STEP Charitable Planning & Philanthropy 3

Question 1

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?

Accepted Answer

1.39%

Answer

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.

Question 2

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

Accepted Answer

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

Answer

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).

Question 3

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

Accepted 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

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Charitable Planning & Philanthropy 3