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Posts Tagged ‘charity’

Year-End Gifts to Charity – IRS Tax Facts

Posted by William Byrnes on December 1, 2014


9dc30-6a00d8341bfae553ef01bb07b43355970d-piThe Internal Revenue Service reminds individuals and businesses making year-end gifts to charity that several important tax law provisions have taken effect in recent years. Some of the changes taxpayers should keep in mind include:

Rules for Charitable Contributions of Clothing and Household Items

Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

Guidelines for Monetary Donations

A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:

  • Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
  • Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they are mailed in 2014.
  • Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

IRS YouTube Videos: 

Year-End Tax Tips: English
Charitable Contributions: English | Spanish | ASL
Exempt Organizations Select Check: English | Spanish | ASL

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Tax Facts for Travel For Charities

Posted by William Byrnes on September 1, 2014


In the IRS Summertime Tax Tip 2014-06, it discussed the tax tips associated with travelling for a charity.  The IRS directed the tax tips to taxpayers that plan to donate services to charity this summer, such as travel as part of the service.

The IRS disclosed five tax tips to assist with using the travel expenses to help lower taxes when filing the tax return for 2014.

1. A taxpayer cannot deduct the value of your services that is provided to charity.  the taxpayer may be able to deduct some out-of-pocket costs paid to provide the services.  This can include the cost of travel.

The out-of pocket costs must be:

• unreimbursed,

• directly connected with the services,

• expenses you had only because of the services you gave, and

• not personal, living or family expenses.

2. The volunteer work must be for a qualified charity. Most groups other than churches and governments must apply to the IRS to become qualified.  Ask the group about its IRS status before donating services that include out-of-pocket expenses. The Select Check tool on IRS.gov can be used to check a charity’s IRS status.

3. Some types of travel do not qualify for a tax deduction. For example, a taxpayer cannot deduct costs if a significant part of the trip involves recreation or a vacation.

4. A taxpayer can deduct travel expenses if the work is real and substantial throughout the trip.  But the expenses may not be deducted if the taxpayer only has nominal duties or does not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• air, rail and bus transportation,

• car expenses,

• lodging costs,

• the cost of meals, and

• taxi or other transportation costs between the airport or station and your hotel.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This book provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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IRS Creates New 3 Page 1023-EZ for Small Charities Apply for Tax Exemption

Posted by William Byrnes on July 3, 2014


On Monday July 1, the IRS released its new, short application form for small charities to apply for 501(c)(3) tax-exempt status.  The new Form 1023-EZ is three pages long (instructions link is here), compared with the standard 26-page Form 1023.

As many as 70% of all charity applicants for tax exemption will qualify to use the new streamlined three page form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.  The IRS created a Q&A worksheet to help an organization’s representative determine if it can use the new 1042-EZ: link available here:

Question 1: Do you project that your annual gross receipts will exceed $50,000 in any of the next 3 years? (Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses. You should consider this year and the next two years.) 

Question 2: Do you have total assets in excess of $250,000? (Total assets includes cash, accounts receivable, inventories, bonds and notes receivable, corporate stocks, loans receivable, other investments, depreciable and depletable assets, land, buildings, equipment, and any other assets.)

“Previously, all of these groups went through the same lengthy application process — regardless of size,” aid IRS Commissioner John Koskinen. “It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months.  There are more than a million 501(c)(3) organizations recognized by the IRS.

The Form 1023-EZ must be filed using pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40, posted today on IRS.gov.

For a history of US tax treatment of charity, please read http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044  This article studies the American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations.

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.” said Rick Kravitz.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

 

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7 Tax Facts on Deducting Charitable Contributions to a Charity

Posted by William Byrnes on May 9, 2014


2014_tf_on_individuals_small_businesses-m_1In its Tax Tip 2014-39, the IRS disclosed that a taxpayer looking for a tax deduction may donate to a charity and create a ‘win-win’ situation.  The IRS stated that it is good for the charity and good for the taxpayer.  (subscribe by email on the left menu to these daily tax articles)

7 tax tips to know about deducting gifts to charity

1. A taxpayer must donate to a qualified charity if the taxpayer wants to deduct the gift.  Importantly, a taxpayer can not deduct gifts to individuals, political organizations or candidates.  Search the >online IRS database< for the charity.  If it is on the list, then it is qualified.

