Let’s Look at Some Key IRS Rulings, Part 5

We want now to look at some IRS rulings on pledges (Read Part 4 here). These rulings are important, as will become obvious. First, though, some background on pledges.

  • A pledge is a promise to make a gift or gifts. A promise to do something else, such as to make and keep in force a specified will provision, may be a good and valuable promise, but it isn’t a pledge.
  • A pledge is either enforceable against the donor or the donor’s estate or unenforceable. Enforceability depends on the law of the state that governs the pledge (enforceability varies from state to state). Enforceability has nothing to do with whether the charity would ever sue to enforce a pledge; it’s a matter of law, not policy.

Remember these points.

In Letter Ruling 8230156, an individual proposed paying an enforceable pledge with appreciated property (perhaps appreciated stock). The individual wanted assurance from the IRS that the payment wouldn’t cause him or her to realize capital gain. The individual was concerned because if one pays off a debt with appreciated property, one does realize capital gain (the debtor is deemed to sell the property). IRS ruled no gain would be realized, because according to the IRS an enforceable pledge isn’t a debt for federal income tax purposes.

That’s important and pretty interesting. It clears the way to do what many donors do—satisfy enforceable pledges with appreciated securities. It’s not end of the story on paying enforceable pledges, however, as we’ll see down the road when we consider the use of charitable remainder trusts and charitable lead trusts to pay such pledges.

We’ll dig deeper next time. Meantime, if you have a question about pledges, check with your Sharpe Group representative.

by Jon Tidd, Esq

Read Part 6 here.

Let’s Look at Some Key IRS Rulings, Part 4

Before we leave our discussion of third-party buyers (buyers-in-the-wings), we need to look at one more IRS ruling, a private ruling from 1994 (LTR 9452026).

Read Part 1 here.

Read Part 2 here.

Read Part 3 here.

This is a good one. The facts are that an individual proposed transferring both securities and a valuable musical instrument to a charitable remainder annuity trust (CRAT). The individual wanted assurance from the IRS that if and when the CRAT sold the musical instrument, which was highly appreciated, he (the individual donor) wouldn’t be considered to have sold the instrument.

Why is this a good one? Because as a practical matter, the trustee of the CRAT is going to want to sell the musical instrument in order to meet the CRAT’s payout obligation. The trustee, however, was under no legal obligation to sell.

Given these facts, IRS ruled that the individual donor would not be deemed to sell the musical instrument when the instrument was sold by the CRAT. Meaning the donor wouldn’t realize any gain on the sale.

What we see here is important. The IRS is drawing a distinction between a legal obligation to sell and a clearly anticipated future sale. Anticipated not because the CRAT agreement requires the trustee to sell but because the trustee naturally is going to want to sell. (I understand the musical instrument was a Stradivarius violin, and the eventual buyer was a symphony orchestra.)

This ruling represents graduate-level gift planning. Such planning involves [a] attention to detail and [b] knowing where the IRS has drawn lines in the sand. As to detail, note that securities were transferred to the CRAT in addition to the musical instrument.

These were publicly traded securities—liquid assets. The securities bought the CRAT trustee time. Time to arrange for an orderly sale, time to avoid the need for a quick sale, of the musical instrument. This was a very good bit of fine tuning. It facilitated the IRS’s ruling the way it did.

Next time, we’ll switch gears and begin to look at some IRS rulings on pledges.

by Jon Tidd, Esq

Read Part 5 here.

The Finish Line: Tax Law Update 12/22/17

Contrary to some news reports this week predicting a delay in the signing of the Tax Cuts and Jobs Act of 2017, President Trump officially signed the bill into law today. See “Trump Signs Tax Bill Into Law” from The Hill.

Now what?

Sharpe Group’s new white paper details how the new tax law will impact charitable giving. Click here to download.

We have a library of donor communication tools that are being updated with the latest tax law. Now may be a good time to refresh your Sharpe library. More info coming soon.

In addition, Sharpe Group experts are producing a new 16-page booklet with all the information your donors need to know. “Your Guide to Effective Giving After Tax Reform” will be available for orders in the coming weeks. We’ll post a preview of the content soon.

Our next Gift Planning Seminar is coming up January 22-23, 2018 in Memphis, TN. Get a first look at the impact of the new tax law on major and planned gifts at “Integrating Major and Planned Gifts”. Click here for more information and to register.

Check back here for updates on the availability of donor communication tools.

Are We There Yet? Tax Law Update 12/21/17

The hotly debated tax law has now been passed by Congress. It will be sent to the President’s desk to be signed. There is currently some discussion on when exactly President Trump will sign the bill. It has been expected that he would sign it before Christmas. However, some reports now say he may wait until the start of the new year for strategic budget reasons.

As with the entire tax reform process, it’ll be another “Stay tuned” moment. At the end of this post are a couple of articles which explain the possible delay in signing.

