Tax Update

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posted:: 12/11/2008
language:: English
pages:: 7

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Document Sample

1. Contribution Receipts
a. Contributions of $250 or More
i. Must be acknowledged in writing by the organization
ii. Acknowledgement must include:
1. Name of organization
2. Amount of cash contributed
3. Description (but not the value) of noncash goods contributed
4. Statement that no goods or services were provided by the
organization in return for the contribution (if this was the
case)
5. Description and good faith estimate of the value of any
goods or services the donor received in exchange for their
contribution (if this is the case)
a. Insubstantial goods or services do not need to be
disclosed
i. FMV does not exceed the lesser of 2% of the
contribution or $86 ($89 in 2007)
ii. Items bearing the organizations name or logo
(calendars, mugs or posters) received for a
contribution of at least $43 ($44.50 in 2007),
whose value is less than $8.60 ($8.90 in 2007)
b. Member benefits may not need to be disclosed
i. Applies to annual payments of $75 or less
ii. Annual recurring rights or privileges
1. Free or discounted admissions to the
organization's facilities
2. Discounts on purchases from the
organization's gift shop
3. Free or discounted parking
4. Free or discounted admission to
member only events, where per-person
cost is less than $8.30
iii. Annual rights must be able to be exercised
frequently during the membership period
6. Statement that only intangible religious benefits were
received in exchange for the contribution (if this is the case)
iii. Separate acknowledgements may be given for each gift, or may
give an annual summary
iv. Statement can be emailed
v. Separate contributions of less than $250 are not aggregated
vi. Donor must receive acknowledgement by the date they timely file
their income tax return
vii. Statement also required for contributed unreimbursed expenses of
$250 or more
1. Must include description of services provided by donor
2. Other disclosures as described above

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b. Cash Contributions of Less Than $250 - NEW
i. Donors of cash, checks or other monetary gifts of any amount must
have one of the following to substantiate the deduction:
1. Bank record
a. Cancelled check
b. Bank statement
2. Receipt, letter or other written communication from the
organization indicating:
a. Name of the donee,
b. Date of the contribution, and
c. Amount of the contribution
ii. Applies to contributions made in tax years beginning after August
17, 2006

c. Quid Pro Quo Contributions of More Than $75
i. Organization must provide donor written disclosure
ii. Must provide donor with a good-faith estimate of the fair market
value of goods or services
iii. Statement must be written and must be made in a manner likely to
come to the donor's attention
iv. Disclosure not required if
1. Goods or services provided meet the token value,
membership benefits or intangible religious benefits
exceptions
2. There is no donative intent, i.e., gift shop transactions
v. The organization may be penalized for not providing statements
1. $10 per contribution, not to exceed $5,000 per event or
mailing
2. Penalty may be waived if failure was due to reasonable
cause

d. Auto Donations
i. New rules beginning January 1, 2005
ii. If fair market value is $500 or less, donor may deduct fair market
value
iii. If fair market value exceeds $500, amount of deduction is one of
the following:
1. If the car is sold without any significant intervening use or
material improvement by the charity, deduction is limited to
gross proceeds from the sale
2. If charity intends to make significant intervening use of or
materially improve the car, donor may generally deduct fair
market value

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iv. Significant intervening use means car must actually be used by the
organization in furtherance of is exempt activities, and the use must
be considerable.
v. Material improvement includes a major repair or improvement, but
does not include cleaning, minor repairs and routine maintenance.
vi. Use Form 1098-C as statement to donor if value exceeds $500
vii. Donor must attach Form 1098-C to their return

2. Contributions - NEW
a. IRA Distributions to Charity
i. May directly contribute up to $100,000 from either a traditional or
Roth IRA
1. May roll from another qualified plan to an IRA then to charity
2. None may be attributable to nondeductible contributions
a. Special ordering rules apply
b. Taxable amounts treated as distributed first
3. Does not include transfers from Simplified Employee
Pension Plans or Simple Retirement Accounts
ii. Distribution is not included in donor's income
iii. Distribution is considered part (or all) of the required minimum
distribution
iv. Must be a qualified charitable distribution
1. Must be made directly from the IRA trustee to the qualified
charity
2. Made on or after the date the IRA owners turns 70½
3. Distribution must otherwise have been includible in gross
income
v. Qualified charity
1. 50% organization described in §170(b)(1)(a)
a. Educational institutions
b. Hospitals
c. Medical research organizations
d. Governmental units
e. Organizations supporting government schools
f. Publicly supported organizations
g. Common fund foundations
h. Private operating foundations
i. Conduit foundations
2. The following organizations are not qualifying charities
a. §509(a)(3) supporting organizations
b. Donor advised funds
c. Private foundations
d. Charitable remainder trusts
vi. Entire contribution must be otherwise deductible
1. Nothing received in exchange
2. If quid pro quo, none of the contribution will qualify

