The Tax Law of Charitable Giving. Bruce R. Hopkins

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The Tax Law of Charitable Giving - Bruce R. Hopkins


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3.6 CONTRIBUTIONS OF PROPERTY FOR UNRELATED USE

      Another special rule concerning calculation of the charitable deduction potentially applies when a donor makes a contribution of tangible personal property to a charitable organization.

      The special rule is: When a charitable gift of tangible personal property is made, the amount of the charitable deduction that would otherwise be determined must be reduced by the amount of gain that would have been long-term capital gain if the property contributed had been sold by the donor at its fair market value, determined at the time of the contribution, when:

       The use by the charitable donee is unrelated to the donee's tax-exempt purpose or, when the donee is a governmental unit, if the use to which the contributed property is put is for a purpose other than an exclusively public purpose,55 or

       The property is applicable property that is sold, exchanged, or otherwise disposed of by the donee before the last day of the tax year in which the contribution was made and with respect to which the donee has not made the requisite certification.56

      This rule applies:

       Irrespective of whether the donor is an individual or a corporation

       Irrespective of the tax classification of the charitable organization that is the donee (for example, public or private charity)58

       Irrespective of whether the charitable contribution is made to or for the use of a charitable organization59

       To a gift of tangible personal property prior to application of the appropriate percentage limitation(s)60

      When tangible personal property is put to a related use by the recipient charitable organization, the charitable reduction is based on the fair market value of the property (that is, there is no reduction for the capital gain element).

      The term unrelated use means a use of an item of contributed property:

       By a charitable organization that is not related to the purpose or function constituting the basis of the tax exemption for the charitable organization, or

       By a governmental unit that is for a purpose other than an exclusively public purpose.61

      If a charitable donee sells an item of tangible personal property donated to it, this deduction reduction rule is triggered, because sale of the property is not a related use of the property. Thus, donors of tangible personal property should exercise caution when contemplating a gift of the property, particularly when the donor knows the property is going to be promptly sold (such as a gift to support an auction).

       The donor establishes that the property is not in fact put to an unrelated use by the donee,63 or

       At the time of the contribution or at the time the contribution is treated as made, it is reasonable to anticipate that the property will not be put to an unrelated use by the donee.64


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