LEGISLATIVE PROPOSALS AFFECTING CHARITABLE CONTRIBUTIONS
VOL. I, NO. 1 - 1993
By Lane L. Buchanan
The Revenue Act of 1992 (H.R. 11) (the “Bill”) proposed a number of
changes In the requirements for and consequences of charitable contributions. Although
President Bush vetoed the Bill, with a new administration the Bill is expected to be the
starting point for a tax bill in 1993. As a preview of what we might expect to see this year
this article summarizes the main provisions of the Bill. Those provisions require notices
to charitable beneficiaries, an alternative minimum tax preference for donated
appreciated property, and more detailed substantiation and information requirements for
1. Required Notices to Charitable Beneficiaries of Charitable Remainder Trusts
(a) Present Law. For a remainder interest transferred to a charity in trust, an
executor or trust fiduciary is not required to provide any information directly to the
(b) Proposed law.
(1) Executors. The Bill would require an executor to send a notice to
each remainderman. The notice would have to include the following: the fact that the
executor qualified as executor, the decedent's name, address and date of death: the name
and adds of every charitable beneficiary; a copy of the governing Instrument which
created the interest; a description of the Interest to which the charitable remainderman
may be entitled and statements on the financial condition of the estate which are required
In addition, the executor would have to provide other information to the
remainderman if the executor did not provide the first notice or if the remainderman
agrees to reimburse the fiduciary for costs of supplying the returns. In either case, the
executor would have to notify the remainderman of the filing of the Federal estate tax
return and give the remainderman a copy of the important parts of that return and certain
(2) Charitable Remainder Trust Fiduciaries. The fiduciary of each
charitable remainder trust would have to provide a copy of any tax returns to each
remainderman of the trust, but if the fiduciary furnished those returns for any year, the
fiduciary would only have to furnish later returns If the remainderman agreed to
reimburse the fiduciary for costs.
(3) Penalties. A fiduciary who fails to provide that information would
be charged $10 for each day the failure continues. However, the penalty is limited to
$5,000 for a single
MS&K Charitable Sector Letter
2. AMT Preference for Donated Appreciated Property
(a) Present Law. In calculating alternative minimum taxable income, the
untaxed appreciation in properly donated to charity is an Item of tax preference. There
was a limited exemption for gifts of tangible personal property, but that expired on July
(b) Proposed Law. This provision of existing law would be repealed:
Charitable contributions of appreciated property would no longer be taken into account in
the alternative minimum tax calculation.
(c) Effective Date. The rules would apply to contributions of tangible
personal property mode after 1991 and to contributions of other property made after
3. Substantiation and Information Requirements
(a) Present Law. For claiming charitable contribution deductions, an
individual who itemizes must separately state charitable contributions made by cash or
check and contributions mode in kind.
(b) Proposed Law.
(1) Substantiation. The Bill would require substantiation from the
charity for any contribution of $750 or more. Unless the charity provided sufficient
Information to the IRS to substantiate the amount of the contribution, written
substantiation from the charity would be required, and taxpayers world not be able to rely
on a cancelled check for this. The responsibility for requesting and keeping the
substantiation in his or her records would be placed on the taxpayer, and the taxpayer
would have to obtain the substantiation before filing the taxpayer's return for the year in
which the contribution was made.
The written substantiation would have to include a good faith estimate of
the value of any good or service provided to the donor in exchange for making the gift.
and if the charity did not provide any goods or services, the substantiation would have
say that as well. The substantiation of a noncash contribution would have to include a
description of the donated property, but the charity would not have to value the property.
The substantiation would have to include enough information to support the amount of
the contribution. but no particular form would be required. The statement could therefore
be with a WOW postcard or computer generated form, and a charity could prepare
separate statements for each contribution a periodic statements for each donor.
For purposes of the $750 threshold. separate payments would not be
counted together and deductions from paychecks would be treated as separate
A charity which knowingly provides false written substantiation to a donor
would be subject to penalties for aiding and abetting an understatement of tax liability.
MS&K Charitable Sector Letter
(2) Information disclosures. The proposal would require charities to
make information disclosures to a donor for soliciting or receiving a quid pro quo
contribution. A quid pro quo contribution is a payment made Partly as a contribution and
partly in consideration for goods or services given to the donor. For the substantiation
and disclosure requirements for contributions to religious organizations, the definition of
a quid pro quo contribution is limited to an exchange of goods or services which are
available on commercially or are advertised at a specific price. This would include
tuition, travel and entertainment and consumer goods.
The charity would have to inform the donor that the deduction is limited to
the excess of the value of the property contributed over the value of the goods or services
provided to the donor, and the donee would have to provide a good faith estimate of the
value of those goods or services.
This disclosure requirement applies to contributions of any dollar amount,
except if only token goods or services are given to the donor. .
If disclosure is required, penalties may be imposed on a charity which fails
to make the disclosure unless the failure was due to reasonable cause. Failure to disclose
includes not only a failure to make any disclosure at all, but it includes an incomplete or
inaccurate disclosure, such as an estimate of the value of goods or services that is not
made in good faith. A charity which fails to disclose would be charged $10 for each
contribution for which there is a failure to disclose, but the total penalty for a fundraising
event or mailing would not exceed $5,000.
4. Valuation Procedure
The Secretary of the Treasury would have to submit a report to the Senate
Committee on Finance and the House Committee on Ways and Means on the
development of a procedure for taxpayers to seek an agreement with the Secretary on the
value of tangible personal property before contribution to charity (if other contribution
requirements are met).
MS&K Charitable Sector Letter