1. Which of the following are completed deductible gifts?
a) Donor delivers money or property to a charity with a limitation that it must be spent on a particular person specified by the donor
b) Donor delivers valuable property to a charity, but keeps retained interests that are not specifically allowed by statute
c) Donor gives money or property to the donor's agent with instructions to deliver the money or property to the charity
d) Donor promises to deliver money or property to the charity in 3 days
e) Donor delivers money or property to an agent representing the charity, but the agent will not actually transfer the money or property to the charity for another 30 days
2. In which of the following circumstances will the IRS permit an organization to deduct a charitable gift that is made after the close of the tax year?
a) A C-corporation, s-corporation, or partnership passes a resolution authorizing the giving during the tax year, and then gifts within three months of the close of the tax year
b) A C-corporation, using cash accounting, passes a resolution authorizing the giving during the tax year and then gifts within two months of the close of the tax year
c) A C-corporation, using accrual accounting, passes a resolution six days after the close of the tax year authorizing charitable giving that is then carried out the following day
d) A C-corporation using accrual accounting, passes a resolution authorizing the giving during the tax year, and then gifts within two and one-half months of the close of the tax year
e) A C-corporation makes a gift 48 hours after the close of the tax year although no board resolution is involved
3. On which day was the gift completed for tax purposes?
a) Day 1: I put cash into an envelope addressed to a charity
b) Day 2: I put the envelope with proper postage in the U.S. mail
c) Day 4: The cash arrives at the charity
d) Day 5: The charity deposits the cash in its bank account
e) There was no charitable gift
4. On which day was the gift completed for tax purposes?
a) Day 1: I write a check to a charity
b) Day 2: I put the check in the post office mailbox with proper address and postage
c) Day 3: The charity receives the check
d) Day 5: The charity's bank receives the funds and the charity is credited with the funds
e) There was no deductible charitable gift
5. On which day was the gift completed for tax purposes?
a) Day 1: I write a check to a charity
b) Day 2: I put the check in the post office mailbox with proper address and postage
c) Day 3: The charity receives the check
d) Day 5: The charity's bank receives notice of insufficient funds and the check is not honored
e) There was no deductible charitable gift
6. On which day was the gift completed for tax purposes?
a) Dec 26: I put a check, post-dated for January 1, in the post office mailbox with proper address and postage
b) Dec 31: The charity receives the check
c) Jan 1: Nothing happens
d) Jan 2: The charity deposits the check and is credited with the funds
e) There was no deductible charitable gift
7. On which day was the gift completed for tax purposes?
a) Dec 25: I sign a promise to donate to charity prior to the end of the year
b) Dec 31: I make a donation by credit card and the charity is credited with the funds
c) Jan 20: I receive a credit card statement noting the donation
d) Jan 30: I pay my credit card bill in full
e) There was no deductible charitable gift
8. On which day was the gift completed for tax purposes?
a) Day 1: I earn $20 in rebates from my credit card company
b) Day 2: I click online on my credit card company website to donate those rebates to a charity
c) Day 9: The credit card company mails a check to the charity
d) Day 10: The charity receives a check from the credit card company
e) There was no deductible charitable gift
9. On which day was the gift completed for tax purposes?
a) Dec. 1: I sign a legally enforceable contract (a pledge) to give $100,000 to the charity on August 1
b) Dec. 5: The charity books this as an asset in their general ledger
c) Dec. 10: The charity sells the rights to this pledge to an accounts receivable purchasing agency for $90,000
d) Dec. 11: The charity spends the $90,000
e) Aug. 1: I pay the $100,000 pledge to the charity
10. I give land worth $1 million to a public charity and retain a two year option to repurchase the land for $700,000. How much can I deduct today?
a) $0
b) $500,000
c) $1.5 Million
d) $2 Million
e) Only the rental value
11. I give land worth $2 million to a public charity and retain a two year option to repurchase for $500,000. After the option expires, how much can I deduct?
a) $0
b) $500,000
c) $1.5 Million
d) $2 Million
e) Only the rental value
12. Which of the following restrictions on a gift to a university will make the gift non-deductible?
a) The university must use these funds for football scholarships
b) The university must use these funds for a scholarship limited to female, international graduate students studying English literature
c) The university must use these funds for to pay the tuition for Sarah P. Student, a person unrelated to the donor
d) The university must use these funds to purchase a pipe organ for the music department
e) None of the restrictions will make the gift non-deductible.
