flag-usaIs a contribution to the U.S. government tax deductible?

In a recent opinion, the IRS determined that a person who wished to make a gift to the Treasury Department of the United States government, in order to specifically have the funds reduce the national debt, qualified for a deductible charitable contribution. A gift for the government must be for public purposes exclusively, which includes the reduction of the public debt.

As with all charitable contributions, any gift over $250 requires that a written acknowledgement from the donee be received by the donor, including the amount of the gift, a statement whether any goods or services were received, as well as an estimate of the value of the goods or services provided. Naturally, if the gift is merely a cash gift, without any services provided, then the full amount of the gift should be a charitable deduction.

Can one maintain strings on their gifts?

When a person makes a gift, normally in a trust or other manner, it is an outright transfer that qualifies for a charitable deduction. However, if a person makes a gift and allows someone else, normally a family member, to veto a charitable bequest or to determine the amount passing to the charity, then the gift will not be considered to be a charitable deduction, as the value is not ascertainable as of the date of death.

A decedent, however, may designate the assets passing to a charity while gifting a family member the right to designate which charitable entity may receive the gift. Since the funds are not passing through the family member, but rather, are being transferred directly from the donor to the charity, a charitable deduction is normally allowed.

A donor, upon their death, may also give a family member the right to disclaim a gift. With a disclaimer, it is basically a renunciation of the funds, and upon renunciation, if those funds pass to the charity, then the estate also obtains a charitable deduction from the estate for that amount. Normally, a disclaimer must be filed within nine months from date of death or the interest vesting in the proposed beneficiary.

In some cases, it may be advisable to have funds left to family members with a contingent beneficiary being a charity. If the beneficiary disclaims and the funds pass to charity, then that amount may be used to reduce the estate for estate tax purposes and possibly reduce or eliminate any estate tax.

Does a gift to a person qualify for a deduction?

A question was posed to the Internal Revenue Service from a congressman on behalf of a constituent. The question regarded the possible deduction of a gift to his church scholarship fund, wherein the donor had proposed that the gift to the fund was to be used specifically for college expenses of the minister’s daughter. While a gift to a charity that is approved as a non-profit entity by the IRS is usually deductible, this gift, which was designated for a specific person, became a restricted gift and was not a contribution that could be deducted on their tax return.

If the church fund receiving the assets was in the position of making the decision as to whom would get the money, then it probably would have qualified as a charitable deduction, but in this case, the church did not have full control over the gift or the discretion as to how to use the funds.

As with all issues that are in the “gray” area, it is always best to check with your tax advisor or attorney to determine the proper method of making a gift and the hopeful deductibility and tax benefit of the gift.