the Internal Revenue Service adjusts charitable gift premium rules, tax tables, personal exemptions, standard deductions and other tax provisions. Here are the key charitable figures for 2014 from Rev. Proc. 2013-35, 2013-47 IRB 537.

Charitable deductions not reduced for insubstantial donor benefits—2014 safe harbors. Donors need not reduce their charitable deductions when they receive low-cost articles or items of "insubstantial value" under Rev. Proc. 90-12, 1990-1 CB 471 and successor rulings. Reg. §1.170A-13(f)(8).

For 2014, a charity can tell a donor that his or her gift is fully deductible if:

• The donor receives benefits having a fair market value of $104 or 2 percent of the payment, whichever is less, or

• The donor gives the charity at least $52 and receives a low-cost or token item (e.g., a bookmark, mug or T-shirt). The item must bear the charity's name or logo and cost the distributing charity—or the charity on whose behalf the item is distributed—no more than $10.40.

An exception. One sentence long buried in Rev. Proc. 90-12, 1990-1 CB 471, bears highlighting: "These guidelines describe a safe harbor; depending on the facts in each case, benefits received in connection with contributions may be 'insubstantial' even if they do not meet these guidelines." Thus a donor who gives $1 million and receives an item worth $200 might still be able to deduct the entire payment—even though IRS's safe-harbor test is not met.

What if token items were themselves donated, and thus cost the charity nothing?In that case, says IRS, the charity must make a reasonable estimate of what the items would have cost, had they been purchased.

Safe harbor for unsolicited freebies. Donors need not reduce their deductions when they receive unsolicited free, low-cost articles as part of a charity's fundraising efforts. Rev. Proc. 92-49, 1992-1 CB 987; Reg. §1.170A-13(8)(f)(i).

How can an item be both 'free' and 'low-cost'? It has to be free to the donor, and low-cost to the distributing charity—or the charity on whose behalf the item is distributed. For 2014, the low-cost article has to cost the charity—or the charity on whose behalf the item is distributed—no more than $10.40.

A donor needs a receipt in hand from a charity to claim a charitable deduction of $250 or more. If it's an item of insubstantial value (as just described) the item may be ignored for substantiation purposes. Reg. §1.170A-13(f)(8)(i)(A). Thus the receipt could read: "No goods or services were given in consideration for your gift." Presumably, the receipt could say "we gave you token benefits but they can be disregarded when claiming your charitable deduction."

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