Click here to download our new white paper for our analysis on how the new tax law will impact charitable giving. In addition, this article from wealthmanagement.com has a helpful visual for what is in the tax law.

No Tax Cuts for Christmas? Trump Might Delay Bill Signing” (CBS News)

It Is Unclear When Trump Will Actually Sign the Bill” (Bloomberg Politics)


The Bottom of the Ninth: Tax Law Update 12/19/17

President Trump has promised Americans tax reform for Christmas. And, so far, it seems it’ll be a gift he can deliver. As of this posting, GOP leaders believe they have the votes in the Senate and House to pass the tax bill, which underwent a number of significant changes. Click here to download our new white paper detailing the bill expected to be passed and how nonprofits might help donors navigate the complicated waters.

So, what’s next?

Again, as of this posting (the process has taken more twists than an episode of Law & Order), it appears the House is on track to pass the bill today (Tuesday, December 19). From there, the bill will be sent to the Senate for voting on Wednesday, December 20. If it passes the Senate, it will go to President Trump’s desk to be signed, which he is expected to do by the end of this week.

Update 12/19/17, 1:40 p.m.- the House just voted to pass the tax bill: https://www.house.gov/. The bill will now go to the Senate for vote. They could vote on it as early as tonight and, if passed, send to President Trump tomorrow.

Update 12/19/17, 3:50 p.m. – House must vote for tax bill again. http://thehill.com/blogs/floor-action/house/365670-house-will-have-to-vote-for-tax-cut-bill-again. Passage by Senate now not expected until Wednesday. 

Update 12/20/17, 8:00 a.m. – Senate voted last night to pass the tax bill. http://abcnews.go.com/Politics/republicans-expected-pass-tax-reform-measure/story?id=51870650. Bill goes back to House for second vote today.

Update 12/20/17, 10:25 a.m. – House is voting on tax bill now.  http://houselive.gov/ 

Update 12/20/17, 11:58 p.m. – The House has officially voted to pass the tax reform bill. It now will go to President Trump’s desk. He is expected to sign it before the end of the week.

But if there’s anything we’ve learned in 2017, it’s that nothing is sure until it happens.

We’re staying on top of all the twists and turns and will be prepared with all the information you need, as well as tools to help you communicate to your donors who to make the most of their giving in light of tax reform, including the white paper linked above and a booklet to send to donors (coming soon).

Stay tuned, and in the meantime, here are some good articles you might explore for more details.

What’s In – and Out of – the Final Republican Tax Bill” (The Atlantic)

GOP on Precipice of Major End-of-Year Tax Victory” (The Hill)

This Week: Congress Braces for Tax and Spending Showdown” (The Hill)

Let’s Look at Some Key IRS Rulings, Part 3

Read Part 1 here.

Read Part 2 here.

So far, we’ve seen that a buyer-in-the-wings isn’t per se risky for the donor. More precisely, we’ve seen that as long as the donor hasn’t had dealings with a third party that allow the third party, on the date of gift, to compel the donee organization to sell the donated asset, everything’s OK.

But that’s not the end of the story. We’ve got to look at two federal appeals court decisions to round out the big picture.

The first is the Blake case, a Second Circuit decision. On the surface, Blake seems unrelated to the buyer-in-the-wings discussion. But upon digging, one finds that Blake stands for this principle:

If Donor gives closely held stock to Charity, and everyone anticipates Charity will sell the stock back to Donor’s corporation, and Charity provides goods or services (such as a gift annuity) to Donor in exchange for the gift, Donor is going to be considered as selling the stock when Charity sells the stock. And that will stick Donor with a taxable gain.

Blake is a narrow decision. The second case we need to consider has a much broader scope. It’s the Ferguson case, a Ninth Circuit decision.

The Fergusons gave stock to Charity. The stock was in a corporation subject to a cash takeover bid. On the date of the gift, the takeover was not a done deal legally. But the Court found the deal was done for all practical purposes. Moreover, a few days after the gift was made, the deal became done legally. The principle of the Ferguson case is this:

If stock in a corporation subject to a cash takeover bid is given to charity, the donor will face gain on the takeover if at the time the gift is made the “realities” are that the takeover is a done deal.

Stay tuned.

By Jon Tidd, Esq


Read Part 4 here. 

Let’s Look at Some Key IRS Rulings, Part 2

Last time, we looked at Rev. Rul. 78-197, which sets the modern stage for all buyer-in-the-wings discussions. The ruling deals with closely held stock given to charity and focuses on the charity: Is the charity free to sell the stock, or can it be compelled to sell the stock?

