Another 6694 wake up call - section 170

This another wake-up call for those return preparers who do not think the 6694 penalties apply to them because they are small tax return preparers who do not get involved with complex business issues.

I have attached the new proposed regulations dealing with substantiating the charitable deduction that will be applicable to the 2008 tax year. The regulations have very specific requirements for substantiation. These regulations represent “substantial authority” that MUST BE FOLLOWED in computing the charitable deduction taken, for example, in Schedule A of the Form 1040 in order to avoid the 6694 penalties.

Without trying to be too cynical, the IRS will be able to get $5,000 or $1,000 6694 penalties from return preparers who accept client numbers for their Schedule A’s on client 1040s. Those return preparers who, for example, are not aware of the appraisal requirements in the proposed regulations will be vulnerable to the penalties. The appraisals by a qualifying appraiser cannot be done at the last minute when tax returns are filed in 2009.

Given the pervasive application of the charitable deduction in tax returns, the IRS software will likely target tax returns for compliance with the proposed regulations and its complex provisions. For this reason, tax return preparers will get their full blast of 6694 penalties in 2009. Other tax returns with charitable deductions will be targeted for examination in 2010 and 2011.

EXAMPLE: No deduction is allowed under section 170(a) for any contribution of $250 or more unless the donor substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f)) from the donee.

Just a guess, guys & gals, lots of tax return preparers could be viewed as “reckless” by the IRS by filing a tax return without compliance with that regulation. You can still be hit with a $1,000 or $5,000 penalty if the return contains a $250 charitable contribution and you do not support the deduction with a contemporaneous written acknowledgement. Obviously, you will never be able to meet this requirement AFTER the tax return is filed.

I expect that Treasury will raise a large amount of revenue when return preparers are assessed 6694 penalties for failure to meet this requirement. And this is only one small example of how the “substantial authority” standard will be applied. Ignorance is not an excuse for not applying the provisions of these regulations.

Proposed Amendments of Regulations (REG-140029-07) , published in the Federal Register on August 7, 2008.DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-140029-07]

RIN 1545-BH62

Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

The collections of information in these proposed regulations are in §§ 1.170A- 15(a) and (d)(2); 1.170A-16(a), (b), (c), (d), (e), and (f); 1.170A-17(a)(3) and (a)(7); and 1.170A-18(a)(2) and (b). These collections of information will help the IRS determine if a taxpayer is entitled to a claimed deduction for a charitable contribution. The collections of information are required to obtain a benefit. The likely respondents are individuals, partnerships, and corporations that claim a deduction for a charitable contribution.

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) for substantiating and reporting deductions for charitable contributions under section 170 of the Internal Revenue Code. Section 170(f)(11), as added by section 883 of the American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418) (Jobs Act), contains reporting and substantiation requirements relating to deductions for noncash charitable contributions. Under section 170(f)(11)(C), for contributions of property for which a deduction of more than $5,000 is claimed, taxpayers are required to obtain a qualified appraisal of the property. Under section 170(f)(11)(D), for contributions of property for which a deduction of more than $500,000 is claimed, taxpayers must attach a qualified appraisal of the property to the tax return on which the deduction is claimed.

For appraisals prepared with respect to returns filed on or before August 17, 2006, §1.170A-13(c) of the current regulations provides definitions of the terms "qualified appraisal" and "qualified appraiser". For appraisals prepared with respect to returns filed after August 17, 2006, section 170(f)(11)(E), as added by the Jobs Act and amended by section 1219 of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (PPA), provides statutory definitions of the terms qualified appraisal and qualified appraiser.

Section 170(f)(11)(E)(i) provides that the term qualified appraisal means an appraisal that is (1) treated as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and (2) conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the Secretary.

Section 170(f)(11)(E)(ii) provides that the term qualified appraiser means an individual who (1) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary, (2) regularly performs appraisals for which the individual receives compensation, and (3) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance. Section 170(f)(11)(E)(iii) further provides that an individual will not be treated as a qualified appraiser unless that individual (1) demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and (2) has not been prohibited from practicing before the IRS by the Secretary under section 330(c) of Title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.

On October 19, 2006, the IRS and the Treasury Department released Notice 2006-96, 2006-46 IRB 902 (see §601.601(d)(2)(ii)(b) of this chapter), which provides transitional guidance relating to section 170(f)(11)(E) as amended by the PPA. Specifically, Notice 2006-96 provides transitional safe harbor definitions for the terms "qualified appraisal" ( section 3.02(1)), "generally accepted appraisal standards" ( section 3.02(2)), "appraisal designation" ( section 3.03(1)), "education and experience in valuing the type of property" ( section 3.03(2)), and "minimum education and experience" ( section 3.03(3)). These definitions apply to contributions of property for which a deduction of more than $5,000 is claimed on returns filed after August 17, 2006. Notice 2006-96 solicited comments regarding the definitions of these terms. All comments received were considered in drafting these regulations.

Section 1216 of the PPA added section 170(f)(16), which provides that no deduction is allowed for a contribution of clothing or a household item unless the clothing or household item is in good used condition or better. Section 1217 of the PPA added section 170(f)(17), which imposes a recordkeeping requirement for all cash contributions, regardless of amount. Section 1219 of the PPA added section 6695A, which imposes penalties on appraisers in certain circumstances. Regulations implementing the penalty provisions of section 6695A will be published separately.

Section 170(f)(11)(H) authorizes the Secretary to prescribe regulations as may be necessary or appropriate to carry out the purposes of section 170(f)(11), including regulations that may provide that some or all of the requirements of section 170(f)(11) do not apply in appropriate cases. Other statutory authority to issue regulations is in sections 170(f)(11)(B), (C), (E)(i)(I) and (II), and (E)(ii)(I) and (III).



Explanation of Provisions




Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:



PART 1 --INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

§1.170A-15 also issued under 26 U.S.C. 170(a)(1).

§1.170A-16 also issued under 26 U.S.C. 170(a)(1) and 170(f)(11).

§1.170A-17 also issued under 26 U.S.C. 170(a)(1) and 170(f)(11).

