Wealthy Giving Less to Charity; Poor Giving More

A recent report by the Chronicle of Philantrophy studied charitable giving in America, and the results were perhaps surprising. The study found that, as the country struggled out of a recession, wealthier Americans are giving away a smaller percentage of their income, while poorer Americans are giving more.

According to Forbes, Americans who earned at least $200,000 gave nearly 5% less to charity in 2012 than in 2006. In contrast, Americans who earned less than $25,000 increased their charitable giving by almost 17%.

The trend was similar in Central Ohio. The Columbus Dispatch reported that donors in the Columbus area gave about 2.6 percent of their income to charity in 2012, a 6.5 percent decline since 2006. This places Columbus 39th among America’s 50 largest metropolitan areas in giving, behind both Cleveland and Cincinnati. Area residents making less than $25,000 gave away 7.19% of their income; those making over $200,000 gave away only 2.43%.

Charitable giving should be carefully considered for both short- and long-term tax and estate planning purposes. Contact our attorneys for assistance.

IRS Streamlines Tax-Exempt Application Process for Most Charities

The Internal Revenue Service has recently released a new tax form to help small charitable organizations apply for tax-exempt status. Form 1023-EZ, introduced in July 2014, provides an alternative to the longer Form 1023 and will allow the IRS to more efficiently process applications for 501(c)(3) tax-exempt status.

From the IRS news release:

The new Form 1023-EZ, available today on IRS.gov, is three pages long, compared with the standard 26-page Form 1023. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

"Previously, all of these groups went through the same lengthy application process -- regardless of size," [IRS Commissioner John] Koskinen said. "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.

To determine if your organization qualifies to file the new form, review the Form 1023-EZ Instructions and Revenue Procedure 2014-40, as well as consult an attorney. Form 1023-EZ must be filed online and requires a user fee of $400.

Detroit's Bankruptcy and Your Charitable Donations

Last month, federal proceedings began to determine whether the city of Detroit is eligible to file for bankruptcy. As part of the city’s process to review its assets, Detroit hired the renowned auction house Christie’s to appraise the priceless works of art by Picasso, Monet, Rembrandt, and others housed at the Detroit Institute of Arts.

This action is controversial because it could lead to an art sale and a potential violation of ethical guidelines prohibiting a museum from deaccessioning – selling art from its collection - for any purpose other than acquiring more art. Institutions who violate these guidelines risk losing accreditation and creating controversy in the art world.

Aside from affecting a museum’s collection, Detroit’s move is also extremely relevant to clients or donors. Clients often donate art to museums to meet their tax or estate planning goals, or simply to improve their community. Detroit’s bankruptcy filing is another warning that it is essential to have a carefully drafted agreement before donating property to a museum.

Most art is donated without strings or explicit constraints on sales, so a clearly written document ensures that the donor’s wishes are known and that the museum will abide by those wishes. For example, agreements may explicitly say that a particular piece may never be sold or may never be sold for operating expenses of the institution.

Attorneys and donors should also inquire about a museum’s deaccessioning policies. Since Detroit’s bankruptcy filing, the DIA has amended its deed of gifts to clearly state that the donated work can only be sold to buy more art. But most institutions are not so clear, relying only on ethical guidelines.

As museums face financial difficulties and courts may be more likely to allow the sale of donated artifacts, traditional ethical guidelines may no longer be enough to prohibit a sale. Attorneys and donors would be wise to seek additional protections.