The Tax Law of Charitable Giving. Bruce R. Hopkins

permission from a county to sell their development rights with respect to the underlying property.²⁵⁷

Further still, a donor of a façade easement was not allowed a charitable deduction for a fee paid to the donee public charity because it was cast by the trial court as a quid pro quo payment; the return benefit was said to be the value of the assistance provided by the donee to the donor in facilitation of the contribution.²⁵⁸ This decision was reversed, with the appellate court holding that the charity did not provide the donor with anything of value in return for her money gift.²⁵⁹ The court saw the cash gift as an endowment of the maintenance of the easement, with the two gifts constituting an “unrequited contribution.”²⁶⁰ The court said that the donor's desire to obtain tax deductions for her gifts did not involve anything provided by the donee. As the court stated, if the “motivation to receive a tax benefit deprived a gift of its charitable nature . . . , virtually no charitable gifts would be deductible.”²⁶¹

By contrast, when the payor has a choice or an election to make, a payment to a charitable organization can constitute a charitable gift. Thus, when a charitable organization required participants in a group insurance plan to assign dividends to it as a condition of continued participation in the plan, the payments were held to be nondeductible.²⁶² Subsequently, however, the plan terms were amended to make refund of the dividends an easy-to-exercise option; the IRS ruled that the payments to the charitable organization under the revised circumstances were deductible as charitable gifts.²⁶³

In analogous circumstances, credit card holders voluntarily elected to contribute rebates generated by their credit card purchases to charitable organizations. The IRS ruled that the payments were deductible as charitable gifts.²⁶⁴ Likewise, when a “sponsorship gift” was requested, but not required, in connection with admission to an exempt retirement home, the payment was considered to be a deductible charitable gift.²⁶⁵

The Supreme Court observed that a payment proceeding from the “constraining force of a moral or legal duty” is not a charitable gift.²⁶⁶ This principle was applied by a court in concluding that a portion of the amount paid to an educational society was in the nature of fees for tuition in connection with education of the payors' children, and thus was not a charitable contribution.²⁶⁷

§ 2.2 DEFINITION OF DONOR

A donor is a person who makes a gift. A donor obviously can make a gift (or contribution) to a charitable organization. A donor may or may not obtain a contribution deduction as the result of a charitable gift. Many factors can operate to determine this outcome.²⁶⁸

In a somewhat similar situation, a nonprofit development corporation was the fee simple owner of two buildings. A partnership was a long-term lessee of the buildings. These two entities collectively transferred a façade easement to a qualified charitable organization. The partnership claimed a $4.5 million charitable contribution deduction. The partnership (quite correctly) contended that the Internal Revenue Code does not explicitly require that a donor of an easement own the underlying real property. The U.S. Tax Court ruled that the partnership had only a leasehold interest for a term of years, which under state law is personal property.²⁶⁹ That is, the partnership did not have a fee interest in the property. Thus, the in-perpetuity requirement, imposed in connection with gifts of easements,²⁷⁰ could not be satisfied because only the owner of real property or holder of a fee interest is able to grant a perpetual conservation restriction. The court stated that, being a “time-limited lessee,” the partnership is “incapable” of making a contribution protected in perpetuity.²⁷¹ The court wrote that the partnership, as lessee, “does not have the power to impose perpetual restrictions on property in which it does not have an absolute right.”²⁷² The matter came down to this: the partnership “cannot give what it does not have.”²⁷³

This presumably is obvious but, in the case of a contribution, the donor must be the person who actually makes it. As an illustration of this point (which rarely arises), the parents of a deceased child established a scholarship fund as a memorial to the child; it is structured as an irrevocable trust. The trust was funded with life insurance proceeds; it made scholarship grants out of the trust's investment income. This couple did not include the investment income of the trust in their gross income; they, however, claimed the scholarship payments as charitable contributions deductions. These deductions were, of course, denied.²⁷⁴

There are several types of donors, that is, several categories of persons who can make contributions to charitable organizations. They are individuals, C corporations,²⁷⁵ S corporations,²⁷⁶ partnerships,²⁷⁷ limited liability companies,²⁷⁸ trusts,²⁷⁹ and estates.²⁸⁰

Organizations that are pass-through entities are not entitled to charitable contribution deductions. The deductions are instead passed through to the shareholders, partners, or members of the organization.²⁸¹

A charitable contribution may be effected through the efforts of an agent acting for the donor.²⁸² For this to occur, the principal must be the party who bears the economic burden of the charitable contributions involved. For example, an individual, the chief executive officer of a company, was allowed to deduct charitable contributions made by the company because he reimbursed the company for the amount of the gifts, although another “circular flow of funds” resulted in the company bearing the economic burden of gifts so that the individual's corresponding deductions were disallowed.²⁸³

§ 2.3 DEFINITION OF CHARITABLE ORGANIZATION

At the simplest definitional level, a charitable contribution is a gift to a charitable organization.²⁸⁴ Having explored the concept of a gift, it is appropriate to consider the meaning of the term charitable for purposes of the law of charitable giving.

(a)