§1.170A-18 also issued under 26 U.S.C. 170(a)(1).



§§1.170-0 and 1.170-2 [Removed]

Par. 2. Sections 1.170-0 and 1.170-2 are removed.



§1.170A-13 [Amended]

Par. 3. In § 1.170A-13, paragraphs (a)(3), (b)(3)(i)(B), (b)(4), and (d) are removed.

Par. 4. Section 1.170A-15 is added to read as follows:



§1.170A-15 Substantiation requirements for charitable contribution of a cash, check, or other monetary gift.

(a) In general --(1) Bank record or written communication required. No deduction is allowed under section 170(a) for a charitable contribution in the form of a cash, check, or other monetary gift (as described in paragraph (b)(1) of this section) unless the donor substantiates the deduction with a bank record (as described in paragraph (b)(2) of this section) or a written communication (as described in paragraph (b)(3) of this section) from the donee showing the name of the donee, the date of the contribution, and the amount of the contribution.

(2) Additional substantiation required for contributions of $250 or more. No deduction is allowed under section 170(a) for any contribution of $250 or more unless the donor substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f)) from the donee.

(3) Single document may be used. The requirements of paragraphs (a)(1) and (a)(2) of this section may be met by a single document that contains all the information required by paragraphs (a)(1) and (a)(2) of this section, if the single document is obtained by the donor no later than the date prescribed by paragraph (c) of this section.

(b) Terms --(1) Monetary gift includes a transfer of a gift card redeemable for cash, and a payment made by credit card, electronic fund transfer (as described in section 5061(e)(2)), an online payment service, or payroll deduction.

(2) Bank record includes a statement from a financial institution, an electronic fund transfer receipt, a canceled check, a scanned image of both sides of a canceled check obtained from a bank website, or a credit card statement.

(3) Written communication includes electronic mail correspondence.

(c) Deadline for receipt of substantiation. The substantiation described in paragraph (a) of this section must be received by the donor on or before the earlier of --

(1) The date the donor files the original return for the taxable year in which the contribution was made; or

(2) The due date (including extensions) for filing the donor's original return for that year.

(d) Distributing organizations as donees --(1) In general. The following organizations are treated as donees for purposes of section 170(f)(17) and paragraph (a) of this section, even if the organization (pursuant to the donor's instructions or otherwise) distributes the amount received to one or more organizations described in section 170(c):

(i) An organization described in section 170(c).

(ii) An organization described in 5 C.F.R. 950.105 (a Principal Combined Fund Organization for purposes of the Combined Federal Campaign) and acting in that capacity.

(2) Contributions made by payroll deduction. In the case of a charitable contribution made by payroll deduction, a donor is treated as meeting the requirements of section 170(f)(17) and paragraph (a) of this section if, no later than the date described in paragraph (c) of this section, the donor obtains --

(i) A pay stub, Form W-2, "Wage and Tax Statement," or other employerfurnished document that sets forth the amount withheld during the taxable year for payment to a donee; and

(ii) A pledge card or other document prepared by or at the direction of the donee that shows the name of the donee.

(e) Substantiation of out-of-pocket expenses. Paragraph (a)(1) of this section does not apply to a donor who incurs unreimbursed expenses of less than $250 incident to the rendition of services, within the meaning of §1.170A-1(g). For substantiation of unreimbursed out-of-pocket expenses of $250 or more, see §1.170A-13(f)(10).

(f) Charitable contributions made by partnership or S corporation. If a partnership or an S corporation makes a charitable contribution, the partnership or S corporation is treated as the donor for purposes of section 170(f)(17) and paragraph (a) of this section.

(g) Transfers to certain trusts. The requirements of section 170(f)(17) and paragraph (a)(1) of this section do not apply to a transfer of a cash, check, or other monetary gift to a trust described in section 170(f)(2)(B), a charitable remainder annuity trust (as defined in section 664(d)(1)), or a charitable remainder unitrust (as defined in section 664(d)(2) or (d)(3) or §1.664-3(a)(1)(i)(b)). The requirements of section 170(f)(17) and paragraphs (a)(1) and (a)(2) of this section do apply, however, to a transfer to a pooled income fund (as defined in section 642(c)(5)). For contributions of $250 or more, see section 170(f)(8) and §1.170A-13(f)(13).

(h) Effective/applicability date. This section applies to contributions made after the date these regulations are published as final regulations in the Federal Register.

Par. 5. . Section 1.170A-16 is added to read as follows:



§1.170A-16 Substantiation and reporting requirements for noncash charitable contributions.

(a) Substantiation of charitable contributions of less than $250 --(1) Individuals, partnerships, and certain corporations required to obtain receipt. Except as provided in paragraph (a)(2) of this section, no deduction is allowed under section 170(a) for a noncash charitable contribution of less than $250 by an individual, partnership, S corporation, or C corporation that is a personal service corporation or closely held corporation unless the donor maintains for each contribution a receipt from the donee showing the following information:

(i) The name and address of the donee;

(ii) The date of the contribution;

(iii) A description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; and

(iv) In the case of securities, the name of the issuer, the type of security, and whether the securities are publicly traded securities within the meaning of §1.170A- 13(c)(7)(xi).

(2) Substitution of reliable written records --(i) In general. If it is impractical to obtain a receipt (for example, a donor deposits canned food at a donee's unattended drop site), the donor may satisfy the recordkeeping rules of this paragraph (a)(2)(i) by maintaining reliable written records (as described in paragraphs (a)(2)(ii) and (a)(2)(iii) of this section) for the contributed property.

(ii) Reliable written records. The reliability of written records is to be determined on the basis of all of the facts and circumstances of a particular case, including the contemporaneous nature of the writing evidencing the contribution.

(iii) Contents of reliable written records. Reliable written records must include --

(A) The information required by paragraph (a)(1) of this section;

(B) The fair market value of the property on the date the contribution was made;

(C) The method used in determining the fair market value; and

(D) In the case of a contribution of clothing or a household item as defined in §1.170A-18(c), the condition of the item.

