Friday, April 12, 2013
IRS Advises Lawmakers that Payments Received by Members of Charitable Class from Charitable Organization May Be Excludible Gifts
Tax Notes Today reports that the Internal Revenue Service’s Office of Associate Chief Counsel (Branch 5), in letters addressed to Senator Mark Udall, Congressman Ed Perlmutter, and Senator Michael F. Bennet, has advised that payments received by individuals from a charitable fund “may constitute gifts that are excludible from the recipients' gross income.” According to the letters, a tax-exempt charitable foundation had created a fund to “provide a vehicle for donors to assist the victims and their families.” The letter does not disclose precisely what event rendered the payees victims, but I can speculate that they were victims of a natural disaster. The fund arose from donations from the public. Citing the “test” for a gift under Duberstein v. Commissioner, 363 U.S. 278 (1960) (i.e., whether a payment proceeds from "detached and disinterested generosity"), the IRS explained that payments from the fund had been made “in response to the victims' and their families' needs and not out of any moral or legal duty that the Foundation or any particular donor may have had.” Under such circumstances, noted the IRS, the payments “will be excludible from the recipients' gross income as gifts.”
I am intrigued that the letters focus not simply on the intent of the charitable foundation, but also on that of donors to the foundation. If the “gift” is deemed to have been made to the victims by the foundation – meaning that the foundation is not a mere conduit – why does the intent of individual donors to the foundation matter for purposes of determining the tax consequences of transfers to the individual victims from the foundation? If the foundation is not a mere conduit, the foundation is the "donor" of funds transferred to the victims. As such, only the foundation's intent should be scrutinized under Duberstein.
The letters are available at 2013 TNT 71-22.