1. With regard to income limitations on deductible giving, all of the following property is treated similarly EXCEPT for
a) Ordinary income property
b) Short term capital gains
c) Inventory
d) Cash
e) Long-term capital gains
2. What is the income limit for deductible giving of long-term capital gain property to a public charity deducted at current fair market value
a) 50%
b) 30%
c) 20%
d) 10%
e) Either 30% or 50%
3. If I make a "special election" to increase the income percentage limit for long-term capital gain property gifts made to charity, what must I give up?
a) I must give up the ability to deduct my cost basis
b) I must give up the ability to deduct my appreciation
c) I must give up the ability to deduct my depreciation
d) I must give up the ability to deduct my long-term capital gain property gifts
e) I must give up the ability to deduct my ordinary income gifts
4. What is the income limit for deductible giving for long-term capital gain property given to a private foundation by a C-corporation?
a) 50%
b) 30%
c) 20%
d) 10%
e) Either 30% or 50% depending on the special election choice
5. Examples of property given "for the use of" charity thereby triggering a 30% income giving limitation includes the following
a) Both paying premiums to a life insurance company for a charity owned policy AND putting money into a Charitable Lead Trust
b) Both putting money into a Charitable Remainder Trust AND putting money into a charitable gift annuity
c) Both paying premiums to a life insurance company for a charity owned policy AND paying money to a charity with the instruction that the charity use the money to pay premiums on a charity owned policy
d) Loaning a charity $10,000 which you expect to be repaid without interest
e) Giving an automobile to a charity which its employees will drive while carrying out charitable efforts
6. An example of "related use" of a personal property item would be
a) Giving an automobile to a charity which its employees will drive while carrying out charitable efforts
b) Giving a famous modern art painting to a modern art museum which the museum then immediately trades with another museum in order to acquire two modern art sculptures
c) Giving a new guitar to the local public television station to be sold in the annual benefit auction
d) Giving farmland to an orphanage on which they immediately build a new orphanage
e) Giving cash to a charity which it uses to buy supplies
7. Which of the following is a gift subject to the 20% income limitation on deductible giving?
a) A gift of an item of appreciated personal property owned over 1 year for "related use" by a private non-operating foundation
b) A gift of an item of appreciated personal property owned over 1 year NOT for "related use" by a private non-operating foundation
c) A gift of appreciated publicly-traded stock (long-term capital gain) where less than 10% of the company is transferred to a private non-operating foundation
d) A gift of appreciated publicly-traded stock (long-term capital gain) of more than 10% of the company given to a private non-operating foundation
e) All of the above
8. A donor has carryover deductions from cash gifts made to public charities in both 2008 and 2009 and makes additional cash charitable gifts to public charities in 2010. In what order will these deductions and carryover deductions be used for a tax return in the 2010 tax year?
a) 1st-2008 gifts, 2nd-2009 gifts, 3rd-2010 gifts
b) 1st-2010 gifts, 2nd-2008 gifts, 3rd-2009 gifts
c) 1st-2010 gifts, 2nd-2009 gifts, 3rd-2008 gifts
d) 1st-2009 gifts, 2nd-2008 gifts, 3rd-2010 gifts
e) 1st-2008 gifts, 2nd-2010 gifts, 3rd-2009 gifts
9. Sam has an AGI of $100,000 and makes a gift of $30,000 of appreciated capital gain property to a public charity that he deducts at the fair market value of the property and a gift of $20,000 of appreciated capital gain property to a private (non-operating) foundation that he deducts at the fair market value of the property. Which of the following income limit categories are exceeded, if any?
a) The income limitation applicable to all gifts
b) The income limitation applicable to gifts of all capital gain property except "special election" property
c) The income limitation applicable to all gifts to private (non-operating) foundations
d) The income limitation applicable to gifts of capital gain property to private (non-operating) foundations
e) No gift limits are exceeded
10. Sam has an AGI of $100,000 and makes a gift of $10,000 of appreciated capital gain property to a public charity that he deducts at the fair market value of the property, a gift of $20,000 of capital gain property to a private (non-operating) foundation that he deducts at the fair market value of the property, a gift of $10,000 of cash to a private (non-operating) foundation, and a gift of $10,000 cash to a public charity. Which of the following income limit categories are exceeded, if any?
