Charitable Planning & Philanthropy Flashcards

Following the Taxpayer Certainty and Disaster Tax Relief Act of 2019, what flat excise tax rate applies to the net investment income of most private foundations?

Answer: 1.39%

The Act replaced the prior two-tier 2%/1% regime with a single flat rate of 1.39% on net investment income for private foundations, effective for tax years beginning after December 20, 2019.

A Private Operating Foundation differs from a standard private nonoperating foundation primarily because it:

Answer: Directly conducts its own active charitable programs rather than primarily making grants to other organizations

A private operating foundation uses substantially all of its income to actively operate its own charitable programs (e.g., a museum or research institute), satisfying asset, endowment, or support tests under IRC Section 4942(j)(3).

In designing a 'zeroed-out' Charitable Lead Annuity Trust (CLAT) for wealth transfer planning, what is the primary objective?

Answer: Set the annuity rate so the IRS Section 7520 rate causes the present value of the remainder to equal zero, eliminating taxable gift value

A zeroed-out CLAT is structured so that the present value of the charity's annuity stream equals the full funding amount under the Section 7520 rate, theoretically resulting in a zero taxable gift to remainder beneficiaries; any outperformance of the 7520 rate passes to heirs tax-free.

When a donor makes a noncash charitable contribution with a claimed value exceeding $500, the donor is generally required to:

Answer: Attach a completed IRS Form 8283 (Noncash Charitable Contributions) to their federal income tax return

IRS regulations require donors claiming noncash charitable deductions exceeding $500 to complete and attach Form 8283; a qualified appraisal is additionally required for most property valued above $5,000.

When appreciated property is sold in a bargain sale to a charity, how is the donor's taxable gain calculated?

Answer: Gain is calculated only on the sale portion, using a basis allocated proportionally between the sale proceeds and the charitable contribution portion

Under IRC Section 1011(b), in a bargain sale the donor must allocate the adjusted basis between the sale and contribution portions in proportion to the respective amounts; gain is then recognized only on the sale portion.

Under the excess business holdings rules of IRC Section 4943, what is the combined ownership limit for a private foundation and all its disqualified persons in any one business enterprise?

Answer: 20% of voting stock

Section 4943 generally prohibits a private foundation and its disqualified persons from together holding more than 20% of the voting stock (or profits interest) of any business enterprise, subject to a de minimis 2% exception.

Which characteristic best distinguishes a community foundation from other types of charitable organizations?

Answer: It manages a collection of separately named charitable funds contributed by multiple donors to benefit a defined geographic community, qualifying as a public charity

A community foundation is a publicly supported organization under IRC Section 509(a)(1) or (a)(2) that pools gifts from many donors into component funds, typically restricted to benefiting a specific city, region, or state.