2. In order for a taxpayer to deduct contributions, the taxpayer must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with the federal tax return.

3. If a taxpayer receives a benefit in return for the contribution, the deduction will be limited.  A taxpayer can only deduct the amount of the gift that is more than the value of what the taxpayer received in return.  Examples of such benefits include merchandise, meals, tickets to an event or other goods and services in exchange for a donation.

4. If a taxpayer donates property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price the taxpayer would receive if the taxpayer sold the property on the open market.  A taxpayer must file Form 8283, Noncash Charitable Contributions, if the deduction for all noncash gifts is more than $500 for the year.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to >vehicle donations<.

6. A taxpayer must keep records to prove the amount of the contributions made during the year. The kind of records that must be kept depends on the amount and type of the donation. For example, a taxpayer must keep a written record of any cash donation, regardless of the amount, in order to claim a deduction.  It can be a cancelled check, a letter from the organization, or a bank or payroll statement.  It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for donated cash or property of $250 or more, a taxpayer must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing applying for the Master or Doctoral degree in the areas of financial planning or taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

 

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The Private Foundation’s Topsy Turvy Road in the American Political Process

Posted by William Byrnes on January 24, 2014


This > article < by Professor William Byrnes studies this American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations. The article’s premise is that the debate’s core has little evolved since that between the 1850s and 1870s.
To create perspective, a short brief of the modern economic significance of the foundation sector follows. Thereafter, the article begins with a review of the pre- and post-colonial attitudes toward charitable institutions leading up to the 1800s debates, illustrating the incongruity of American policy regarding whether and to what extent to grant charities tax exemption. The 1800s state debates are referenced and correlated to parts of the 1900s federal debate to show the similarity if not sameness of the arguments against and justifications for exemption. The twentieth century legislative examination primarily focuses upon the regulatory evolution for foundations. Finally, the article concludes with a brief discussion of the 1969 tax reform’s changes to the foundation rules and the significant twentieth century legislation regulating both public and private foundations.

Number of Pages in PDF File: 97 (link to article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044)

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Ancient Roman Munificence: The Development of the Practice and Law of Charity

Posted by William Byrnes on January 22, 2014


This > article < by Professor William Byrnes traces Roman charity from its incipient meager beginnings during Rome’s infancy to the mature legal formula it assumed after intersecting with the Roman emperors and Christianity. During this evolution, charity went from being a haphazard and often accidental private event, to a broad undertaking of public, religious, and legal commitment. Charitable giving within ancient Rome was quite extensive and longstanding, with some obvious differences from the modern definition and practice of the activity. 

The main differences can be broken into four key aspects. First, as regards the republican period, Roman charity was invariably given with either political or ego-driven motives, connected to ambitions for friendship, political power or lasting reputation. Second, charity was almost never earmarked for the most needy. Third, Roman largesse was not religiously derived, but rather drawn from personal, or civic impetus. Last, Roman charity tended to avoid any set doctrine, but was hit and miss in application. It was not till the imperium’s grain dole, or cura annonae, and the support of select Italian children, or alimenta were established in the later Empire that the approach became more or less fixed in some basic areas. It was also in the later Empire that Christianity made an enormous impact, helping motivate Constantine – who made Christianity the state religion – and Justinian to develop legal doctrines of charity.This study of Roman charitable activities will concern itself with several streams of enquiry, one side being the historical, societal, and religious, versus the legal. From another angle, it will follow the pagan versus Christian developments. The first part is a reckoning of Roman largesse in its many expressions, with explanations of what appeared to motivate Roman benefactors. This will be buttressed by a description of the Roman view of society and how charity fit within it. The second part will deal with the specific legal expressions of euegertism (or ‘private munificence for public benefit’ ) that typify and reveal the particular genius that Romans had for casting their activities in a legal framework. This is important because Rome is the starting point of much of charity as we understand the term, both legally and institutionally in the modern world. So studying Roman giving brings into highlight and contrast the beginnings of Charity itself – arguably one of the most important developments of the civilized world, and the linchpin of the Liberal ethos.