a) The income limitation applicable to all gifts
b) The income limitation applicable to gifts of all capital gain property except "special election" property
c) The income limitation applicable to all gifts to private (non-operating) foundations
d) The income limitation applicable to gifts of capital gain property to private (non-operating) foundations
e) No gift limits are exceeded
11. Sam has an AGI of $100,000 and makes a gift of $10,000 of capital gain property to a public charity that he deducts at the fair market value of the property, a gift of $20,000 of capital gain property to a private (non-operating) foundation that he deducts at the fair market value of the property, a gift of $10,000 of cash to a private (non-operating) foundation, and a gift of $20,000 cash to a public charity. Which of the following income limit categories are exceeded?
a) The income limitation applicable to all gifts
b) The income limitation applicable to gifts of all capital gain property except "special election" property
c) The income limitation applicable to all gifts to private (non-operating) foundations
d) The income limitation applicable to gifts of capital gain property to private (non-operating) foundations
e) No gift limits are exceeded
12. Sam has an AGI of $100,000 and makes a gift of $55,000 of capital gain property to a private (non-operating) foundation. Which of the following income limit categories are exceeded?
a) The income limitation applicable to all gifts
b) The income limitation applicable to gifts of all capital gain property except "special election" property
c) The income limitation applicable to all gifts to private (non-operating) foundations
d) The income limitation applicable to gifts of capital gain property to private (non-operating) foundations
e) All of the above gift limits are exceeded
13. Which of the following types of gifts would be deducted first (i.e., carried over last), if the total gifts for the year exceed the limitations?
a) cash to a public charity
b) long-term capital gain property to a public charity (without special election)
c) cash to a private (non-operating) foundation
d) long-term capital gain property to a private (non-operating) foundation
e) short-term capital gain property to a private (non-operating) foundation
Answers
1/ Answer: E. Explanation: Income limitations differ depending on the type of property and the type of charitable recipient. In general, ordinary income property, cash, short-term capital gains, and inventory are all treated similarly. Usually less favorable treatment (i.e., lower percentage limitations) is given to long-term capital gains.
2/ Answer: B. Explanation: The full 50% limit is not available because this is long-term capital gain property valued at fair market value, which is somewhat disfavored as compared with cash or ordinary income property. However, because the gift is given to a public charity instead of a private non-operating foundation, the limit stays at the next highest level, which is 30%
3/ Answer: B. Explanation: A donor making a gift of long-term capital gain property to a public charity normally has an income limit of 30% for current year deductibility of charitable gifts. However, the donor may choose to elect the 50% limit for all such property during a year. Using such election requires the donor to deduct the lower of basis (typically the cost of the item) or fair market value. If the property has appreciated, i.e., if it is worth more than the donor originally paid for it, then the donor can deduct only the basis, but not the new, higher fair market value. Thus, the appreciation occurring since the donor acquired the property cannot be deducted if the donor chooses this special election.
4/ Answer: D. Explanation: This is a bit of a trick question as C-Corporations are always limited to 10% of their net income for deductible charitable gifts. This applies regardless of the type of property or charitable recipient. The differences based on property type and charitable recipient apply to individual taxpayers, but not to C-Corporations.
5/ Answer: A. Explanation: Examples of gifts "for the use of" charity are premiums paid to a life insurance company and money given to a Charitable Lead Trust. Note that, in both cases, the immediate recipient (the Charitable Lead Trust or the insurance company) is NOT a charitable entity, but is merely holding assets some of which will be used to benefit the charity. (Note that application of this rule for premium payments made to a life insurance company on charity owned life insurance is not completely settled law.)
6/ Answer: A. Explanation: Related use personal property is property that the charity actually uses in the conduct of its operations. This does not apply to personal property that is simply sold, rather than being used, with the proceeds from the sale being used in the conduct of the operations. Farmland is not personal property.
7/ Answer: E. Explanation: Gifts to private non-operating foundations of either long-term capital gain property or personal property are subject to the 20% income limitation on deductible giving. Only cash, ordinary income, short-term capital gains, and inventory are subject to the 30% limit when given to a private non-operating foundation.
