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August 2019 Professional Advisor Newsletter Content

Avoiding landmines in charitable planning

A cautionary tale

Donor-advised funds are popular because they allow an individual, family, or business to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking account just for charity, except it’s established according to the IRS guidelines that create the tax advantages.


Through a donor-advised fund at the community foundation, your clients not only receive the tax benefits and ease of administration common across all donor-advised fund programs, but they also have access to the deep resources, philanthropy expertise, and community-specific knowledge that only community foundations can deliver. 


Indeed, not all experiences with donor-advised funds are created equal. If you’ve not been keeping up with what’s going on in the legal world of donor-advised funds, you can get up to speed by reading the petition in a case filed in 2018 in the United States District Court for the Northern District of California. 

A community foundation’s sole responsibility is to serve as a steward of philanthropic assets and honor donor intent to achieve positive community change. We welcome the opportunity to talk with you and your clients about our policies, procedures, and safeguards that align with your responsibility to serve your clients.   

Don’t let this gotcha get you

Making a gift of alternative assets such as real estate and closely-held business interests is a tax-savvy way for your clients to give to charitable organizations. Highly-appreciated assets can be sold by the charity for 100 cents on the dollar—no capital gains tax applies. That means the charity ends up with more money to work with than your client would have received if the client had sold that same asset on their own.


When it comes time to file the client’s income tax return, though, don’t overlook the importance of filing IRS Form 8283, “Noncash Charitable Contributions.” This is the form that documents the tax basis for the donated assets. Even though the value of the donation for income tax deduction purposes is based on fair market value, not basis, the IRS nevertheless wants to see a paper trail documenting just how highly appreciated the asset really is.   

Failure to file Form 8283 can have devastating tax consequences for the donor. This spring, the United States Court of Appeals for the District of Columbia affirmed the Tax Court’s 2017 decision in RERI Holdings I, LLC, denying the entire charitable income tax deduction--a whopping $33,019,000--because of a missing Form 8283. You’ll note in its decision that the Court of Appeals refused to apply the “substantial compliance” doctrine, which historically has excused taxpayers from failure to comply with formal filing requirements. (Like we said, “gotcha!”) 


Our team at the community foundation thinks about charitable giving 24/7. This means we are highly tuned in to filing requirements and other rules that can make or break your clients’ tax planning strategies. We are honored to work alongside you as you structure your clients’ plans to support favorite causes, dotting every “i” and crossing every “t.”

Tax reform’s ripple effects

We’ll continue to keep you posted on what’s trending in philanthropy and charitable planning as a result of the Tax Cuts and Jobs Act of 2017. 

Last month, Connecticut, New Jersey, and New York filed a lawsuit against Treasury and the Internal Revenue Service to challenge the new final regulations that place limits on the tax benefits of giving to entities (including some community foundations) in cases where the donors are entitled to local or state tax credits for making the contribution. The regulations are the latest step in a saga that includes workaround legislation enacted in many states to avoid the $10,000 SALT deductions cap. The argument is that the new regulation flies in the face of prior tax policy and “undermines state and local programs designed to promote charitable giving through the use of state and local credits.” The case was filed in the Southern District of New York.

Tools in your back pocket

The team at the community foundation understands that it sometimes can be hard to know where to start a conversation with a client about charitable planning. As you ask questions about the causes your clients love and how your clients intend to support the community in their estate plans, you’ll need quick access to a few go-to planning tools to inspire the dialogue. To help you do just that, we’ve assembled this list of a few of our favorite planning tools.

Qualified Charitable Distributions

Under the now permanent IRA charitable rollover laws, your 70 ½+ clients can direct up to $100,000 annually of required minimum distributions to charitable organizations, avoiding inclusion in taxable income. These distributions are called Qualified Charitable Distributions (QCDs). Although donor-advised funds can’t receive QCDs, there are still plenty of ways our team at the community foundation can help your clients take advantage of this tool for lifetime gifts. Also, your clients can name their donor-advised fund as the beneficiary of a qualified plan, which is still a tax-savvy bequest strategy.  

Charitable Remainder Trusts and Charitable Gift Annuities

They’re back! Tax reform’s elimination of the Pease provision, which limited charitable deductions for high income taxpayers, means your clients can better leverage a single, up front gift to a charitable remainder trust or a charitable gift annuity. 

Bundling . . . or Is It Bunching?

Whether you call it “bundling” or “bunching,” clients who want to maximize their charitable deductions under the new tax laws can benefit from making two or more years’ worth of charitable contributions in a single year. This helps push taxpayers over the itemizing threshold, where they can reap the benefit of deducting the full value of their donations. (Quick stat: Because of tax reform, just 10 percent of taxpayers itemized deductions in 2018, compared with 30% in 2017.) 

Reflections on the impact of a do good, feel good moment

Ice Bucket Challenge.jpg

Remember the Ice Bucket Challenge, when 17 million people dumped icy water over their heads to raise money for the ALS Association? It may seem like yesterday, but it was actually five years ago this summer that the viral sensation helped raise $115 million in eight weeks for research and patient services. The five-year results are captured in an infographic, which the ALS Association has made available for everyone to share.


When nonprofit organizations launch online fundraisers, they capture a lot of attention. Your clients may ask questions about impact, such as “How do I know the dollars are used wisely?” or “What should I watch out for when I am donating online?” or “Is the expense of viral fundraising campaigns worth the ultimate benefit achieved for the people being served?” The team at the community foundation is your partner. We are here to help you provide thoughtful, helpful answers to your clients' questions. Think of our experts as extensions of your team to help you fulfill your client service role. 

This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.