(3) Additional substantiation rules may apply. For additional substantiation rules, see paragraph (f) of this section.

(b) Substantiation of charitable contributions of $250 or more but not more than $500. No deduction is allowed under section 170(a) for a noncash charitable contribution of $250 or more but not more than $500 unless the donor substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f)).

(c) Substantiation of charitable contributions of more than $500 but not more than $5,000 --(1) In general. No deduction is allowed under section 170(a) for a noncash charitable contribution of more than $500 but not more than $5,000 unless the donor substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f)) and meets the applicable requirements of this section.

(2) Individuals, partnerships, and certain corporations also required to file Form 8283 (Section A). No deduction is allowed under section 170(a) for a noncash charitable contribution of more than $500 but not more than $5,000 by an individual, partnership, S corporation, or C corporation that is a personal service corporation or closely held corporation unless the donor --

(i) Substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f)); and

(ii) Completes Form 8283 (Section A), "Noncash Charitable Contributions" (as provided in paragraph (c)(3) of this section), or a successor form, and files it with the return on which the deduction is claimed.

(3) Completion of Form 8283 (Section A). A completed Form 8283 (Section A) includes --

(i) The donor's name and taxpayer identification number (social security number if the donor is an individual or employer identification number if the donor is a partnership or corporation);

(ii) The name and address of the donee;

(iii) The date of the contribution;

(iv) The following information about the contributed property:

(A) A description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property;

(B) In the case of real or personal property, the condition of the property;

(C) In the case of securities, the name of the issuer, the type of security, and whether the securities are publicly traded securities within the meaning of §1.170A- 13(c)(7)(xi); and

(D) The fair market value of the property on the date the contribution was made and the method used in determining the fair market value;

(v) The manner of acquisition (for example, by purchase, gift, bequest, inheritance, or exchange), and the approximate date of acquisition of the property by the donor (except that in the case of a contribution of publicly traded securities as defined in §1.170A-13(c)(7)(xi), a representation that the donor held the securities for more than one year is sufficient) or, if the property was created, produced, or manufactured by or for the donor, the approximate date the property was substantially completed;

(vi) The cost or other basis, adjusted as provided by section 1016, of the property (except that the cost or basis is not required for contributions of publicly traded securities (as defined in §1.170A-13(c)(7)(xi)) that if sold on the contribution date would have resulted in long term capital gain);

(vii) In the case of tangible personal property, whether the donee has certified it for a use related to the purpose or function constituting the donee's basis for exemption under section 501 (or in the case of a governmental unit, an exclusively public purpose); and

(viii) Any other information required by Form 8283 (Section A) or the instructions to Form 8283 (Section A).

(4) Additional requirement for certain motor vehicle contributions. In the case of a contribution of a qualified vehicle described in section 170(f)(12)(A)(ii) for which an acknowledgment under section 170(f)(12)(B)(iii) is provided to the IRS by the donee organization, the donor must attach a copy of the acknowledgment to the Form 8283 (Section A) for the return on which the deduction is claimed.

(5) Additional substantiation rules may apply. For additional substantiation rules, see paragraph (f) of this section.

(d) Substantiation of charitable contributions of more than $5,000 --(1) In general. Except as provided in paragraph (d)(2) of this section, no deduction is allowed under section 170(a) for a noncash charitable contribution of more than $5,000 unless the donor --

(i) Substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f));

(ii) Obtains a qualified appraisal (as defined in §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined in §1.170A-17)(b)(1)); and

(iii) Completes Form 8283 (Section B) (as provided in paragraph (d)(3) of this section), or a successor form, and files it with the return on which the deduction is claimed.

(2) Exception for certain noncash contributions. A qualified appraisal is not required, and a completed Form 8283 (Section A) (containing the information required in paragraph (c)(3) of this section) meets the requirements of paragraph (d)(1)(iii) of this section for contributions of --

(i) Publicly traded securities as defined in §1.170A-13(c)(7)(xi);

(ii) Property described in section 170(e)(1)(B)(iii)(certain intellectual property);

(iii) A qualified vehicle described in section 170(f)(12)(A)(ii) for which an acknowledgment under section 170(f)(12)(B)(iii) is provided to the IRS by the donee organization and attached to the Form 8283 (Section A) by the donor; and

(v) Property described in section 1221(a)(1)(inventory and property held by the donor primarily for sale to customers in the ordinary course of the donor's trade or business).

(3) Completed Form 8283 (Section B). A completed Form 8283 (Section B) includes --

(i) The donor's name and taxpayer identification number (social security number if the donor is an individual or employer identification number if the donor is a partnership or corporation);

(ii) The donee's name, address, taxpayer identification number, and signature, the date signed by the donee, and the date the donee received the property;

(iii) The appraiser's name, address, taxpayer identification number, appraiser declaration (as described in paragraph (d)(4) of this section), signature, and the date signed by the appraiser;

(iv) The following information about the contributed property:

(A) The fair market value on the valuation effective date (as defined in §1.170A- 17(a)(5)(i)).

(B) A description in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property.

(C) In the case of real or tangible personal property, the condition of the property;

(v) The manner of acquisition (for example, by purchase, gift, bequest, inheritance, or exchange), and the approximate date of acquisition of the property by the donor, or, if the property was created, produced, or manufactured by or for the donor, the approximate date the property was substantially completed;

(vi) The cost or other basis, adjusted as provided by section 1016;

(vii) A statement explaining whether the charitable contribution was made by means of a bargain sale and, if so, the amount of any consideration received from the donee for the contribution; and

(viii) Any other information required by Form 8283 (Section B) or the instructions to Form 8283 (Section B).

(4) Appraiser declaration. The appraiser declaration referred to in paragraph (d)(3)(iii) of this section must include the following statement: "I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund results from my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. section 330(c)."

(5) Donee signature --(i) Person authorized to sign. The person who signs Form 8283 for the donee must be either an official authorized to sign the tax or information returns of the donee, or a person specifically authorized to sign Forms 8283 by that official. In the case of a donee that is a governmental unit, the person who signs Form 8283 for the donee must be an official of the governmental unit.

