Imagine this scenario: An elderly individual tells you of her intention to make a gift to your organization on Thursday, December 26, 2002, and calls a courier service to pick up her check and deliver it to you. The courier service picks up the check that afternoon and attempts to deliver it on Friday, December 27. However, as your office is closed for the New Year’s holiday the courier does not actually deliver the check until Thursday, January 2, 2003.When was the gift completed for tax purposes? The answer to this and similar questions can have important ramifications during the busy year-end giving season.
In general, gifts are deemed to be complete for tax purposes on the date they are actually delivered to the charity. However, the rules vary depending upon the asset and type of transfer involved.
- Cash gifts: Gifts of cash or checks may be considered complete upon delivery to the charity or its representative. They are also complete for tax purposes on the date mailed, even if the check or cash is not received until the following calendar year. The so-called “mailbox rule” for completing gifts applies to the U.S. mail, delivered in the due course of mail. This rule does not, however, apply to delivery via couriers or non-governmental mail and package delivery services. Such services are deemed to be agents of the donor and the gift could theoretically be “recalled” at any time prior to actual delivery. For that reason, in the example above, the donor would have been better advised to mail her check rather than take the risk it would not be delivered by her courier before the end of the year.
- Gifts of credit: Charitable contributions made by credit card are also deductible as an itemized deduction in the year the credit charge is made, even if it is not paid until the next year. That is because the donor has incurred a legal obligation to make the payment in the year the gift is made.
Pledges, on the other hand, are only deductible when actually paid. This is the case even if the donor supplies an IOU or promissory note. Certain types of “letters of credit,” which may be drawn upon at any time, are completed gifts on the date they are mailed or delivered to the charity. Check with appropriate counsel for more details.
- Gifts of real estate: Such gifts are completed at the time a properly executed deed is delivered to the charity. As a practical matter, the deed should be recorded as soon as possible.
- Gifts of personal property: Generally, gifts of personal property are complete upon delivery, but you may also wish to obtain a “letter of deed or gift” from the donor to document the transfer.
- Gifts of securities: The time of completion of a gift of securities varies depending on the form in which the stock or bond is held. If the donor has physical possession of the security, the gift is complete upon the delivery of a properly endorsed certificate to the charity or its agent. Most charities prefer to have an unendorsed stock certificate and a properly completed stock power. For security purposes, these documents should be mailed separately. Such a gift may be completed by mail and is complete on the date of the postmark of the later envelope.
If the stock is held in “street name” in a brokerage account, the gift is completed upon the transfer from the donor’s account to that of the charity. The securities should not be sold in the donor’s account with the proceeds then transferred to charity because the donor could as a result incur capital gains tax consequences.
If the certificate is delivered to the corporation or to a brokerage account to be reissued in the charity’s name, the gift is not complete until the stock is actually transferred on the corporation’s ledger.
Try to allow extra time for gifts of mutual funds as the details of transfer vary from fund to fund.
When contemplating any gift of securities, be sure to obtain the assistance of your financial services advisor.
Remember too that gifts other than cash or publicly traded securities greater than $5,000 ($10,000 in the case of closely held stock) must be substantiated by obtaining a qualified appraisal and fully completing a form 8283. The value of a gift of publicly traded stock is the average between the high and low on the date of the gift. This value may be obtained from your broker or numerous Web sites, such as www.wsj.com.
Now may be an excellent time to review your policies and procedures for handling gifts to make sure your year-end giving season runs smoothly this December. Planning gifts can take some time, so it’s never too early to start making sure your donors are properly informed.
