The Tax Law of Charitable Giving. Bruce R. Hopkins

Statutory protection for these contributions, if declaratory judgment is sought on the revocation action, begins on the date of publication of the revocation and ends on the date on which a court decision becomes final or court judgment is entered that the organization is not a charitable entity. This reliance, however, is not extended to any individual who was responsible, in whole or in part, for the activities or failures to act on the part of the organization that were the basis for the revocation.⁶¹⁰

§ 2.8 GRANTOR TRUST LAW

Several instances of the federal tax law concerning charitable giving require application of the grantor trust rules. These rules apply with respect to grantors and others who are treated as substantial owners of the property in the trust for tax purposes—that is, those persons who have retained substantial dominion and control over the trust.⁶¹¹ The rules tax to the grantor the income of the grantor trust; technically, the income of the trust (along with appropriate tax deductions⁶¹² and tax credits) is attributed to the grantor.⁶¹³ A grantor is a person (including a corporation⁶¹⁴) who transfers property to a trust.⁶¹⁵

There are five circumstances in which a grantor is regarded as an owner of some portion of a trust and thus is taxed on the income of the trust:⁶¹⁶

      1 A grantor is treated as the owner of any portion of a trust in which they have a reversionary interest in either the corpus of or the income from the trust if, as of the inception of that portion of the trust, the value of the interest exceeds 5 percent of the value of the portion.⁶¹⁷

      2 A grantor is treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income from it is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party.⁶¹⁸ This general rule does not apply, however, to a power to determine the beneficial enjoyment of the corpus or of the income from it if the corpus or income is irrevocably payable for a charitable purpose.⁶¹⁹ The power to choose between charitable beneficiaries or to affect the manner of their enjoyment of a beneficial interest does not cause the grantor to be treated as an owner of a portion of the trust.⁶²⁰

      3 A grantor is treated as the owner of any portion of a trust when certain administrative powers over the trust exist and the grantor can or does benefit under these powers.⁶²¹ These powers are the power to deal for less than adequate and full consideration, the power to borrow without adequate interest or security, the power to borrow trust funds, and a general power of administration.

      4 A grantor is treated as the owner of any portion of a trust if the grantor or a nonadverse party⁶²² has the power to revoke the trust or return the corpus to the grantor.⁶²³

      5 A grantor is treated as the owner of any portion of a trust if the grantor or a nonadverse party has the power to distribute income to or for the benefit of the grantor or his or her spouse.⁶²⁴

In some instances, a person other than a grantor is treated as a substantial owner of a portion of a trust.⁶²⁵ These rules also may apply with respect to foreign trusts having one or more U.S. beneficiaries.⁶²⁶

NOTES

      1 1 By contrast, most state charitable solicitation statutes contain a definition of the term gift. See Fundraising § 4.1.

      2 2 For these purposes, the terms contribution, gift, and donation are synonymous (although the word donation tends to be used where the transfer is of a small amount of money or involves property of little value). E.g., Seed v. Commissioner, 57 T.C. 265 (1971); DeJong v. Commissioner, 36 T.C. 896 (1961), aff'd, 309 F.2d 373 (9th Cir. 1962). The IRS observed that the essential elements of a gift are (1) a donor that is competent to make the gift; (2) a donee capable of accepting the gift; (3) a clear and unmistakable intention on the part of the donor to absolutely and irrevocably divest himself or herself of the title, dominion, and control of the subject matter of the gift, in praesenti; (4) the irrevocable transfer of the present legal title and of the dominion and control of the entire gift to the donee so that the donor can exercise no further act of dominion or control over it; (5) a delivery by the donor to the donee of the subject matter of the gift or of the most effectual means of commanding the dominion of it; and (6) acceptance of the gift by the donee. INFO 2005-0141, citing Well v. Commissioner, 31 B.T.A. 899 (1934).

      3 3 E.g., Channing v. United States, 4 F. Supp. 33 (D. Mass. 1933), aff'd per curiam, 67 F.2d 986 (1st Cir. 1933), cert den., 291 U.S. 686 (1934); McLaughlin v. Commissioner, 51 T.C. 233 (1968), aff'd, 69-2 U.S.T.C. ¶ 9467 (1st Cir. 1969); Ryan v. Commissioner, 28 T.C.M. (CCH) 1120 (1969); Oppewal v. Commissioner, 30 T.C.M. (CCH) 1177 (1971); Winters v. Commissioner, 30 T.C.M. (CCH) 1238 (1971); Summers v. Commissioner, 33 T.C.M. (CCH) 695 (1974); Brotman v. Commissioner, 36 T.C.M. (CCH) 279 (1977); Bass v. Commissioner, 46 T.C.M. (CCH) 1262 (1983); Whitaker v. Commissioner, 67 T.C.M. (CCH) 2408 (1994); Rev. Rul. 68-432, 1968-2 C.B. 104; Rev. Rul. 54-580, 1954-2 C.B. 97.

      4 4 See, e.g., § 20.2.

      5 5 Consideration is something being received (usually, goods and/or services) in return for a payment. When payments are made to receive something in exchange, the transaction is in the nature of a contract.

      6 6 Reg. § 1.162-15(b).

      7 7 Reg. § 1.170A-1(c)(5).

      8 8 Rev. Rul. 86-63, 1986-1 C.B. 88.

      9 9 See § 20.2.

      10 10 Commissioner v. Duberstein, 363 U.S. 278, 285 (1960), quoting from Commissioner v. LoBue, 351 U.S. 243, 246 (1956).

      11 11 Robertson v. United States, 343 U.S. 711, 714 (1952). A court of appeals observed that a transfer is a gift only if it is “not intended as a return of value or made because of any intent to repay another what is his due, but bestowed only because of personal affection or regard or pity, or from general motives of philanthropy or charity” (Schall v. Commissioner, 174 F.2d 893, 894 (5th Cir.