(ii) Effect of donee signature. The signature of the donee on Form 8283 does not represent concurrence in the appraised value of the contributed property. Rather, it represents acknowledgment of receipt of the property described in Form 8283 on the date specified in Form 8283 and that the donee understands the information reporting requirements imposed by section 6050L and §1.6050L-1.

(iii) Certain information not required on Form 8283 before donee signs. Before Form 8283 is signed by the donee, Form 8283 must be completed (as described in paragraph (d)(3) of this section), except that it is not required to contain the following:

(A) Information about the qualified appraiser or the appraiser declaration.

(B) The manner or date of acquisition.

(C) The cost or other basis of the property.

(D) The appraised fair market value of the contributed property.

(E) The amount claimed as a charitable contribution.

(6) Additional substantiation rules may apply. For additional substantiation rules, see paragraph (f) of this section.

(e) Substantiation of noncash charitable contributions of more than $500,000 --

(1) In general. Except as provided in paragraph (e)(2) of this section, no deduction is allowed under section 170(a) for a noncash charitable contribution of more than $500,000 unless the donor --

(i) Substantiates the contribution with a contemporaneous written acknowledgment (as described in section 170(f)(8) and §1.170A-13(f));

(ii) Obtains a qualified appraisal (as defined in §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined in §1.170A-17(b)(1));

(iii) Completes (as described in paragraph (d)(3) of this section) Form 8283 (Section B) and files it with the return on which the deduction is claimed; and

(iv) Attaches the qualified appraisal of the property to the return on which the deduction is claimed.

(2) Exception for certain noncash contributions. For contributions of property described in paragraph (d)(2) of this section, a qualified appraisal is not required, and a completed Form 8283 (Section A) (containing the information required in paragraph (c)(3) of this section) meets the requirements of paragraph (e)(1)(iii) of this section.

(3) Additional substantiation rules may apply. For additional substantiation rules, see paragraph (f) of this section.

(f) Additional substantiation requirements that may be applicable to any noncash contribution --(1) Signed Form 8283 furnished by donor to donee. A donor who presents a Form 8283 to a donee for signature must furnish to the donee a copy of Form 8283 as signed by the donee.

(2) Number of Forms 8283 --(i) In general. For each item of contributed property for which a Form 8283 is required under paragraphs (c), (d), or (e) of this section, a donor must attach a separate Form 8283 to the return on which the deduction for the item is claimed.

(ii) Exception for similar items. The donor may attach a single Form 8283 for all similar items of property (as defined in §1.170A-13(c)(7)(iii)) contributed to the same donee during the donor's taxable year, if the donor includes on Form 8283 the information required by paragraph (c)(3) or (d)(3) of this section for each item of property.

(3) Substantiation requirements for carryovers of noncash contribution deductions. The rules in paragraphs (c)(2)(ii), (d)(1)(iii), (d)(2), (e)(1)(iii) and (e)(1)(iv) of this section (regarding substantiation that must be submitted with a return) apply to the return for any carryover year under section 170(d).

(4) Partners and S corporation shareholders --(i) Form 8283 must be provided to partners and S corporation shareholders. If the donor is a partnership or S corporation, the donor must provide a copy of the completed Form 8283 to every partner or shareholder who receives an allocation of a charitable contribution deduction under section 170 for the property described in Form 8283.

(ii) Partners and S corporation shareholders must attach Form 8283 to return. A partner of a partnership or shareholder of an S corporation who receives an allocation of a deduction under section 170 for a charitable contribution of property to which paragraphs (c), (d), or (e) of this section applies must attach a copy of the partnership's or S corporation's completed Form 8283 to the return on which the deduction is claimed.

(5) Determination of deduction amount for purposes of substantiation rules --(i) In general. In determining whether the amount of a donor's deduction exceeds the amounts set forth in section 170(f)(11)(B) (noncash contributions exceeding $500), 170(f)(11)(C) (noncash contributions exceeding $5,000), or 170(f)(11)(D) (noncash contributions exceeding $500,000), the rules of paragraphs (f)(5)(ii) and (f)(5)(iii) of this section apply.

(ii) Similar items of property must be aggregated. Under section 170(f)(11)(F), the donor must aggregate the amount claimed as a deduction for all similar items of property (as defined in §1.170A-13(c)(7)(iii)) contributed during the taxable year. For rules regarding the number of qualified appraisals and Forms 8283 required if similar items of property are contributed, see §§1.170A-13(c)(3)(iv)(A) and 1.170A- 13(c)(4)(iv)(B).

(iii) For contributions of certain inventory and scientific property, excess of amount claimed over cost of goods sold taken into account. (A) In general. In determining the amount of a donor's contribution of property to which section 170(e)(3) or (4) applies, the donor must take into account only the excess of the amount claimed as a deduction over the amount that would have been treated as the cost of goods sold if the donor had sold the contributed property to the donee.

(B) Example. The following example illustrates the rule of this paragraph (f)(5)(iii):

Example. X Corporation makes a contribution to which section 170(e)(3) applies of clothing for the care of the needy. The cost of the property to X Corporation is $5,000, and, pursuant to section 170(e)(3)(B), X Corporation claims a charitable contribution deduction of $8,000. The amount taken into account for purposes of determining the $5,000 threshold of paragraph (d) of this section is $3,000 ($8,000- $5,000).

(6) Failure due to reasonable cause. If a donor fails to meet the requirements of paragraphs (c), (d), or (e) of this section, the donor's deduction will be disallowed unless the donor establishes that the failure was due to reasonable cause and not to willful neglect. The donor may establish that the failure was due to reasonable cause and not to willful neglect only if the donor --

(i) Submits with the return a detailed explanation that the failure to meet the requirements of this section was due to reasonable cause and not to willful neglect;

(ii) Obtained a contemporaneous written acknowledgment (as required by section 170(f)(8) and §1.170A-13(f)(3)); and

(iii) Obtained a qualified appraisal (as defined by section 170(f)(11)(E)(i) and §1.170A-17(a)(1)) prepared by a qualified appraiser (as defined by section 170(f)(11)(E)(ii) and §1.170A-17(b)(1)) within the dates specified in §1.170A-17(a)(4), if required.