8/ Answer: B. Explanation: Current year gifts are always counted before any carryover gifts are considered. After current year gifts are counted, then any gifts still being carried over from previous years are counted with the oldest gifts being counted first.
9/ Answer: B. Explanation: There are four relevant income percentage gift limitations. 1. No more than 50% for all gifts of any type. 2. No more than 30% for all gifts of capital gain property except "special election" capital gain property. 3. No more than 30% for all gifts to private (non-operating) foundations (and any "for the use of" public charities gifts through insurance premium payments or Charitable Lead Trusts). 4. No more than 20% for capital gain property given to private non-operating foundations. Any gifts causing the donor to fail any one of the tests will be carried forward to future years.
In this case, all gifts total $50,000, which is not more than 50%. However all capital gain property totals $50,000, which is more than the 30% limit for all gifts of capital gain property except "special election" capital gain property. We know this is not "special election" capital gain property because it is appreciated property being deducted at fair market value and special election property limits the deduction to basis. (Because the property has appreciated, the fair market value is higher than the cost basis.) The total of all giving to private (non-operating) foundations is $20,000, which is less than the relevant 30% limit. The total giving of capital gain property to private (non-operating) foundations is $20,000, which is no more than the 20% limit.
10/ Answer: E. Explanation: There are four relevant income percentage gift limitations. 1. No more than 50% for all gifts of any type. 2. No more than 30% for all gifts of capital gain property except "special election" capital gain property. 3. No more than 30% for all gifts to private (non-operating) foundations (and any "for the use of" public charities gifts through insurance premium payments or Charitable Lead Trusts). 4. No more than 20% for capital gain property given to private non-operating foundations. Any gifts causing the donor to fail any one of the tests will be carried forward to future years.
In this case, all gifts total $50,000, which is not more than 50%. All capital gain property totals $30,000, which is not more than the 30% limit for all gifts of capital gain property except "special election" capital gain property. The total of all giving to private (non-operating) foundations is $30,000, which is not more than the relevant 30% limit. The total giving of capital gain property to private (non-operating) foundations is $20,000, which is no more than the 20% limit. Therefore, no gift limits are exceeded.
11/ Answer: A. Explanation: There are four relevant income percentage gift limitations. 1. No more than 50% for all gifts of any type. 2. No more than 30% for all gifts of capital gain property except "special election" capital gain property. 3. No more than 30% for all gifts to private (non-operating) foundations (and any "for the use of" public charities gifts through insurance premium payments or Charitable Lead Trusts). 4. No more than 20% for capital gain property given to private non-operating foundations. Any gifts causing the donor to fail any one of the tests will be carried forward to future years.
In this case, all gifts total $60,000, which is more than the 50% limitation applicable to all gifts, violating that limitation. All capital gain property totals $30,000, which is no more than the 30% limit for all gifts of capital gain property except "special election" capital gain property. The total of all giving to private (non-operating) foundations is $30,000, which is not more than the relevant 30% limit. The total giving of capital gain property to private (non-operating) foundations is $20,000, which is no more than the 20% limit. Therefore, only the first gift limit is exceeded.
12/ Answer: E. Explanation: In this case, all gifts total $55,000, which is more than the 50% limitation applicable to all gifts, violating that limitation. All capital gain property totals $55,000, which is more than the 30% limit for all gifts of capital gain property except "special election" capital gain property. (The special election cannot be used for gifts to private non-operating foundations, so it is not relevant for this question.) The total of all giving to private (non-operating) foundations is $55,000, which is more than the relevant 30% limit. The total giving of capital gain property to private (non-operating) foundations is $55,000, which is more than the 20% limit. Therefore, all four of the gift limits are exceeded.
13/ Answer: A. Explanation: In this case, more favored gifts are counted first. Gifts of cash (or inventory, ordinary income property, or short-term capital gains) are favored as compared with gifts of long-term capital gain. Additionally gifts to public charities are favored over gifts to private (non-operating) foundations. The most favored gift is thus a cash gift to a public charity.