Still Another Way to Lose an Easement Contribution Deduction

• DOI: http://doi.org/10.1002/npc.30428
• Published date: 01 February 2018
• Date: 01 February 2018

Bruce R. Hopkins’ NONPROFIT COUNSEL

5

February 2018

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

fund or states that a donor or donor advisor did not

advise the distribution.

Funding of Benefit Events

Another issue under consideration is whether a

distribution from a donor-advised fund to a charitable

organization that enables a donor, donor advisor, or

related person (collectively, donor/advisor) to attend or

participate in an event results in the donor/advisor receiv-

ing a more-than-incidental benefit.

The Treasury and the IRS agree that relief of a donor/

advisor’s obligation to pay the full price of a ticket to a

charity-sponsored event, by a donor-advised fund, “can”

be considered a direct benefit to the donor/advisor that

is more than incidental. Thus, the proposed regulations

will provide that such a subsidized attendance will confer

on the donor/advisor a more-than-incidental benefit for

purposes of IRC § 4967.

The Treasury and the IRS do not agree that, for these

purposes, a distribution made by a sponsoring organiza-

tion from a donor-advised fund to a charity on the advice

of a donor/advisor should be analyzed the same as a

hypothetical, direct contribution by the donor/advisor to

the charity. A donor/advisor who wishes to receive goods

or services, such as tickets to an event, offered by a char-

ity in exchange for a contribution of a specified amount

can, it is said, make the contribution directly, without

involvement of a donor-advised fund.

It is recognized that a similar issue arises if a sponsoring

organization makes a distribution from a donor-advised

fund to a charity to pay, on behalf of a donor/advisor,

the deductible portion of a membership fee charged by

the charity, with the donor/advisor separately paying the

nondeductible portion of the fee. Consequently, it may be

anticipated that the regulations will provide that a spon-

soring organization cannot pay the deductible portion of

the membership fee without conferring more than an

incidental benefit on the donor/advisor.

It is also recognized that a distribution that results in

a more-than-incidental benefit under IRC § 4967 may

simultaneously result in an excess benefit under the

intermediate sanctions rules (IRC § 4958). The notice

states that the proposed regulations will address this

dichotomy. (It is not clear what the regulation would

add, inasmuch as the statute provides that the IRC §

4967 tax shall not be imposed if a tax has been imposed

with respect to the distribution under IRC § 4958 (IRC

§ 4967(b)).)

Pledge Satisfaction

Still another issue is whether a donor/advisor may

advise a distribution from a donor-advised fund to

satisfy a donor/advisor’s pledge to make a contribution

to a charity. The Treasury and the IRS agree that it is

difficult for sponsoring organizations to differentiate

between a legally enforceable pledge by an individual

to a third-party charity and a mere expression of chari-

table intent. They are of the view that, in the context of

donor-advised funds, the determination of whether an

individual’s charitable pledge is legally binding is best left

to the distributee charity, which has knowledge of the

facts concerning the pledge.

Thus, under consideration are proposed regulations

that would provide that distributions from a donor-

advised fund to a charity will not be considered to result

in a more-than-incidental benefit to a donor/advisor

merely because the donor/advisor has made a pledge to

the same charity, regardless of whether the charity treats

the distribution as satisfying the pledge, as long as the

sponsoring organization does not make any reference to

the existence of any individual’s pledge when making the

distribution. This will assume that the donor/advisor does

not attempt to claim a charitable contribution deduction

with respect to the distribution, even if the distributee

charity erroneously sends the donor/advisor a gift sub-

stantiation acknowledgment.

Reliance may be placed on these pledge-satisfaction

rules until additional guidance is issued.

Other Requested Comments

The Treasury and the IRS, in addition, request com-

ments with respect to the following:

• How private foundations use donor-advised funds in

support of their purposes.

• Whether a transfer of funds by a private foundation

to a donor-advised fund should be treated as a quali-

fying distribution (IRC § 4942) only if the sponsoring

organization involved agrees to distribute the funds

for charitable purposes, or transfer the funds to its

general fund, within a certain period of time.

• Any additional considerations relating to donor-

advised funds with multiple unrelated donors under

proposed changes in connection with the public

support rules.

• Methods to streamline any recordkeeping under pro-

posed changes in connection with the public support

rules. [11.8] ◆

STILL ANOTHER WAY TO LOSE

AN EASEMENT CONTRIBUTION

DEDUCTION

The US Tax Court, on December 11, held that a

claimed charitable deduction in the amount of $2.1 mil-

lion for a gift of a conservation easement is unavailable

to the donor because, although the initial donee is a

qualified organization, the easement can be replaced,

where certain conditions are met, by an easement where

its holder is not required to be a qualified organization

(Salt Point Timber, LLC v. Commissioner).