In Hurricane Tax Package, a Boon for Wealthy Donors
A boon to charties, yes. Bear in mind that the charities do not need to be Katrina related and the only people capable of donating something near to 100% of adjusted gross incomes are those capable of taking advantage of other tax shelters and loopholes to adjust their gross incomes well below their actual gross incomes.
October 27, 2005
Fund-Raising
In Hurricane Tax Package, a Boon for Wealthy Donors
By STEPHANIE STROM
A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers.
It allows donors who make cash gifts to almost any charity by the end of this year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes, double the normal limit of 50 percent of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars.
"I just keep thinking there's got to be a catch, they can't really be doing this," said C. Kemmons Wilson Jr., a Memphis businessman whose father was the founder of Holiday Inns Inc.
Mr. Wilson said that he and his siblings gave away several million dollars a year and that the amount could double this year because of the provision. "How many sales does the government have?" he said. "This is a big sale, and you bet I'm going to go."
Fund-raisers say Mr. Wilson is one of many wealthy Americans pressing their financial planners in hopes of increasing their giving this year and reducing their tax bills. Some institutions, primarily universities, are encouraging big donors to take advantage of the favorable tax treatment and make sizable gifts or fulfill their pledges. Essentially, some donors may shift into 2005 gifts that would have been made in future years.
Because of the strong interest, experts say the government may forgo more tax revenue than Congress anticipated when it passed the legislation. Based on information from 2002 tax returns, Robert F. Sharpe Jr., a fund-raising consultant whose clients include the American Heart Association and the University of California, Los Angeles, estimated that the provision would spur $4 billion to $10 billion in additional giving this year; 2005 giving was already expected to exceed last year's total of $248 billion.
Mr. Sharpe said the additional giving would result in $1 billion to $3.5 billion in lost revenue for the Treasury, more than the $819 million Congress anticipated.
Moreover, some donors may be able to use the provision to take deductions this year for gifts made in past years. When taxpayers have more charitable deductions that they can use in a given year, they may carry them forward to future tax years. This possibility may further dampen tax revenues.
"Congress intended this, but I'm not sure they understood how big the tab is going to be," said Mr. Sharpe, who has become a national town crier on the issue. "There are just so many ways a donor can use this bill to maximize their charitable giving."
Congress was willing to give up some revenue because it feared that Americans had given so generously to charities working to help tsunami and hurricane disaster victims that they would cut back on their contributions to other organizations, including cultural institutions and schools.
Senator Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee, did not express any concerns about the potential cost of the provision in an e-mail response to questions, saying that if it was spurring a surge of giving, it was working as intended.
"After 9/11, there was an outpouring of giving to charities involved in responding to that tragedy, but unfortunately, many other charities saw a significant downturn in donations," Mr. Grassley said. "My hope in passing this provision is that Americans' generosity for those harmed by Hurricane Katrina won't mean a tradeoff for other important charitable work in this country."
But fund-raising experts have long said that the decline in charitable giving that followed the Sept. 11 attacks was smaller than nonprofit groups led the public to believe and driven more by economic factors than by exhausted donors.
"After 9/11, 65 percent of our members were raising the same or more, and the following year, the numbers went up again," said Paulette V. Maehara, president of the Association of Fundraising Professionals. "There wasn't the sky-is-falling impact that a lot of people thought there would be, and there won't be now, either, unless the economy does a nosedive."
Universities, long known as the nonprofit world's savviest fund-raisers, have been the biggest promoters of the provision. "We're trying to get the word out to as many as we can," said Jack Murphy, senior trust officer at Cornell University.
Not all charities are rushing to take advantage of the provision. "You don't want to appear to be greedy or inappropriate," said Arthur J. Ochoa, senior vice president for community relations at Cedars-Sinai Medical Center in Los Angeles. "The legislative intent was drawn more broadly, but if you asked members of Congress what they were voting for, they would say relief for the Katrina victims. We don't want to appear to be trading on that."
Cedars-Sinai has done no explicit marketing of the provision, Mr. Ochoa said, but it is in discussions with one donor who may accelerate a gift because of it.
Many other charities, particularly smaller ones, have been slow to understand the provision, fund-raisers say. "The thing that has surprised me is that I have not heard yet from any of the nonprofits I have supported over the years, and time is running out," said Frank P. Wendt, who built Nuveen Investments into a Wall Street powerhouse and is now retired. "A lot of them don't seem to know about it."