Subsequent private rulings and court decisions have put a sharper point on the ruling. This has been done by extending the application of the ruling to other kinds of gift situations and other kinds of assets. Here is a sampling of those rulings and cases:

  • Donor proposes to give real estate to charity over several years by donating fractional interests in the real estate annually. Charity, on its own, agrees with Buyer that Buyer will purchase each donated fractional interest. Charity gets Donor to sign an enforceable pledge agreement to make the donations. A court, relying on Rev. Rul. 78-197, says “no problem.”
  • Donor transfers a valuable musical instrument and some marketable stock to a charitable remainder annuity trust. All parties anticipate that the trustee of the CRAT will sell the musical instrument (to an orchestra), but the trustee will be free to sell or not sell. IRS rules privately, “no problem.”
  • Donor proposes giving stock to Charity. Third party has an option to buy the stock upon giving 30 days’ notice to the owner of the stock. Donor represents to IRS that no such notice will have been given when the gift is made. IRS rules, “no problem.”

There are some important limits on the reach of Rev. Rul. 78-197. We’ll begin to look at these limits next time. Click here to read part 3.

By Jon Tidd, Esq

Tax Law Update 12/04/17

After the Senate Finance Committee voted on party lines last week, the Tax Reform Act moved to the full Senate for consideration. Following debate on Thursday and Friday, the Senate voted early Saturday morning on their version of the tax legislation which is similar, but not identical, to the House version, which was passed earlier in the month.

Both versions of the legislation will now go to conference to reconcile the differences and should then face a House and Senate vote on the passage of a uniform tax package.

The legislative procedure should be completed prior to the winter recess on December 15 in order to be sent to the President to either veto or vote into law.

Keep watching for updates, including information on the amendments made to the bill. In the meantime, here are a few articles currently circulating in the media which can give you more details.

Senate Passes Tax Overhaul, Securing Major GOP Victory” (The Hill)

Senate Tax Bill Keeps Johnson Amendment Intact” (The NonProfit Times)

Newman’s Own Tax Break: Why the GOP Bill has a Carveout for One Celebrity Charity” (Politico)

Tax Bill Clears Senate Budget Committee” (The Hill)

Dow Jones Gains 300 Points on Tax Reform Confidence, Hits 24,000 Mark” (NBC News)


By Barlow Mann

Tax Reform Update 11/10/17


The Senate GOP tax reform bill was unveiled on 11/09/17. Here is what we know today.

Click here for the Associated Press’s initial announcement on 11/09.

Click here for the summary of the Senate’s bill.

Click here for a summary of the House bill.

Here are a few articles that offer various perspectives on the Senate plan and how it differs from the House Plan.

What does this mean?

The Alliance for Charitable Reform has released very concise summaries of the House and Senate proposals and their impact on nonprofits. We believe it is IMPORTANT to read the section entitled “JCT Analysis.”

Here is an important excerpt from that section:

“The [Joint Tax Committee] memo confirmed two things. First, the number of those who will itemize will be greatly reduced, which was also a finding in a study released earlier this year by Indiana University’s (IU) Lilly School of Philanthropy; and second, charitable deductions will fall by $95 billion, or 40 percent, under the current House tax reform bill. To clarify, this does not mean that charitable giving will fall by $95 billion, only that the amount being claimed as a charitable deduction will fall. It confirms the ramifications for the charitable sector that comes with greatly reducing the number of those who will itemize.

In terms of actual charitable giving lost, the IU study found that as a stand-alone provision, increasing the standard deduction would reduce giving by $11 billion.”

How much is $11 billion? Remember that 1 billion is equal to 1,000 million. A reduction in giving of $11 billion amounts to 11,000 million dollars. To put that in perspective, it would mean the complete loss of funding for 11,000 hypothetical organizations raising $1 million dollars each. That is a tremendous loss when individual giving is just now returning to pre-recession levels in real terms. The time for organized lobbying has now largely passed. According to Sandra Swirski, Executive Director of Alliance for Charitable Reform, “It is IMPERATIVE at this point that legislators hear from their constituencies.”

In our opinion, we should be encouraging legislators to add an above the line “Universal Deduction.” This would go a long way toward reversing the current path of both bills that would result in taxing funds given to charity by the vast majority of donors.

By Robert Sharpe

Tax Reform Update 11/08/17

The GOP Tax Reform Bill appears to be moving along as scheduled at this time. It is now in the process of being marked up by members of the House of Representatives. You can follow that process by clicking here.

The overall goal is for the House to pass a bill this month and then send it to the Senate for consideration in early December. If the Senate and House can agree on terms, the President has indicated that he would like to sign the Tax Cuts and Jobs Act into law by Christmas, with most of the changes outlined in the plan to take effect in 2018.

Here are a few links with some basic info on the major aspects of the bill:

Media outlets from all over the spectrum are weighing in on various benefits and consequences of the current language of the bill.

And the Washington Post has an update on the Senate’s take on tax reform. Click here to read that story.

If you would like to read more details of the bill click here to view recent publications from the Joint Committee on Taxation regarding the “Tax Cuts and Jobs Act” (H.R.1). Click here to read “Deep Dive Into the Tax Cuts and Jobs Act – Part 1” by wealthmanagement.com.

Much remains to be seen about what the final bill will hold and when it might become law. Check back here for more updates.

by Barlow Mann