(7) Additional requirement for returns claiming conservation easements for buildings in registered historic districts. [Reserved]

(g) Effective/applicability date. This section applies to contributions made after the date these regulations are published as final regulations in the Federal Register.

Par. 6. Section 1.170A-17 is added to read as follows:

§1.170A-17 Qualified appraisal and qualified appraiser.

(a) Qualified appraisal --(1) Definition. For purposes of section 170(f)(11) and §§1.170A-16(d)(1)(ii) and 1.170A-16(e)(1)(ii), the term qualified appraisal means an appraisal document that is prepared by a qualified appraiser (as defined in paragraph (b)(1) of this section) in accordance with generally accepted appraisal standards (as defined in paragraph (a)(2) of this section) and otherwise complies with the requirements of this paragraph (a).

(2) Generally accepted appraisal standards defined. For purposes of paragraph (a)(1) of this section, generally accepted appraisal standards means the substance and principles of the Uniform Standards of Professional Appraisal Practice, as developed by the Appraisal Standards Board of the Appraisal Foundation.

(3) Contents of qualified appraisal. A qualified appraisal must include --

(i) The following information about the contributed property:

(A) A description in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the appraised property is the contributed property.

(B) In the case of real or personal tangible property, the condition of the property.

(C) The valuation effective date (as defined in paragraph (a)(5)(i) of this section).

(D) The fair market value (within the meaning of §1.170A-1(c)(2)) of the contributed property on the valuation effective date;

(ii) The terms of any agreement or understanding by or on behalf of the donor and donee that relates to the use, sale, or other disposition of the contributed property, including, for example, the terms of any agreement or understanding that --

(A) Restricts temporarily or permanently a donee's right to use or dispose of the contributed property;

(B) Reserves to, or confers upon, anyone (other than a donee or an organization participating with a donee in cooperative fundraising) any right to the income from the contributed property or to the possession of the property, including the right to vote contributed securities, to acquire the property by purchase or otherwise, or to designate the person having income, possession, or right to acquire; or

(C) Earmarks contributed property for a particular use;

(iii) The date (or expected date) of the contribution to the donee;

(iv) The following information about the appraiser:

(A) Name, address, and taxpayer identification number.

(B) Qualifications to value the type of property being valued, including the appraiser's education and experience.

(C) If the appraiser is acting in his or her capacity as a partner in a partnership, an employee of any person (whether an individual, corporation, or partnership), or an independent contractor engaged by a person other than the donor, the name, address, and taxpayer identification number of the partnership or the person who employs or engages the qualified appraiser;

(v) The signature of the appraiser and the date signed by the appraiser (appraisal report date);

(vi) The following declaration by the appraiser: "I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund results from my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. section 330(c);"

(vii) A statement that the appraisal was prepared for income tax purposes;

(viii) The method of valuation used to determine the fair market value, such as the income approach, the market-data approach, or the replacement-cost-lessdepreciation approach; and

(ix) The specific basis for the valuation, such as specific comparable sales transactions or statistical sampling, including a justification for using sampling and an explanation of the sampling procedure employed.

(4) Timely appraisal report. A qualified appraisal must be signed and dated by the qualified appraiser no earlier than 60 days before the date of the contribution and no later than --

(i) The due date (including extensions) of the return on which the deduction for the contribution is first claimed;

(ii) In the case of a donor that is a partnership or S corporation, the due date (including extensions) of the return on which the deduction for the contribution is first reported; or

(iii) In the case of a deduction first claimed on an amended return, the date on which the amended return is filed.

(5) Valuation effective date --(i) Definition. The valuation effective date is the date to which the value opinion applies.

(ii) Timely valuation effective date. For an appraisal report dated before the date of the contribution (as described in §1.170A-1(b)), the valuation effective date must be no earlier than 60 days before the date of the contribution and no later than the date of the contribution. For an appraisal report dated on or after the date of the contribution, the valuation effective date must be the date of the contribution.

(6) Exclusion for donor knowledge of falsity. An appraisal is not a qualified appraisal for a particular contribution, even if the requirements of this paragraph (a) are met, if a reasonable person would conclude that the donor failed to disclose or misrepresented facts that would cause the appraiser to overstate the value of the contributed property.

(7) Number of appraisals required. A donor must obtain a separate qualified appraisal for each item of property for which an appraisal is required under paragraphs (c), (d), or (e) of this section and that is not included in a group of similar items of property (as defined in §1.170A-13(c)(7)(iii)). For rules regarding the number of appraisals required if similar items of property are contributed, see §1.170A- 13(c)(3)(iv)(A).

(8) Prohibited appraisal fees. The fee for a qualified appraisal cannot be based to any extent on the appraised value of the property. For example, a fee for an appraisal will be treated as based on the appraised value of the property if any part of the fee depends on the amount of the appraised value that is allowed by the IRS after an examination.

(9) Retention of qualified appraisal. The donor must retain the qualified appraisal for so long as it may be relevant in the administration of any internal revenue law.

(10) Appraisal disregarded pursuant to 31 U.S.C. 330(c). If an appraisal is disregarded pursuant to 31 U.S.C. 330(c), it has no probative effect as to the value of the appraised property and does not satisfy the appraisal requirements of paragraphs (d) and (e) of this section, unless the appraisal and Form 8283 include the appraiser signature, the date signed by the appraiser, and the appraiser declaration described in paragraphs (a)(3)(v) and (a)(3)(vi) of this section and §§1.170A-16(d)(3)(iii) and (d)(4), and the donor had no knowledge that the signature, date, or declaration was false when the appraisal and Form 8283 were signed by the appraiser.

(11) Partial interest. If the contributed property is a partial interest, the appraisal must be of the partial interest.