Number of Pages in PDF File: 68 (link is http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2314731

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The Roman Development of the Practice and Law of Charity

Posted by William Byrnes on September 2, 2013


Download the 60 page article at > http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2314731 <

This article traces Roman charity from its incipient meager beginnings during Rome’s infancy to the mature legal formula it assumed after intersecting with the Roman emperors and Christianity. During this evolution, charity went from being a haphazard and often accidental private event, to a broad undertaking of public, religious, and legal commitment. Charitable giving within ancient Rome was quite extensive and longstanding, with some obvious differences from the modern definition and practice of the activity.

The main differences can be broken into four key aspects. First, as regards the republican period, Roman charity was invariably given with either political or ego-driven motives, connected to ambitions for friendship, political power or lasting reputation. Second, charity was almost never earmarked for the most needy. Third, Roman largesse was not religiously derived, but rather drawn from personal, or civic impetus. Last, Roman charity tended to avoid any set doctrine, but was hit and miss in application. It was not till the imperium’s grain dole, or cura annonae, and the support of select Italian children, or alimenta were established in the later Empire that the approach became more or less fixed in some basic areas. It was also in the later Empire that Christianity made an enormous impact, helping motivate Constantine – who made Christianity the state religion – and Justinian to develop legal doctrines of charity.

This study of Roman charitable activities will concern itself with several streams of enquiry, one side being the historical, societal, and religious, versus the legal. From another angle, it will follow the pagan versus Christian developments. The first part is a reckoning of Roman largesse in its many expressions, with explanations of what appeared to motivate Roman benefactors. This will be buttressed by a description of the Roman view of society and how charity fit within it. The second part will deal with the specific legal expressions of euegertism (or ‘private munificence for public benefit’ ) that typify and reveal the particular genius that Romans had for casting their activities in a legal framework. This is important because Rome is the starting point of much of charity as we understand the term, both legally and institutionally in the modern world.  So studying Roman giving brings into highlight and contrast the beginnings of Charity itself — arguably one of the most important developments of the civilized world, and the linchpin of the Liberal ethos.

Download the 60 page article at > http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2314731 <

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U.S. History of Non-Profit Tax Exemption and Deduction for Donations

Posted by William Byrnes on August 20, 2013


“. . . [w]hen the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . . Much of this complexity stems from the many sophisticated ways wealthy individuals – using the best advice that money can buy – have found ways to shift their income from high tax brackets to low ones, and in many instances to make themselves completely tax free.  It takes complicated amendments to end complicated devices.” Senator Russell Long, Chairman, Finance Committee

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

From the turn of the twentieth century, Congress and the states have uniformly granted tax exemption to charitable foundations, and shortly thereafter tax deductions for charitable donations.  But an examination of state and federal debates and corresponding government reports, from the War of Independence to the 1969 private foundation reforms, clearly shows that politically, America has been a house divided on the issue of the charitable foundation tax exemption.  By example, in 1863, the Treasury Department issued a ruling that exempted charitable institutions from the federal income tax but the following year, Congress rejected charitable tax exemption legislation.  However thirty years later, precisely as feared by its 1864 critics, the 1894 charitable tax exemption’s enactment carried on its coat tails a host of non-charitable associations, such as mutual savings banks, mutual insurance associations, and building and loan associations.

Yet, the political debate regarding tax exemption for the non-charitable associations did not nearly rise to the level expended upon that for philanthropic, private foundations established by industrialists for charitable purposes in the early part of the century.  But the twentieth century debate upon the foundation’s charitable exemption little changed from that posited between the 1850s and 1870s by Presidents James Madison and Ulysses Grant, political commentator James Parton and Dr. Charles Eliot, President of Harvard.  The private foundation tax exemption evoked a populist fury, leading to numerous, contentious, investigatory foundation reports from that of 1916 Commission of Industrial Relations, 1954 Reece Committee, 1960 Patman reports, and eventually the testimony and committee reports for the 1969 tax reform.  These reports uniformly alleged widespread abuse of, and by, private foundations, including tax avoidance, and economic and public policy control of the nation.  The private foundation sector sought refuge in the 1952 Cox Committee, 1965 Treasury Report, and 1970 Petersen Commission, which uncovered insignificant abuse, concluded strong public benefit, though recommending modest regulation.

