Sunday, August 19, 2012

Section 170 Charitable Contributions

What is a Charitable Contribution under § 170?

§ 170 - Taxpayers get an itemized deduction for contributions to charitable organizations. This occurs below the line, so taxpayers have to decide to take standard deduction or not. What is a charitable organization is important?

What is a charitable gift under §170?   

No services or “Donated Rent."  Property is OK. If a taxpayer gives appreciated property, the IRC looks very favorable on that.  Regulation § 1.170A-1(g): No deduction is allowed under § 170 for a contribution of services. POLICY: Reflects the commonsense notion that one should not be treated as giving away what one was never treated as possessing. Also, similar to lines of imputed income arguments.

One rationale for the deduction is simply to encourage tax-payers to support charitable organizations.  Therefore, Congress will not need to fund this sector by allocating funds. However, this rationale is troubling for a few reasons. Some of the organizations Congress might not want to support.  Richer people tend to get more benefit from charitable deductions because they are the ones enjoying some of the services and because it is below the line deduction that they can take advantage of easier. Not even clear if the deduction causes increased giving. Another rationale is that the charitable gift is seen as reducing the consumption opportunities of the donating taxpayer by the amount of the charitable gift.

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