13. Jonathan donates $500 to a local bank for a family who lost their house in a mud slide. Feeling bad for the family, Jonathan also spends three full days (i.e., 8 hours per day) volunteering for the Red Cross, which is taking the lead on restoring their house. How much can Jonathan deduct for charitable donations? Jonathan's wage rate is $10 per hour, and he spent $25 on reasonable expenditures while donating his services.
a) $0
b) $25
c) $240
d) $500
e) $765
Answers
1/Answer: E. Explanation: The gift is completed when the donor delivers money or valuable property to the charity or the charity's agent. The time delay imposed by the charity's agent is irrelevant as the gift is completed upon delivery to the charity's agent. However, delivery to the donor's agent does not make a completed gift, only delivery to the charity's agent. Also, promises to give are not completed gifts until the delivery actually occurs. Gifts where the donor retains an interest in the property are generally not allowed, unless they fall into one of the exceptions such as an undivided share in all rights of the donor in the property or a gift of a remainder interest in a farm or home. A gift with a restriction that it must be used for one particular person is not deductible.
2/Answer: D. Explanation: This exception applies only to C-corporations on an accrual basis and the resolution authorizing the future giving must be passed in the year of the deduction.
3/Answer: B. Explanation: A gift is complete when money is delivered to a charity or the charity's agent. The post office is considered to be the agent of the charity. When it receives a properly addressed and stamped letter, then the charity's agent has received it and the gift is complete.
4/ Answer: B. Explanation: A valid check is considered to be a valuable negotiable instrument even before it is converted into cash. As such when the charity or charity's agent receives the check, the gift has been completed. In this case, the post office is considered to be the agent of the charity. When the post office receives a properly addressed and stamped letter containing a valid check, then the charity's agent has received a valuable negotiable instrument and the gift is complete.
5/ Answer: E. Explanation: An invalid check was never money or valuable property. Therefore at no time was money or valuable property given to the charity or the charity's agent. As such, there was no deductible charitable gift.
6/ Answer: C. Explanation: A post-dated check is the equivalent of a promise to pay money in the future (specifically on the check's date). As such, it is treated like any other promise to pay money to the charity, meaning that there is no gift prior to the date on the check. However, at the point the check reaches its stated date, it becomes like any other valid check and is a valuable negotiable instrument at that point. Thus, on January 1, the valid check becomes a valuable negotiable instrument, and as the charity has already received the check, the gift is complete.
7/ Answer: B. Explanation: The charity received the funds on Dec. 31, and thus that is the date of the gift. The legitimate source of the money for the gift, whether from wages, borrowings, or gifts from another person, is irrelevant to the date of the completed gift. Thus, whatever date the debt related to a gift is paid (or even if it isn't) is irrelevant to the timing of the completed gift, which is the date on which the charity receives the funds.
8/ Answer: C. Explanation: When I click online to instruct the credit card company to make the donation, I am directing my agent (the credit card company) to make a gift. However, the gift is not completed until it is received by an agent OF THE CHARITY. Here the post office is treated as an agent of the charity, and thus the gift is completed on day 9.
9/ Answer: E. Explanation: A promise to pay a gift is not a completed gift until money or property is actually received by the charity or the charity's agent. It does not matter if the promise is legally enforceable; it is still a promise. The ability to sell the contractually guaranteed promise to a collection agency does not change the character of the contract as a promise, which generates no completed gift unless and until the promise is actually fulfilled.
10/ Answer: A. Explanation: A gift with a retained interest is not deductible unless it falls into one of the specific statutory exceptions such as a Charitable Remainder Trust, a Charitable Lead Trust, an undivided interest in all property interests owned by the donor, or a remainder interest in a home or farm. Thus, in this case the transfer generates no current tax deduction because of the donor's retention of the rights to repurchase.
11/ Answer: D. Explanation: The gift is not completed until the donor releases his or her retained interest. This occurs when the option expires. At that point, the gift is complete and the donor may deduct the value of the land.
12/ Answer: C. Explanation: Although the gift has been given to the university, one of the restrictions requires that it be spent on an individual person. Limiting the gift to be spent by the charity on one particular person makes the gift non-deductible. It is permissible, however, to restrict the gift to benefit a particular type, class, or group of people such as football players or female, international graduate students. Further, the gift may be restricted to purchase a specific kind of asset without any damage to the deductibility of the gift (so long as the charity accepts the gift with the restriction).
13/ Answer: B. Explanation: Volunteering time is not a deductible gift. (This makes sense, because the net result on income is similar to when a person was paid and then gives the payment to a charity.) Donations that are restricted to a particular individual are not deductible. However, money spent on reasonable expenditures while serving on behalf of a charity can be deducted.