Mr. Wendt was alerted to the potential tax benefit by his tax adviser at U. S. Trust. He said he did not yet know how he would use it. "I'm certainly going to take advantage of it to the maximum amount I'm able to," he said.
He was uncertain how much additional money he could give, however, because he had not fully deducted for gifts in years past.
Charities are focusing largely on wealthy older individuals like Mr. Wendt, whose incomes may be small relative to their assets. This week, for example, the AARP Foundation will send a brochure explaining the provision to 25,000 of its biggest donors, a tiny slice of the 35 million members of AARP.
"The reality is that this is targeted to the high-net-worth audience for all intents and purposes," said Monica Estabrooke, the foundation's gift-planning officer.
Financial advisers who work with wealthy people are trying to guide their clients on how to use the provision.
"I talked to two people just yesterday about that topic," said Vaughn Henry, an estate planner in Springfield, Ill. "It's not for everybody, but there are some people who are sure kicking it around."
Because fund-raisers never know where the next gift might come from, AARP will also inform its entire membership of the provision in the December issue of its magazine.
"I heard from an elderly gentleman who is going to get $500,000 and doesn't want to pay taxes on it," Ms. Estabrooke said. "His income isn't so high, so normally he would have to carry the deduction forward for a number of years, but this changes things for him."
Ms. Estabrooke and other experts say there are several caveats for donors. Gifts to private foundations and other concerns controlled by donors do not qualify for the additional deduction. Wealthy individuals could incur a 1 percent to 2 percent tax liability for charitable gifts financed by withdrawals from individual retirement accounts.
"We have some concerns about mass marketing this to the rank and file," said Ed John, vice president of planned giving at the United Way of America. "For some middle- to lower-income donors, taking money out of an IRA to donate more could increase their taxable income and tax rate."
Christopher R. Hoyt, a professor of tax law at the University of Missouri-Kansas City, said donors also needed to consider their state tax liability because some states did not allow charitable deductions that were allowed at the federal level.
"I suspect this will produce relatively few additional gifts," Mr. Hoyt said, "but of much bigger dollars."
Copyright 2005 The New York Times Company
http://www.nytimes.com/2005/10/27/national/nationalspecial/27tax.html?ex=1288065600&en=109dd4e0791c9598&ei=5088&partner=rssnyt&emc=rss
A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers.
It allows donors who make cash gifts to almost any charity by the end of this year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes, double the normal limit of 50 percent of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars.
October 27, 2005
Fund-Raising
In Hurricane Tax Package, a Boon for Wealthy Donors
By STEPHANIE STROM
A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers.
It allows donors who make cash gifts to almost any charity by the end of this year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes, double the normal limit of 50 percent of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars.
"I just keep thinking there's got to be a catch, they can't really be doing this," said C. Kemmons Wilson Jr., a Memphis businessman whose father was the founder of Holiday Inns Inc.
Mr. Wilson said that he and his siblings gave away several million dollars a year and that the amount could double this year because of the provision. "How many sales does the government have?" he said. "This is a big sale, and you bet I'm going to go."
Fund-raisers say Mr. Wilson is one of many wealthy Americans pressing their financial planners in hopes of increasing their giving this year and reducing their tax bills. Some institutions, primarily universities, are encouraging big donors to take advantage of the favorable tax treatment and make sizable gifts or fulfill their pledges. Essentially, some donors may shift into 2005 gifts that would have been made in future years.
Because of the strong interest, experts say the government may forgo more tax revenue than Congress anticipated when it passed the legislation. Based on information from 2002 tax returns, Robert F. Sharpe Jr., a fund-raising consultant whose clients include the American Heart Association and the University of California, Los Angeles, estimated that the provision would spur $4 billion to $10 billion in additional giving this year; 2005 giving was already expected to exceed last year's total of $248 billion.
Mr. Sharpe said the additional giving would result in $1 billion to $3.5 billion in lost revenue for the Treasury, more than the $819 million Congress anticipated.
Moreover, some donors may be able to use the provision to take deductions this year for gifts made in past years. When taxpayers have more charitable deductions that they can use in a given year, they may carry them forward to future tax years. This possibility may further dampen tax revenues.
"Congress intended this, but I'm not sure they understood how big the tab is going to be," said Mr. Sharpe, who has become a national town crier on the issue. "There are just so many ways a donor can use this bill to maximize their charitable giving."