During the charitable exemption debates from 1915 to 1969, Congress initiated and intermittently increased the charitable income tax deduction while scaling back the extent of exemption for both private and public foundations to the nineteenth century norms.  At first, the private foundation’s lack of differentiation from general public charities protected their insubstantially regulated exemption.  But in 1943, contemplating eliminating the charitable exemption, Congress rather drove a wedge between private and public charities.  This wedge allowed the private foundation’s critics to enact a variety of discriminatory rules, such as limiting its charitable deduction from that of public charities, and eventually snowballed to become a significant portion of the 1969 tax reform’s 585 pages.

This article studies this American political debate on the charitable tax exemption from 1864 to 1969, in particular, the debate regarding philanthropic, private foundations.  The article’s premise is that the debate’s core has little evolved since that between the 1850s and 1870s. To create perspective, a short brief of the modern economic significance of the foundation sector follows.  Thereafter, the article begins with a review of the pre- and post-colonial attitudes toward charitable institutions leading up to the 1800s debates, illustrating the incongruity of American policy regarding whether and to what extent to grant charities tax exemption.  The 1800s state debates are referenced and correlated to parts of the 1900s federal debate to show the similarity if not sameness of the arguments against and justifications for exemption.  The twentieth century legislative examination primarily focuses upon the regulatory evolution for foundations.  Finally, the article concludes with a brief discussion of the 1969 tax reform’s changes to the foundation rules and the significant twentieth century legislation regulating both public and private foundations.

Download this entire article at > William Byrnes’ full-lenth articles on SSRN <

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Early American Distrust and Gradual Acceptance of Charitable Institutions

Posted by William Byrnes on August 9, 2009


This week I again turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions.  In the previous blogticle on the Common Law history of charity law, we examined English history from the period 1536-1739.  Now I turn my attention to the period of the United States’ colonial period until 1860. 

Colonial Period 

The Colonies inherited the English common law and its history discussed in my previous blogticle on this subject, but without the 1736 Mortmain Act.  In addition to the common law, the colonialists also inherited the English distrust of perpetual land restriction, the power exercised by the Catholic Church because of its substantial land holdings, and the distrust of the Anglican Church because it was an organ of the English government.[1] 

During the early period after the War of Independence, some states legislatures and courts exercised this inherited distrust by voiding the establishment of charitable trusts, denying the grant of charters for charitable corporations, and constricting transfers to both.[2]  Seven states, being Maryland, Michigan, Minnesota, New York, Virginia, West Virginia, and Wisconsin, voided charitable trusts.[3]  In contrast, many states, in their constitutions and well as by statute, borrowed from Elizabeth I’s 1597 statute to protect incorporation for charitable purposes.[4]  Charitable incorporations included churches, charities, educational institutions, library companies, and fire companies.[5]  The policy behind the charitable statutes included promotion of freedom of religion, easing legislative workloads, and easing of incorporation procedures.[6] 

But not all states had charitable incorporation statutes.  Some states, such as Virginia, denied granting charters to charitable corporations for several years.[7]  Of the states with charitable incorporation statutes, all contained restrictions regarding maximum income, expenditure for charitable purpose, as well as reporting rules to guard against the accumulation of property.[8]

Post Colonial: Universal Property Taxes Crystallize the Tax Exemption Debate

By the middle of the century, the Supreme Court of the United States, by examination of the Statute of Charitable Uses and common law applicable in the U.S., derived a broad definition for charity.[9]  The Court upheld contributions to “charitable” institutions based upon the factors of the institutions’ public purpose and freedom from private gain.  In 1860, upholding a devise and bequest for establishing two education institutions, the Court stated

         “a charity is a gift to a general public use, which extends to the rich, as well as to the poor” and that “[a]ll property held for public purposes is held as a charitable use, in the legal sense of the term charity.”[10] 

In 1877, upholding a devise to an orphan’s hospital, the Court presented that:

        “A charitable use, where neither law nor public policy forbids, may be applied to almost any thing that tends to promote the well-doing and well-being of social man . . . . ‘Whatever is given for the love of God, or the love of your neighbor, in the catholic and universal sense, — given from these motives and to these ends, free from the stain or taint of every consideration that is personal, private, or selfish.’ ”[11]