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vii. Not included in annual charitable deduction limitation
viii. Valid only for transfers made during 2006 and 2007

b. Contributions of Clothing and Household Items
i. Item must be in good used or better condition
ii. By regulation, Treasury can deny deduction for items with minimal
monetary value
iii. Restrictions don't apply if
1. Deduction of more than $500 is claimed for a single item,
and
2. A qualified appraisal is attached to the tax return on which
the deduction is claimed
iv. Household items
1. Includes furniture, furnishings, electronics, appliances, linens
and other similar items
2. Does not include food, paintings, antiques, other items of art,
jewelry, gems or collections
v. Effective for contributions after August 17, 2006

c. Donations of Food Inventory
i. C Corporations have been able to claim enhanced deductions for
donations of food to feed the poor
1. Deduction is lesser of basis plus ½ of unrealized
appreciation, or
2. Two times donated item's basis
ii. Katrina Emergency Tax Relief Act extended this benefit to
noncorporate taxpayers for contributions between 8/28/05 to
12/31/05
iii. New law extends benefit to noncorporate taxpayers for donations
through December 31, 2007

d. Donation of Book Inventories
i. Similar provisions as food inventory rules
ii. Available only to C Corporations

e. Contributions of Taxidermy Property
i. Taxidermy property
1. Reproduction or preservation of an animal in whole or in
part,
2. Is prepared, stuffed or mounted for purposes of recreating
one or more characteristics of the animal, and
3. Contains part of the body of the dead animal
ii. Applies to persons preparing, stuffing or mounting an animal, and
to persons paying or incurring the costs for these services
iii. Deduction is limited to the lesser of fair market value or the donor's
basis

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iv. Basis
1. Includes only direct costs incurred in preparing, stuffing or
mounting the animal
2. Does not include indirect costs of hunting, transporting, etc.
v. Applied to contributions made after July 25, 2006

3. Reporting/Disclosure Changes - NEW
a. Entities Previously Not Required to File
i. In the past, exempt organizations which regularly have less than
$25,000 per year in gross receipts have not been required to file
Form 990
ii. Organizations are now required to file annually
iii. Filing will be electronic
iv. Filing will include
1. Legal name
2. DBA, if any
3. Mailing address
4. Website (if any)
5. Taxpayer ID
6. Name and address of principal officer
7. Evidence that organization is still exempt from filing 990
v. If no report filed for 3 consecutive years, exempt status will be
revoked
vi. If organization can show reasonable cause, exempt status may be
reinstated
vii. Applied for annual periods beginning after 2006

b. Supporting Organizations
i. All §509(a)(3) supporting organizations must file a Form 990
ii. Must report the following on its return
1. Organizations it supports
2. Type of organization (I, II, or III)
3. Certification that it is not controlled by a disqualified person
iii. Applies to returns filed for periods beginning after 8/17/06

c. Disclosure of UBIT Returns
i. Organizations report UBIT (Unrelated Business Income Tax) on
Form 990-T
ii. Form 990-T has not been open to pubic inspection
iii. New law makes 990-Ts of §501(c)(3) organizations open to public
inspection
iv. Applies to returns filed after 8/17/06

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Summary of Effective Dates
Law Change Effective Date
Support for Monetary Contributions < $250 Tax Years Beginning After 8/17/06
IRA Contributions Transfers in 2006 & 2007
Contributions of Household & Clothing Items Contributions After 8/17/06
Contributions of Food Inventory Contributions in 2006 & 2007
Contribution of Book Inventory Contributions in 2006 & 2007
Contributions of Taxidermy Contributions After 7/25/06
<$25,000 Gross Receipts Reporting Requirement Annual Periods Beginning After 2006
Supporting Organization Filing Requirements Annual Periods Beginning After 8/17/06
Disclosure of Form 990-T Returns Filed After 8/17/06

Contribution Receipt Examples

Written Acknowledgement for Cash Contribution

Thank you for your cash contribution of $X,XXX that (organization's name)
received on (date). No goods or services were provided in exchange for your
contribution. (Last sentence may be omitted for a contribution of less than $250.)

Written Acknowledgement for Quid Pro Quo Contribution

Thank you for your cash contribution of $X,XXX that (organization's name)
received on (date). In exchange for your contribution, we gave you (property
description) with an estimated fair market value of $XX.

Written Acknowledgement for Noncash Contribution

Thank you for your contribution of (property description) that (organization's
name) received on (date). No goods or services were provided in exchange for
your contribution.

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Form 1098-C - Contributions of Motor Vehicles, Boats, and Airplanes

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