Charitable Planning and Philanthropy Flashcards

Under IRC Section 170(b)(1)(C), a donor's income tax deduction for a gift of long-term capital gain property to a public charity is limited to what percentage of adjusted gross income (AGI)?

Answer: 30% of AGI, with a 5-year carryforward for excess amounts

IRC Section 170(b)(1)(C) limits the deduction for gifts of long-term capital gain property to public charities to 30% of the donor's AGI, with a 5-year carryforward for excess contributions.

The IRC Section 7520 rate is used in charitable planning primarily to:

Answer: Calculate the present value of charitable and non-charitable interests in split-interest trusts

The Section 7520 rate (120% of the applicable federal midterm rate, published monthly) is used to calculate the actuarial present value of income and remainder interests in split-interest trusts such as CRTs and CLTs.

A Qualified Charitable Distribution (QCD) from an IRA is advantageous for eligible donors age 70½ or older primarily because:

Answer: It excludes the transferred amount from gross income, reducing AGI even for non-itemizers

A QCD excludes up to $105,000 (indexed for inflation) transferred directly from an IRA to a qualified charity from gross income, reducing AGI and potentially lowering Medicare premiums and Social Security benefit taxation.

When a Charitable Remainder Trust sells appreciated stock contributed by the donor, what is the correct federal income tax treatment of the resulting capital gains?

Answer: Capital gains accumulate in the trust and are distributed to beneficiaries under the income tier system as payments are made

The tax-exempt CRT pays no capital gains tax on the sale; instead, gains accumulate and are characterized under the four-tier system (ordinary income, capital gains, other income, corpus) as distributions flow to beneficiaries.

Under IRC Section 170, the AGI limitation for cash contributions to public charities is currently:

Answer: 60% of the donor's AGI

The Tax Cuts and Jobs Act of 2017 permanently increased the AGI limitation for cash gifts to public charities from 50% to 60%, with a 5-year carryforward available for contributions exceeding the annual limit.

Under the 'worst-in, first-out' tier system for Charitable Remainder Trusts, in what order are distributions characterized for income tax purposes?

Answer: Ordinary income first, then capital gains, then tax-exempt income, then return of corpus

CRT distributions follow a worst-in, first-out ordering: ordinary income (most taxable) is distributed first, followed by capital gains, then other income including tax-exempt income, and finally return of corpus.

A donor contributes a painting worth $50,000 (cost basis $10,000) to a museum that will display it publicly. What income tax deduction is the donor entitled to claim?

Answer: $50,000 (full fair market value), because the related use rule is satisfied when a museum displays donated artwork

Under the related use rule, when tangible personal property is donated to a charity that uses it in a manner related to its exempt purpose — such as a museum displaying donated artwork — the donor may deduct the full fair market value.