Until the mid 1850s, many state statutes allowed incorporation for charitable purposes but did not necessarily exempt these corporations from state tax.[12]  Before the 1830s, the states did not have a universal tax system and thus, while tax exemption expressed government favoritism, it was not practically significant.[13]  However, the 1830s enactment of universal property tax regimes brought the issue of exemption to the fore.[14]  During the remainder of the century, several states enacted limited tax exemption for churches and educational institutions.[15]  By example, many states exempted from property tax the land upon which a church stood, but taxed the church’s income, including ministerial, rental, and endowment.[16]  The Massachusetts statutory tax exemption for religious, educational, and charitable organizations, applying to Harvard University, did not include an exemption for real estate or businesses held for purposes of revenue.[17]

Tax Policy Debate

Supporters and critics of exemption debated three primary policies concerning the granting of limited tax exemption for churches.  From a public policy perspective, the general community felt that the church served as the communal epicenter.[18]  Church supporters also put forward that churches provide the benefits of encouragement of personal morality, public spiritedness, and democratic values.[19]  Critics countered that from an equity standpoint, exemption inequitably expressed state favoritism for religious groups over non-religious property owners.[20]  Also, exemption critic James Madison warned that the accumulation of exempt Church property would eventually result in religion influencing the political process.[21]

Supporters provided a tax policy justification that the limited exemptions applied only to the charitable institution’s property that produced insignificant income, such as cemeteries, the church, the school, thus the exemption’s revenue effect would be slight.[22]  Critics responded that whereas both exempt and non-exempt persons used the state’s services, only non-exempt persons paid for them with resultant increased burdens upon them.[23]  Supporters retorted to this argument of an inequitable burden with a government benefit argument that the churches provided public services, such as orphanages and soup kitchens, not performed by non-exempt payers.[24]

From an economic policy justification, supporters forwarded that because many of these exempt institutions did not produce much revenue, the tax could not be collected, leading to unpopular land seizure.[25]  Critics responded that the exemption primarily benefited wealthy churches with valuable property and significant income rather than the humble ones with low land value and de minimis income.[26]  Again employing the subsidy argument, supporters argued that all church income, regardless of church size, went to provide charitable services, such as religious activity and caring for the poor.[27]

Prof William Byrenes (www.llmprogram.org)


[1]After the revolution, the colonialists felt the same distrust for the Church of England as that for Rome.  See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, 624 (1985) (commenting on the ongoing anti-charity-anti-clerical atmosphere of the post-colonial period); Note, The Enforcement of Charitable Trusts in America: A History of Evolving Social Attitudes, 54 Va. L. Rev. 436, 443-44 (1968) (same).  This distrust of the Catholic Church reached into the late nineteenth century, creating opponents of tax exemption for religious institutions.  See Stephen Diamond, “Of Budgets and Benevolence: Philanthropic Tax Exemptions in Nineteenth Century America”, 17 (Oct., 1991) (Address at the N.Y.U. School of Law, Program on Philanthropy, Conference on Rationales for Federal Income Tax Exemption, Oct. 1991), http://www.law.nyu.edu/ncpl/abtframe.html (last visited Jul. 9, 2003); see also Erika King, Tax Exemptions and the Establishment Clause, 49 Syracuse. L. Rev. 971, 1037 n.8 (1999) (quoting James Madison’s statement that “[t]here is an evil which ought to be guarded [against] in the indefinite accumulation of property from the capacity of holding it in perpetuity by ecclesiastical corporations.”)

[2] See Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 906-10 (1997); Fishman, supra at 623-25; John Witte, Jr., Tax Exemption of Church Property: Historical Anomaly or Valid Constitutional Practice?, 64 S. Cal. L. Rev. 363, 384-85 (1991).

[3] 4 Austin Wakeman Scott, The Law of Trusts § 348.3 (3d ed. 1967).  Some states, such as Virginia in 1792, repealed the pre-independence English statutes, including the Statute of Charitable Uses.  The lack of the Statute of Charitable Uses consequence, as argued by the States and agreed by the Supreme Court in Trustees of Philadelphia Baptist Ass’n v. Hart’s Executors, 17 U.S. 1, 30-31 (1819), was that charitable trusts without stated beneficiaries were void because of the lack of common law precedent for establishing a trust without a beneficiary.  Nina J. Crimm, An Explanation of the Federal Income Tax Exemption for Charitable Organizations: A Theory of Risk Compensation, 50 Fla. L. Rev. 419, 427 (1998) (noting that this decision and ones following it led to the establishment of charitable corporations instead of trusts to receive donations).

