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Federal Tax Treatment of Charitable Contributions

Federal Tax Treatment of Charitable Contributions

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Published by Howard Friedman
Congressional staff study.
Congressional staff study.

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Published by: Howard Friedman on Feb 15, 2013
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PRESENT LAW AND BACKGROUNDRELATING TO THE FEDERAL TAX TREATMENTOF CHARITABLE CONTRIBUTIONS
Scheduled for a Public HearingBefore theHOUSE COMMITTEE ON WAYS AND MEANSon February 14, 2013Prepared by the Staff of theJOINT COMMITTEE ON TAXATIONFebruary 11, 2013JCX-4-13
 
i
CONTENTS
PageINTRODUCTION AND SUMMARY ........................................................................................... 1
 
I.
 
PRESENT LAW AND BACKGROUND ............................................................................. 4
 
A.
 
History of the Charitable Contribution Deduction........................................................... 4
 
B.
 
Overview of the Income Tax Charitable Contribution Deduction ................................... 6
 
1.
 
Elements of the income tax charitable contribution deduction .................................. 6
 
2.
 
Effect of the deduction on taxable income ................................................................ 6
 
3.
 
Organizations eligible to receive deductible charitable contributions ....................... 8
 
4.
 
Other requirements for charitable deduction ........................................................... 14
 
C.
 
Determining the Amount of the Income Tax Charitable Contribution Deduction ........ 17
 
1.
 
Percentage limits on charitable contributions .......................................................... 17
 
2.
 
Valuation of charitable contributions ....................................................................... 19
 
D.
 
Contributions of Partial Interests in Property ................................................................ 25
 
1.
 
In general ................................................................................................................. 25
 
2.
 
Split interest trusts.................................................................................................... 26
 
3.
 
Qualified conservation contributions ....................................................................... 26
 
4.
 
Fractional contributions of tangible personal property (including works of art) ..... 28
 
E.
 
Overview of the Estate and Gift Tax Charitable Deductions ........................................ 30
 
F.
 
Exclusion from Gross Income for Distributions from Individual RetirementArrangements (IRAs) for Charitable Purposes .............................................................. 31
 
II.
 
ECONOMIC AND COMPLIANCE ISSUES RELATED TO THE CHARITABLECONTRIBUTION DEDUCTION AND CHARITABLE GIVING .................................... 33
 
A.
 
Economic Rationales for Tax Deduction of Charitable Contributions .......................... 33
 
B.
 
Economic Effects of Tax Deductions for Charitable Contributions .............................. 35
 
C.
 
Analysis of Selected Special Rules for Charitable Contributions ................................. 38
 
D.
 
Tax Expenditure Estimates of the Charitable Contributions Deduction ........................ 40
 
E.
 
Tax Compliance and the Valuation of Charitable Contributions ................................... 41
 
F.
 
Data on Levels of Charitable Contributions and Charitable ContributionDeductions ..................................................................................................................... 44
 
III.
 
PROPOSALS TO REFORM THE TAXATION OF CHARITABLECONTRIBUTIONS ............................................................................................................. 48
 
A.
 
Summary ........................................................................................................................ 48
 
B.
 
General Reform Proposals ............................................................................................. 48
 
C.
 
Proposals Relating to Tax Compliance and Administration .......................................... 55
 
APPENDIX ................................................................................................................................. A-1
 
 
 1
INTRODUCTION AND SUMMARY
The House Committee on Ways and Means has scheduled a public hearing on February14, 2013, entitled “Tax Reform and Charitable Contributions.” This document,
1
prepared by thestaff of the Joint Committee on Taxation, contains an overview of the present-law rules relatingto the Federal tax treatment of charitable contributions, a discussion of economic issues relatingto Federal tax incentives for charitable giving, and a description of several legislative proposalsrelated to the Federal tax treatment of charitable contributions.The Federal income tax charitable deduction dates back to 1917 and has remained afeature of the income tax system throughout its history. The Internal Revenue Code allowstaxpayers to reduce their income, estate, and gift tax liability with deductions for gifts to certainorganizations. These organizations include:
 
Charities. Religious organizations, grantmaking foundations, educational institutions,health and human services organizations, arts and cultural organizations, internationaland environmental organizations, among others;
 
Governmental units. Federal, State, local and Indian tribal governments; and
 
Other organizations. Veterans organizations, cemetery companies, volunteer firedepartments, civil defense organizations, and, in some instances, fraternalorganizations.Charitable giving by individuals, foundations, estates, and corporations reached $298.42billion in 2011, of which individuals gave $217.79 billion,
2
foundations gave $41.67 billion,
3
 estates gave $24.41 billion, and corporations gave $14.55 billion.
4
These figures representestimates of the total amount of donations made to charity during 2011. As discussed in Part I,below, not all such donations are deductible for Federal income tax purposes. For dataconcerning tax-deductible charitable contributions, see Part II, below.Figure 1, below, shows the recipients of the $298.42 billion of total 2011 charitablegiving, by amount received and percentage of the total. The category receiving the largest shareof donations in 2011 was religious organizations, which received nearly one-third of allcharitable donations. Educational institutions comprise the next largest category, receiving13 percent of donations in 2011. Human services organizations (such as the Red Cross) received
1
This document may be cited as follows: Joint Committee on Taxation
 , Present Law and Background  Relating to the Federal Tax Treatment of Charitable Contributions
(JCX-4-13), February 11, 2013. This documentcan be found on the website atwww.jct.gov.
 
2
Giving USA Foundation,
Giving USA 2012: The Annual Report on Philanthropy for the Year 2011, Executive Summary
, 2012, p.4.
 
3
The Foundation Center,
Foundation Growth and Giving Estimates
, June
 
2011 (figure excludes $5.2billion in giving by corporate foundations).
 
4
Giving USA Foundation,
Giving USA 2012: The Annual Report on Philanthropy for the Year 2011, Executive Summary
, 2012, p.4.

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