Congress was willing to give up some revenue because it feared that Americans had given so generously to charities working to help tsunami and hurricane disaster victims that they would cut back on their contributions to other organizations, including cultural institutions and schools.
Senator Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee, did not express any concerns about the potential cost of the provision in an e-mail response to questions, saying that if it was spurring a surge of giving, it was working as intended.
"After 9/11, there was an outpouring of giving to charities involved in responding to that tragedy, but unfortunately, many other charities saw a significant downturn in donations," Mr. Grassley said. "My hope in passing this provision is that Americans' generosity for those harmed by Hurricane Katrina won't mean a tradeoff for other important charitable work in this country."
But fund-raising experts have long said that the decline in charitable giving that followed the Sept. 11 attacks was smaller than nonprofit groups led the public to believe and driven more by economic factors than by exhausted donors.
"After 9/11, 65 percent of our members were raising the same or more, and the following year, the numbers went up again," said Paulette V. Maehara, president of the Association of Fundraising Professionals. "There wasn't the sky-is-falling impact that a lot of people thought there would be, and there won't be now, either, unless the economy does a nosedive."
Universities, long known as the nonprofit world's savviest fund-raisers, have been the biggest promoters of the provision. "We're trying to get the word out to as many as we can," said Jack Murphy, senior trust officer at Cornell University.
Not all charities are rushing to take advantage of the provision. "You don't want to appear to be greedy or inappropriate," said Arthur J. Ochoa, senior vice president for community relations at Cedars-Sinai Medical Center in Los Angeles. "The legislative intent was drawn more broadly, but if you asked members of Congress what they were voting for, they would say relief for the Katrina victims. We don't want to appear to be trading on that."
Cedars-Sinai has done no explicit marketing of the provision, Mr. Ochoa said, but it is in discussions with one donor who may accelerate a gift because of it.
Many other charities, particularly smaller ones, have been slow to understand the provision, fund-raisers say. "The thing that has surprised me is that I have not heard yet from any of the nonprofits I have supported over the years, and time is running out," said Frank P. Wendt, who built Nuveen Investments into a Wall Street powerhouse and is now retired. "A lot of them don't seem to know about it."
Mr. Wendt was alerted to the potential tax benefit by his tax adviser at U. S. Trust. He said he did not yet know how he would use it. "I'm certainly going to take advantage of it to the maximum amount I'm able to," he said.
He was uncertain how much additional money he could give, however, because he had not fully deducted for gifts in years past.
Charities are focusing largely on wealthy older individuals like Mr. Wendt, whose incomes may be small relative to their assets. This week, for example, the AARP Foundation will send a brochure explaining the provision to 25,000 of its biggest donors, a tiny slice of the 35 million members of AARP.
"The reality is that this is targeted to the high-net-worth audience for all intents and purposes," said Monica Estabrooke, the foundation's gift-planning officer.
Financial advisers who work with wealthy people are trying to guide their clients on how to use the provision.
"I talked to two people just yesterday about that topic," said Vaughn Henry, an estate planner in Springfield, Ill. "It's not for everybody, but there are some people who are sure kicking it around."
Because fund-raisers never know where the next gift might come from, AARP will also inform its entire membership of the provision in the December issue of its magazine.
"I heard from an elderly gentleman who is going to get $500,000 and doesn't want to pay taxes on it," Ms. Estabrooke said. "His income isn't so high, so normally he would have to carry the deduction forward for a number of years, but this changes things for him."
Ms. Estabrooke and other experts say there are several caveats for donors. Gifts to private foundations and other concerns controlled by donors do not qualify for the additional deduction. Wealthy individuals could incur a 1 percent to 2 percent tax liability for charitable gifts financed by withdrawals from individual retirement accounts.
"We have some concerns about mass marketing this to the rank and file," said Ed John, vice president of planned giving at the United Way of America. "For some middle- to lower-income donors, taking money out of an IRA to donate more could increase their taxable income and tax rate."
Christopher R. Hoyt, a professor of tax law at the University of Missouri-Kansas City, said donors also needed to consider their state tax liability because some states did not allow charitable deductions that were allowed at the federal level.
"I suspect this will produce relatively few additional gifts," Mr. Hoyt said, "but of much bigger dollars."
Copyright 2005 The New York Times Company
http://www.nytimes.com/2005/10/27/national/nationalspecial/27tax.html?ex=1288065600&en=109dd4e0791c9598&ei=5088&partner=rssnyt&emc=rss
posted by JimG at 11:54 AM
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