[4] Fishman, supra at 623 (noting that Massachusetts, Pennsylvania, Vermont, and New Hampshire constitutionally protected charities). 

[5] Fishman, supra at 631-32; see also Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 299 (2002-2003) (noting that most new states had an established state church, which took over the former role of the Church of England as an organ of the state, and that, after disestablishment from the state, tax exemption continued as a matter of course).

[6] See Fishman, supra at 632-33.

[7] See Witte, supra at 385; Brody, supra at 906-07; Nina J. Crimm, A Case Study of a Private Foundation’s Governance and Self-Interested Fiduciaries Calls for Further Regulation, 50 Emory L.J. 1093, 1099 (2001); Fishman, at 631 n.70 (noting that corporate charters were granted to only 355 businesses during the eighteenth century).

[8] See Fishman, supra at 634; see also Brody, at 909 (noting that a few state statutes still constrict the ability to devise to, or the holdings of, charitable corporations).

[9] See Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 609-610 (1996).

[10] Perin v. Carey, 65 U.S. 465, 494, 506 (1860).

[11] See Gustaffson, supra, at 610.

[12] For a historical summary of nineteenth century American policy regarding the ad hoc to infrequent granting of tax exemption for charitable institutions, see Diamond, supra at 12. For a description of colonial church exemptions and taxation of certain income producing properties, see Witte, supra at 372-74.

[13] See Diamond, supra at 8-9.

[14] See Id. at page 10; Witte., supra at 385-86.

[15] See Diamond, supra at 12.

[16] Id

[17] Chas. W. Eliot, The Exemption from Taxation of Church Property, and the Property of Educational, Literary and Charitable Institutions, Appendix to the Report of The Commissioners Appointed to Inquire into the Expediency of Revising or Amending the Laws Related to Taxation and Exemption Therefrom 367, 386 (1875) (stating that Harvard paid tax on its various business holdings in Boston, save one specifically exempted from tax in its Charter).

[18] See Witte, supra at 374-75.  The underpinnings of this public policy to exempt the church drew from the historical exemption justified by two causes.  Most states had an official church established by government as an organ of the state government, continuing the English tradition.  Id.   Second, the Churches acted as the community services center of most townships, thus providing the local government services that otherwise it should undertake.  See id. at 375.  This second justification foreshadowed the government benefit analysis employed by Dr. Eliot.  See infra Part VI(C).

[19] John W. Whitehead, Church/State Symposium Tax Exemption and Churches: A Historical And Constitutional Analysis, 22 Cumb. L. Rev. 521, 539-40 (1991-1992).

[20] Witte, supra at 381.

[21] Id. at 382.  This criticism of exemption, reiterated by President Ulysses Grant, most influenced the Walsh Commission’s perspective on industrialists’ foundations as well as that of the Reece Commission.  See infra Parts VIII, IX(D).

[22] See Diamond, supra at 14.  In 1873, James Parton countered this justification, alleging examples of such charitable institutions producing extraordinary income.  See infra Part VI.

[23] See Witte, supra at 381.

[24] Whitehead, supra at 540.  Dr. Eliot further enunciated the government benefit, also known as the tax subsidy, argument that the state ought to grant exemption for the charitable provision of public service.

[25] See Diamond, supra at 14.  In 1873, James Parton proffered a liberal argument of land distribution efficiency that could only be achieved through such unproductive property being seized and auctioned back into commerce.

[26] See Witte, supra at 382.

[27] See Whitehead, supra at 539-40.

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England’s Historical Legislative Treatment of Charitable Institutions

Posted by William Byrnes on August 7, 2009


When asked to comment upon the various versions of health care reform bills that will soon be voted upon by Congress, I recalled quote by Russell Long, then Chair of the Finance Committee[1]:

         “When the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . .”

 This week I turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions.  Why charitable institutions?  In the United States, charitable institutions are known as tax exempt ‘non-profits’ though some are profitable in the accounting sense.  By example, many hospitals, though profitable and even lucripetous, are granted by the federal and state revenue authorities tax exempt status as charities.  However, Congress has pretermitted any issues, and thus leverage, associated with the tax exempt status of health care providers in the various health care reform bills.

