Tax Reform Update 11/02/17

The bill has been released. Here are a few helpful links with the bill and some more information, plus a video of a panel discussion about tax reform including Robert Sharpe and Sandra Swirski at The Philanthropy Roundtable Annual Meeting last week.

House Republicans Unveil Sweeping Plan to Slash Tax Rates” via The Hill

READ: The Republican Tax Plan” via CNN

Tracking Taxes: Live Coverage of the GOP Tax Bill” via Wall Street Journal

Done Deal on Taxes” via Politico

“House Releases Sweeping Plan to Cut Taxes” via Politico

GOP Tax Overhaul Plan at a Glance” via Fox News

Click here to view The Philanthropy Roundtable Annual Meeting tax reform discussion with Robert Sharpe.

Let’s Look at Some Key IRS Rulings, Part 1

The first is a bedrock ruling from 1978, Revenue Ruling (Rev. Rul.) 78-197. This ruling deals with the situation in which an individual gives closely held stock to a charity, and the donor’s corporation subsequently redeems (buys back) the stock.

In a terse ruling, the IRS said that the buy-back won’t be considered as a redemption of stock from the donor, which would stick the donor with dividend income, so long as when the gift is made the charity isn’t obligated and can’t be compelled to sell the stock back to the donor’s corporation.

This ruling represents a white flag on the IRS’s part, given that the IRS had lost a string of 1970s court cases involving this fact pattern. In those cases, it was apparent the donor’s corporation was going to offer to redeem the donated stock from the charity. It was also clear the charity would accept the offer. The key thing is that the charity was in fact free to accept or reject the corporation’s offer to redeem.

In essence, this ruling says the IRS won’t attempt to connect the dots if the charity itself is free to choose whether to connect the dots.

Rev. Rul. 78-197 has the force of law and may be relied upon by all taxpayers. It has spawned a number of private rulings (PLRs), which can’t be relied upon by taxpayers generally, but which make plain the IRS’s position on connecting the dots.

One PLR from the 1980s, for example, shows how willing the IRS has been to expand the application of Rev. Rul. 78-197. In this PLR, the donor planned to give closely held stock to a charity. All the players anticipated, but merely anticipated, that the charity would sell the donated stock to donor’s family member for fair market value. The IRS said, no problem, given that the charity would be free to sell or not sell.

We’ll pick up this buyer-in-the-wings thread next time. Click here to read Part 2.

By Jon Tidd, Esq

Tax Reform Update 10/26/17

There’s been a little movement in the tax reform bill. The House of Representatives passed the Senate’s 2018 budget, in effect moving tax reform forward. In addition, the House Ways and Means Committee has announced that tax reform debate will begin on November 6.

Here are two articles from “The Hill” with more details about these developments:

House Adopts Senate Budget, Takes Step Toward Tax Reform

Brady Announces Tax Bill Markup for Nov. 6

What Makes Up the Tax Law?

This is an important matter, because it goes to what can be relied upon in trying to answer certain gift planning questions.

The bedrock tax law is the Internal Revenue Code (IRC), which has passed both congressional houses and been signed into law by the president. (The Constitution speaks even more fundamentally to certain tax issues but operates largely in the background of the tax arena.)

The IRC is a series of broad strokes. Congress leaves the details to the Internal Revenue Service (IRS), whose job is to interpret, administer and enforce the IRC. The IRS’s interpretation of the IRC is found in various pronouncements:

  • The Regulations are the principal pronouncement. Here, for example, we find certain date-of-gift rules for charitable gifts and copious detail on charitable remainder trusts (CRTs). The Regulations have the force of law and are presumed to be correct.
  • Other IRC pronouncements include
    • revenue rulings, which have the force of law;
    • revenue procedures, which, for example, contain specimen CRT agreements and which have the force of law;
    • various IRS Publications on a plethora of topics, such as receipt and valuation requirements for charitable gifts, which cannot be relied upon and do not have the force of law: and
    • IRS private letter rulings, which are an important source of information about charitable gift planning but which can be relied upon only by the party who obtained the ruling.

Next time, we’ll begin looking at some important IRS rulings on charitable giving.  After that, we’ll turn to the courts and look at some equally important court opinions on charitable giving.

by Jon Tidd, Esq

Tax Reform Update 09/27/17

Congress and the White House announced today the release of the outline on tax reform they promised for this week. A public press event, “Release of Unified Tax Reform Framework,” is planned for today (Wednesday, September 27, 2017) at 2:15 p.m. ET. It will be live-streamed on

The nine-page document, “Unified Framework for Fixing Our Broken Tax Code,” offers a road map for the goals of a bill aimed at retooling the American tax code.

According to the framework, the goals of a tax reform bill include lowering taxes for small businesses, de-incentivizing overseas jobs and tax breaks for the middle class. The full framework can be downloaded here.

Making the Most Generous Time of the Year Work for Your Organization

As many fundraisers know, the last three months of the year can be the most productive time period for nonprofit fundraising. This may be especially true this year. With record highs in the stock market, charitable giving up and continuing to rise, and tax reform discussions looming, it may be particularly important to encourage more gifts before December 31st this year.

Here are some Sharpe Group articles and posts we’ve shared with a treasure of information on why year-end fundraising is so important and some strategies and tools for making this a banner year for gifts to your organization.

“Planning Your Year-End Fundraising Calendar,” August 2017 Give & Take

“Why Year-End Is the Most Generous Time of the Year,” October 2016 Give & Take

Click here for tools for encouraging year-end giving.

Year-end is also a particularly good time of the year to encourage gifts of stock and gifts from retirement plans.

In addition, here’s an article we published in the December 2015 Give & Take that looks at some science behind charitable giving.

