Is A Mandated Gift Deductible As A Charitable Contribution? A Review Of The Meaning Of "Gift" In IRC 170

• Published date: 12 September 2022
• Subject Matter: Corporate/Commercial Law, Tax, Charities & Non-Profits , Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Cory Halliburton

Is a Mandated Gift Deductible as a Charitable Contribution? A Review of The Meaning of "Gift" in IRC 170.

For over 15 years, I have represented tax-exempt charitable entities'mega, large, medium, small, and everything in between. Through that experience, I have seen the best of times and the worst of times (and everything in between) within the nonprofit industry.

This Insights blog reviews the hypothetical scenario or issue of whether, under section 170, Title 26 of the Internal Revenue Code, a director on a nonprofit board of directors may deduct as a charitable contribution, an amount the director gives to the organization when the organization-by policy, bylaw, or other mandate-required the contribution as a condition for service on the organization's board of directors?

Are contributions made under such prescription or mandate deductible as a charitable contribution by the contributing director?

If that director's return is audited, is the amount contributed deductible as a charitable contribution under section 170, or might the IRS deny the charitable deduction, assess penalties, or make other adverse determinations against the individual director/taxpayer?

Short Answer. Maybe, or maybe not, but that is not this tax practitioner's prerogative to decide on that brief set of facts...

Counsel's Position. Pursuant to IRS Regulations, I am not supposed to (and strive to not) give tax-related counsel based on the likelihood of audit or potential adverse determination by IRS. See IRS Circular 203 ' 10.37(a)(2)(vi) (providing that a tax practitioner must "Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit.").

What is a "gift" for income tax purposes? 26 U.S.C. ' 102(a) provides: "Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance." In Comm'r v. Duberstein, 363 U.S. 278 (1960), the U.S. Supreme Court defined a gift under IRC section 102 as a transfer that proceeds from a detached and disinterested generosity, out of affection, respect, admiration, charity or like impulses. The donor's intent is controlling, rather than donor characterization of the transaction. The IRS and the courts examine objectively whether a gift occurs based on the facts and if those facts support a donor that intended a transfer based on affection. Detached and disinterested generosity is critical. If a transfer is made out of an...