 England’s Historical Legislative Treatment of Charitable Institutions

In order to finance his reign, Henry VIII seized the Catholic Church’s and universities’ lands and with parliament enacted The Statute of Uses in 1536 and The Chantries Act in 1545.[2]  The Statute of Uses, in enacting the rule against perpetuities, terminated the situation that most English land, in order to escape feudal dues, was held from family generation to generation in dynastical, perpetual trusts owned by the Church.[3]  The Chantries Act provided for escheat of colleges’ possessions.[4]  The government established as an organ of itself with tax-exempt status by its sovereign nature the Church of England, replacing the Catholic Church.[5]

See-sawing in favor of charitable institutions, under Elizabeth I in 1597, parliament enacted a charitable corporation act that exempted specified institutions from government charges and the requirement of government consent when formed for the following purposes:

        to erect, found, and establish, one or more hospitals, maison de Dieu, abiding places, or houses of correction, . . . as well as for the finding, sustentation, and relief of the maimed, poor, needy or impotent people, as to set the poor to work, to have continuance forever, and from time to time place therein such head and members, and such number of poor as to him, his heirs and assigns should seem convenient.[6]

Furthering Elizabeth I’s charitable incorporation statute by suppressing the application of Henry’s Statute of Uses and its rule against perpetuities, four years later Parliament enacted the Statute of Charitable Uses, 1601, allowing real property transfers to perpetual charitable trusts.[7]  The Statute provided for exemption from the Statute of Uses for a transfer to a charity that provided:

        relief of aged, impotent and poor people, . . . maintenance of sick and maimed soldiers, schools of learning, free schools, and scholars in universities, . . . repair of bridges, ports, havens, causeways, churches, sea-banks and highways, . . . education and preferment of orphans, . . . relief, stock or maintenance of houses of correction, . . . marriages of poor maids, . . . aid and help of young tradesman, handicraftsman and persons decayed, relief of prisoners, . . . aid of any poor inhabitants.[8]

However, during the late sixteenth century and seventeenth century, the Crown often piecemeal interfered with religious charitable trusts, either voiding the trust or employing cy pres to divert the trust assets to the Crown’s favored religion.[9]  Charitable institutions once again falling out of the Crown’s blanket favor, two hundred years after and in the same vein as the Statute of Uses, Parliament revived a specific anti-charity statute, The Mortmain Act, in 1736.[10]  The Mortmain Act of 1736 invalidated real property transfers to any charity mortis causa as well as inter vivos transfers made one year or less before death.[11]  Though this statute limiting the funding of charities remained English law until The Charities Act, 1960, Parliament modified it in 1891 to allow for exceptions for devised property not to be used for investment, thus endowment, purposes.[12]

Prof. William Byrnes (http://www.llmprogram.org


[1] 115 Cong. Rec. S14,944 (1969) (statement of The Hon. Russell B. Long), reprinted in 1969 U.S.C.C.A.N. 2391, 2490.

[2] Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 901, 909-10, 911-13 (1997) Henry VIII was by no means the first king to dissolve monasteries. 

[3] Brody at 901.

[4] Brody at 912-13.

[5] See Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 298-99 (2002-2003).

[6] See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, n.65 (1985).

[7] Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 605 (1996) (citing An Act to redress the Mis-employment of Lands, Goods, and Stocks of Money heretofore given to Charitable Uses, 1601, 43 Eliz., ch. 4 (Eng.)).

[8] Oliver A. Houck, With Charity For All, 93 Yale L.J. 1415, 1422 (1984) (quoting Charitable Uses Act, 1601, 43 Eliz., ch. 4).

[9] See Norman Alvey, From Charity to Oxfam: A Short History of Charity Legislation 10-11 (1995).

[10] See Gustafsson at 606, 649 n.62 (noting that Mortmain statutes had previously been enacted in England but the Statute of Charitable Uses substantively repealed them); see also Brody, at 903 (noting that Parliament’s sentiments for legislating the statute are uncertain, but may have been due to anticlerical feelings).

[11] Alvey at 11.

[12] Brody at 905 n.147 (noting that the statute was modified in 1891 to allow either the court or the Charity Commissioners to grant exception for a mortis causa real property transfer to charity as long as the property was to be used for charitable activity rather than for investment purposes).

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