(b) Qualified appraiser --(1) Definition. For purposes of section 170(f)(11) and §§1.170A-16(d)(1)(ii) and 1.170A-16(e)(1)(ii), the term qualified appraiser means an individual with verifiable education and experience in valuing the relevant type of property for which the appraisal is performed (as described in paragraphs (b)(2) through (b)(4) of this section).

(2) Education and experience in valuing relevant type of property. (i) In general. An individual is treated as having education and experience in valuing the relevant type of property within the meaning of paragraph (b)(1) of this section if, as of the date the individual signs the appraisal, the individual has --

(A) Successfully completed (for example, received a passing grade on a final examination) professional or college-level coursework (as described in paragraph (b)(2)(ii) of this section) in valuing the relevant type of property (as described in paragraph (b)(3) of this section), and has two or more years of experience in valuing the relevant type of property (as described in paragraph (b)(3) of this section); or

(B) Earned a recognized appraisal designation (as described in paragraph (b)(2)(iii) of this section) for the relevant type of property (as described in paragraph (b)(3) of this section).

(ii) Coursework must be obtained from professional or college-level educational institution, appraisal organization, or employer educational program. For purposes of paragraph (b)(2)(i)(A) of this section, the coursework must be obtained from --

(A) A professional or college-level educational organization described in section 170(b)(1)(A)(ii);

(B) A generally recognized professional appraisal organization that regularly offers educational programs in the principles of valuation; or

(C) An employer as part of an employee apprenticeship or educational program substantially similar to the educational programs described in paragraphs (b)(2)(ii)(A) and (B) of this section.

(iii) Recognized appraisal designation defined. A recognized appraisal designation means a designation awarded by a recognized professional appraiser organization on the basis of demonstrated competency. For example, an appraiser who has earned a designation similar to the Member of the Appraisal Institute (MAI), Senior Residential Appraiser (SRA), Senior Real Estate Appraiser (SREA), or Senior Real Property Appraiser (SRPA) membership designation has earned a recognized appraisal designation.

(3) Relevant type of property defined --(i) In general. The relevant type of property means the category of property customary in the appraisal field for an appraiser to value.

(ii) Examples. The following examples illustrate the rule of paragraph (b)(3)(i) of this section:

Example (1). Coursework in valuing relevant type of property. There are very few professional-level courses offered in widget appraising, and it is customary in the appraisal field for personal property appraisers to appraise widgets. Appraiser A has successfully completed professional-level coursework in valuing personal property generally but has completed no coursework in valuing widgets. The coursework completed by Appraiser A is for the relevant type of property under paragraphs (b)(2)(i) and (b)(3)(i) of this section.

Example (2). Experience in valuing relevant type of property. It is customary for professional antique appraisers to appraise antique widgets. Appraiser A has 2 years of experience in valuing antiques generally and is asked to appraise an antique widget. Appraiser A has obtained experience in valuing the relevant type of property under paragraphs (b)(2)(i) and (b)(3)(i) of this section.

Example (3). No experience in valuing relevant type of property. It is not customary for professional antique appraisers to appraise new widgets. Appraiser A has experience in appraising antiques generally but no experience in appraising new widgets. Appraiser A is asked to appraise a new widget. Appraiser A does not have experience in valuing the relevant type of property under paragraphs (b)(2)(i) and (b)(3)(i) of this section.

(4) Verifiable. For purposes of paragraph (b)(1) of this section, education and experience in valuing the relevant type of property are verifiable if the appraiser specifies in the appraisal the appraiser's education and experience in valuing the relevant type of property (as described in paragraphs (b)(2) and (b)(3) of this section), and the appraiser makes a declaration in the appraisal that, because of the appraiser's education and experience described in this paragraph (b)(4), the appraiser is qualified to make appraisals of the relevant type of property being valued.

(5) Individuals who are not qualified appraisers. The following individuals cannot be qualified appraisers for the appraised property:

(i) An individual who receives a fee prohibited by paragraph (a)(8) of this section.

(ii) The donor of the property.

(iii) A party to the transaction in which the donor acquired the property (for example, the individual who sold, exchanged, or gave the property to the donor, or any individual who acted as an agent for the transferor or for the donor for the sale, exchange, or gift), unless the property is contributed within 2 months of the date of acquisition and its appraised value does not exceed its acquisition price.

(iv) The donee of the property.

(v) Any individual who is either --

(A) Related (within the meaning of section 267(b)) to, or an employee of, any of the individuals described in paragraphs (b)(5)(ii), (b)(5)(iii), or (b)(5)(iv) of this section, or married to an individual who is in a relationship described in section 267(b) with any of the foregoing individuals; or

(B) An independent contractor who is regularly used as an appraiser by any of the individuals described in paragraphs (b)(5)(ii), (b)(5)(iii), or (b)(5)(iv) of this section, and who does not perform a majority of his or her appraisals for others during the taxable year.

(vi) An individual who is prohibited from practicing before the Internal Revenue Service by the Secretary under 31 U.S.C. section 330(c) at any time during the 3-year period ending on the date the appraisal is signed by the individual.

(c) Effective/applicability date. This section applies to contributions made after the date these regulations are published as final regulations in the Federal Register.

Par. 7. Section 1.170A-18 is added to read as follows:

§1.170A-18 Contributions of clothing and household items --(a) In general. Except as provided in paragraph (b) of this section, no deduction is allowed under section 170(a) for a contribution of clothing or a household item (as described in paragraph (c) of this section) unless --

(1) The item is in good used condition or better at the time of the contribution; and

(2) The donor meets the substantiation requirements of §1.170A-16.

(b) Certain contributions of clothing or household items with claimed value of more than $500. The rule described in paragraph (a)(1) of this section does not apply to a contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed, if the donor submits with the return on which the deduction is claimed a qualified appraisal (as defined in §1.170A-17(a)(1)) of the property prepared by a qualified appraiser (as defined in §1.170A-17(b)(1)) and a completed Form 8283 (Section B) (as described in §1.170A-16(d)(3)).

(c) Definition of household items. For purposes of section 170(f)(16) and this section, the term household items includes furniture, furnishings, electronics, appliances, linens, and other similar items. Food, paintings, antiques, and other objects of art, jewelry, gems, and collections are not household items.