All of us at Sharpe Group wish you luck in your year-end fundraising. Please contact us is you have other questions about year-end or planned giving fundraising.

By Barlow T. Mann

Congressional Outline for Tax Reform Expected Soon

Sharpe Group experts will be monitoring tax reform measures and news as talks continue and legislation is prepared. We’ll be posting updates on this blog.

According to this news story from NBC News which ran on September 14, a Congressional outline should be coming around Sep 25, but legislation is not yet ready to be introduced. Click here to read the full story.

Sign up for our weekly blog for more upcoming updates.

Barlow T. Mann, Sharpe Group COO

A Gift Planning Quiz

Here’s a quiz. Answers next time.

  1. Donor uses highly appreciated stock to pay a legally enforceable pledge. Why isn’t Donor treated as selling or exchanging the stock, so that Donor realizes a capital gain?

Hint:  If an individual pays a debt by transferring appreciated stock to the creditor, the individual is treated as selling or exchanging the stock and does realize gain.

  1. Donor, the CEO of ABC Corporation, a large and publicly traded company, owns some ABC stock that is subject to sale restrictions under S.E.C. Rule 144. Can Donor give this stock to a charity?
  2. The same individual as in #2 owns incentive stock options (ISOs) that allow her to buy ABC shares from ABC at a bargain price. Can she give any of her ISOs to charity?
  3. Donor owns real estate subject to a mortgage, but Donor is not personally liable on the mortgage debt. If Donor uses the real estate to fund a charitable remainder unitrust, will the funding of the trust be treated as a bargain sale?
  4. Donor promises (pledges) to create a $1 million charitable lead annuity trust that will pay $50,000 a year to Charity for 10 years. The annual payments will be used to discharge a previous pledge running from Donor to Charity for which Donor’s name was placed on a room. Will this arrangement violate the self-dealing prohibition?

Note:  If you get this one right you get an A+ on the quiz.

  1. Extra credit: Donor wants to create a sizable gift annuity at Charity for the express purpose of paying for a table at Charity’s upcoming gala dinner. Any tax problems here?

Join us next time for the answers to this quiz and see how you scored.

by Jon Tidd, Esq

How Do Bargain Sales Work?

A bargain sale is a sale to charity at a bargain price. The classic example is a sale of real estate to a charity at a price below fair market value (FMV).

Or supposedly below FMV. Charities need to be cautious when offered real estate at a supposed bargain price, unless the charity wants the real estate for its own purposes. Cautious because the “donor” may be inflating the property’s value or trying to offload a problem. These concerns usually vanish when the charity wants the property to further its mission.

In a true bargain sale (i.e., a sale truly at a bargain price), there are two tax consequences to the donor-seller: [1] the ability to claim a charitable deduction for the bargain element in the sale; and [2] the realization of gain if the asset in question has appreciated in value. Here’s an explanation of how the numbers work:

Concept: Assume we know:  FMV, the donor’s basis in the asset (B), and the selling price (SP).

The bargain element in the sale, for which the donor-seller may claim a charitable deduction, is FMV – SP.

The gain realized by the donor-seller is given by this formula:

Gain realized = (SP/FMV) x (FMV – B)

Example:  Assume FMV = $500,000; B = $300,000; and SP = $250,000. Donor-seller may claim a federal income tax charitable deduction (subject to all the usual limitations and valuation requirements) of $500,000 – $250,000, or $250,000.

Donor-seller realizes a gain equal to:

($250,000/$500,000) x ($500,000 – $300,000)

Which is equal to (1/2) x $200,000, or $100,000.

Bargain sales are relatively uncommon, except for gift annuities. A gift annuity funded with a noncash asset is a bargain sale of the asset and is treated as such, the only “twist” being that the realized gain is generally spread over the donor’s “life expectancy.”

by Jon Tidd, Esq

Let’s Take a Look at Charitable Bequest Planning, Part 3

Read Part 2 here

Charitable bequests fall into three categories:

  1. a bequest of a specific dollar amount
  2. a bequest of a portion of the donor’s residuary estate
  3. a bequest of a specific asset

The specific dollar bequest should be paid by the executor relatively early in the settling of the donor’s estate. So should the bequest of a specific asset. These two types of bequest take priority over residuary bequests and are inferior only to debts, expenses and taxes.

Residuary bequests are usually paid in installments by the executor. The final installment is often eaten into by legal and accounting fees.

What causes a delay in estate distribution? There can be any number of reasons. Some of the more common reasons are:

  • There’s a lawsuit involving the estate, which is hanging things up.
  • The executor is having difficulty disposing of a major asset, typically real estate.
  • The executor is a no-show.
  • The executor is wrangling with the charity over the terms of an endowment agreement.
  • Some asset (e.g., an IRA payable to the estate) is causing the executor to sit tight because of tax or other legal uncertainty.

Executors always want the charity the sign a receipt, release and re-funding agreement in connection with an estate distribution to the charity. These agreements are commonplace, but a charity should not agree to refund more than the charity receives from the estate.

If you have a question about your estate settlement process or would like to arrange a review, contact Sharpe Group by clicking here.

by Jon Tidd, Esq


Sharpe Group has several donor communication tools to help you inform your constituency about giving through wills, including booklets and brochures: How to Make a Will That WorksGiving Through Your WillHow to Protect Your Rights With a Will37 Things People “Know” About Wills That Aren’t Really SoQuestions & Answers About Wills and BequestsHow a Will Works for YouThe State Has Made Your Will, Has Congress Changed Your Will? and You Never Need to Change Your Will Unless …

In addition, Sharpe Group experts can tailor articles for Newsletters and Gift Planning Website clients.