(d) Effective/applicability date. This section applies to contributions made after the date these regulations are published as final regulations in the Federal Register.
Acting Deputy Commissioner for Services and Enforcement.

Sherri L. Brown

[FR Doc. 2008-17953 Filed 08/06/2008 at 8:45 am; Publication Date: 08/07/2008]


--------------------


IRS News Release IR-2008-138 , December 9, 2008.




Charitable contributions: Year-end donations: Tips. --
The IRS has reminded taxpayers that several law changes affecting charitable donation have significant tax ramifications. Specifically, the IRS addressed the ability to continue to make donations from individual retirement accounts (IRAs), the requirement that household goods and clothing need to be in good used condition and that such requirement is waived in cases where a qualified appraisal is attached, and the requirements to be able to deduct cash contributions. The IRS also provided several information sources to assist taxpayers in determining the deductibility of their contributions. Back references: ¶11,620.6803, ¶11,700.10 and ¶11,700.50.



WASHINGTON --Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.

One provision offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. There are also rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.



Special Charitable Contributions for Certain IRA Owners

An IRA owner, age 70 1/2 or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Transferred amounts are counted in determining whether the owner has met the IRA's required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.



Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.



Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
 Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn't paid until next year. Also, checks count for 2008 as long as they are mailed this year.

 Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under "Search for Charities." In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.

 For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2008 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.

 For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity's unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.

 The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor's tax return.

 If the amount of a taxpayer's deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

For additional information on charitable giving:
 Visit IRS.gov and click on "Charities & Non-Profits."

 See IRS Publication 526, Charitable Contributions.

 Review the on-line mini-course, Can I Deduct My Charitable Contributions?


IRS Offers Tips on Year-End Charitable Donations (IR-2008-128)
The IRS has reminded taxpayers that several law changes affecting charitable donation have significant tax ramifications. Specifically, the IRS addressed the ability to continue to make donations from individual retirement accounts (IRAs), the requirement that household goods and clothing need to be in good used condition and that such requirement is waived in cases where a qualified appraisal is attached, and the requirements to be able to deduct cash contributions. The IRS also provided several information sources to assist taxpayers in determining the deductibility of their contributions.

The Pension Protection Act of 2006 (P.L. 109-280) amended the Internal Revenue Code to allow taxpayers over age 701/2 to donate up to $100,000 directly from their IRA to a qualified charity. Although the contribution was not tax deductible, the distribution to the charity was not included in income and counted towards any required minimum distribution. The IRS reminds taxpayers that this tax-favorable provision has been extended through 2009. This ability to donate directly from a retirement account to a charity is does not include distributions made from employer-sponsored retirement plans which include SIMPLE IRAs and simplified employee pension (SEP) plans. For more information, taxpayers are directed to IRS Publication 590, Individual Retirement Arrangements (IRAs).

Eligible charities do not include donor-advised funds or supporting organizations. Taxpayers are encourage to consult IRS Publication 78, which lists eligible charities.

The IRS also reminds people that household goods and clothing must be in good used condition in order for their fair market value to be deductible.

CCH Comment. The IRS has yet to define the term "good used condition." Taxpayers who make several donation of clothing and household goods would be well advised to take a digital photograph and keep the memory card with their tax records as insurance in the event of an audit.

All taxpayers are reminded that any charitable donation of money, no matter how small, must be substantiated with a written communication showing the name of the charitable organization, the date of the donation and the amount of the contribution.

The following additional tips were included to help individuals with their holiday-season and year-end giving:

--Contributions are only deductible in the year they are made.

--Donors should make sure that a charitable organization is qualified by checking IRS Publication 78.

--Individuals may only claim charitable contributions if they file Schedule A, Itemized Deduction.

--Motor vehicle donations are limited to the amount of the gross proceeds from their sale.

--All noncash donation in excess of $500 must have a properly completed Form 8283 attached to the return to be deductible.

IR-2008-138, 2008FED ¶46,685


[Full Text --Notice 2000-24]




I. PURPOSE

This notice provides guidance to help charitable organizations comply with the information reporting requirements imposed by the Ticket to Work and Work Incentives Improvement Act of 1999, Pub. L. No. 106-170 (Dec. 17, 1999) ("Act"). The reporting requirements apply to charitable organizations that pay premiums after February 8, 1999, in connection with certain life insurance, annuity, and endowment contracts.



II. BACKGROUND



a. Overview.

Section 537 of the Act added §170(f)(10) to the Internal Revenue Code. Section 170(f)(10)(A) provides that, in two circumstances, no charitable contribution deduction is allowed under §170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for any transfer to, or for the use of, an organization described in §170(c) or a charitable remainder trust described in §664(d) (such an organization or trust is referred to herein as a "charitable organization"). No charitable contribution deduction is allowed if, in connection with the transfer, (1) the charitable organization directly or indirectly pays, or has previously paid, any premium on a personal benefit contract with respect to the transferor, or (2) there is an understanding or expectation that any person will directly or indirectly pay any premium on a personal benefit contract with respect to the transferor.



b. Personal Benefit Contract.

In general, §170(f)(10)(B) defines a "personal benefit contract" as any life insurance, annuity, or endowment contract that benefits, directly or indirectly, the transferor, a member of the transferor's family, or any other person designated by the transferor (other than an organization described in §170(c)). Under §170(f)(10)(D), a person receiving payments under a charitable gift annuity (as defined in §501(m)) funded by an annuity contract purchased by a charitable organization is not treated as an indirect beneficiary of a personal benefit contract if the timing and amount of the payments under the annuity contract are substantially the same as the charitable organization's obligations under the charitable gift annuity. For this exception to apply, the charitable organization must possess all the inci dents of ownership and be entitled to all the payments under the annuity contract.



III. REPORTING AND EXCISE TAX REQUIREMENTS

Section 170(f)(10)(F) requires any charitable organization that pays premiums on a personal benefit contract in connection with a transfer for which a deduction is not allowed under §170(f)(10)(A) to pay an excise tax and to report certain information related to the premium payments.



a. Form 4720 --Excise Tax Return

Section 170(f)(10)(F)(i) imposes on a charitable organization an excise tax equal to the premiums paid by the organization after December 17, 1999, on any personal benefit contract, if the payment of premiums is in connection with a transfer for which a deduction is not allowed under §170(f)(10)(A). For purposes of this excise tax, §170(f)(10)(F)(ii) provides that premium payments made by any other person pursuant to an understanding or expectation described in §170(f)(10)(A) are treated as made by the charitable organization.

A charitable organization liable for excise taxes under §170(f)(10)(F)(i), must file a return on Form 4720, Return of Certain Excise Tax on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code, to report and pay the taxes due. The charitable organization must include the amount of the §170(f)(10)(F) tax on line 8 of Part I and should write in the amount of the §170(f)(10)(F) tax, preceded by "Sec 170(f)(10)(F)" on the dotted line to the left of the entry space for line 8 of the 1999 Form 4720. The Service will revise Form 4720 for taxable years beginning after December 31, 1999.

Some charitable organizations may not yet be aware of this new excise tax requirement. Therefore, this Notice extends the due dates for the 1999 Form 4720 only with respect to the §170(f)(10)(F) tax as follows. For a taxable year beginning prior to January 1, 2000, a charitable organization liable for the §170(f)(10)(F) tax must report and pay that tax on a Form 4720 filed by the later of July 24, 2000 or the regular due date specified in §53.6071-1 of the Procedure and Administration Regulations. For a charitable organization, other than a charitable remainder trust described in §664(d), the regular due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's taxable year. For a charitable remainder trust, the regular due date for filing Form 4720 occurs on the fifteenth day of the fourth month following the close of the trust's tax year. Charitable organizations that are required to report items other than the §170(f)(10)(F) tax must report those items on a 1999 Form 4720 filed by the regular due date. A charitable organization may request an extension of time to file Form 4720 by filing Form 2758, Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns, on or before the due date of the return.

If a 1999 Form 4720 reporting the §170(f)(10)(F) tax is filed and the tax is paid by the later of July 24, 2000 or the regular due date specified in §53.6071-1, the Service will not assess penalties under §6651 for failure to file a tax return or to pay the tax required under §170(f)(10)(F). The law does not, however, permit the Service to waive the interest due under §6601. Section 6601 requires that taxpayers pay interest from the last date prescribed for payment of the tax (determined without regard to any extension of time for payment) to the date the taxes are paid.



b. Form 8870 --Information Return Required By §170(f)(10)(F)(iii)

Section 170(f)(10)(F)(iii) requires charitable organizations to report annually (1) the amount of premiums paid during the year which are subject to the tax under §170(f)(10)(F) (to be determined in the case of premiums paid after February 8, 1999 and before December 18, 1999 as if the excise tax applied to premiums paid during that period); (2) the name and taxpayer identification number ("TIN") of each beneficiary under each contract to which the premiums relate; and (3) any other information the Secretary may require. Section 170(f)(10)(F)(iii) makes returns required by §170(f)(10)(F)(iii) subject to the penalties applicable to returns filed under §6033.

The Internal Revenue Service expects to issue a new form, Form 8870, Information Return for Transfers Associated with Personal Benefit Contracts (Under section 170(f)(10)), for reporting the information required by §170(f)(10)(F)(iii). For a taxable year beginning prior to January 1, 2000, a charitable organization that paid any such premiums during the taxable year must file Form 8870 by the later of 90 days after the date of the Service's announcement in the Internal Revenue Bulletin of the availability of Form 8870, or the date the charitable organization is required to file its annual information return under §1.6033-2(e) or §53.6071-1(c), as applicable. The Service expects to publish the announcement by May 15, 2000. Section 1.6033-2(e) requires a charitable organization, other than a charitable remainder trust described in §664(d), to file its annual information return by the fifteenth day of the fifth month following the close of the charitable organization's taxable year. Section 53.6071-1(c) requires a charitable remainder trust to file its annual information return by the fifteenth day of the fourth month following the close of the trust's taxable year. A charitable organization, including a charitable remainder trust, may obtain an extension of time to file Form 8870 by filing Form 2758 on or before the due date of the return, stating on line 4 of Form 2758 that it is requesting an extension to file Form 8870 pursuant to this notice. For any taxable year beginning after December 31, 1999, Form 8870 will be due on the date the charitable organization is required to file its annual information return.



c. Forms 990, 990-PF, and 5227 --Information Returns By Charitable Organizations

Section 6033 requires most charitable organizations to file annual information returns with the Service. Generally, an organization described in §170(c) files either Form 990, Return of Organization Exempt From Income Tax, or Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation. The regulations under §6011 require a split-interest trust described in §4947(a)(2), including a charitable remainder trust described in §664(d), to file Form 5227, Split-Interest Trust Information Return. Form 5227 is used by a split-interest trust to report its financial activities and whether it is subject to excise taxes under Chapter 42 of the Code. The Service will revise Forms 990, 990-PF, and 5227 for taxable years beginning after December 31, 1999, to add questions relating to charitable split-dollar insurance arrangements described in §170(f)(10)(F).

Notice 2000-24, 2000-1 CB 952.

The IRS has announced the release of two new publications on car donations: IRS Publication 4302, "A Charity's Guide to Car Donations," and IRS Publication 4303, "A Donor's Guide to Car Donations." Charities are reminded that in addition to filing their annual information return (Forms 990), they may be required to complete the appraisal summary portion of Form 8283, Noncash Charitable Contributions, for contributions for which the claimed deduction exceeds $5000. Charities required to sign Form 8283, must file Form 8282, Donee Information Return, if the car is sold or disposed of within two years of receipt. Charities are also encouraged to provide written acknowledgement of contributions of $250 or more, which is required for donors to claim a deduction. Finally, charities that provide goods or services in exchange for donations over $75, must donors with a written quid pro quo statement.

IRS News Release IR-2004-84, June 29, 2004.





For comment on any of the above or any other technical questions, continue to send e-mails to ab@irstaxattorney.com.