By contrast, when the payor has a choice or an election to make, a payment to a charitable organization can constitute a charitable gift. Thus, when a charitable organization required participants in a group insurance plan to assign dividends to it as a condition of continued participation in the plan, the payments were held to be nondeductible.262 Subsequently, however, the plan terms were amended to make refund of the dividends an easy-to-exercise option; the IRS ruled that the payments to the charitable organization under the revised circumstances were deductible as charitable gifts.263
In analogous circumstances, credit card holders voluntarily elected to contribute rebates generated by their credit card purchases to charitable organizations. The IRS ruled that the payments were deductible as charitable gifts.264 Likewise, when a “sponsorship gift” was requested, but not required, in connection with admission to an exempt retirement home, the payment was considered to be a deductible charitable gift.265
The Supreme Court observed that a payment proceeding from the “constraining force of a moral or legal duty” is not a charitable gift.266 This principle was applied by a court in concluding that a portion of the amount paid to an educational society was in the nature of fees for tuition in connection with education of the payors' children, and thus was not a charitable contribution.267
§ 2.2 DEFINITION OF DONOR
A donor is a person who makes a gift. A donor obviously can make a gift (or contribution) to a charitable organization. A donor may or may not obtain a contribution deduction as the result of a charitable gift. Many factors can operate to determine this outcome.268
In a somewhat similar situation, a nonprofit development corporation was the fee simple owner of two buildings. A partnership was a long-term lessee of the buildings. These two entities collectively transferred a façade easement to a qualified charitable organization. The partnership claimed a $4.5 million charitable contribution deduction. The partnership (quite correctly) contended that the Internal Revenue Code does not explicitly require that a donor of an easement own the underlying real property. The U.S. Tax Court ruled that the partnership had only a leasehold interest for a term of years, which under state law is personal property.269 That is, the partnership did not have a fee interest in the property. Thus, the in-perpetuity requirement, imposed in connection with gifts of easements,270 could not be satisfied because only the owner of real property or holder of a fee interest is able to grant a perpetual conservation restriction. The court stated that, being a “time-limited lessee,” the partnership is “incapable” of making a contribution protected in perpetuity.271 The court wrote that the partnership, as lessee, “does not have the power to impose perpetual restrictions on property in which it does not have an absolute right.”272 The matter came down to this: the partnership “cannot give what it does not have.”273
This presumably is obvious but, in the case of a contribution, the donor must be the person who actually makes it. As an illustration of this point (which rarely arises), the parents of a deceased child established a scholarship fund as a memorial to the child; it is structured as an irrevocable trust. The trust was funded with life insurance proceeds; it made scholarship grants out of the trust's investment income. This couple did not include the investment income of the trust in their gross income; they, however, claimed the scholarship payments as charitable contributions deductions. These deductions were, of course, denied.274
There are several types of donors, that is, several categories of persons who can make contributions to charitable organizations. They are individuals, C corporations,275 S corporations,276 partnerships,277 limited liability companies,278 trusts,279 and estates.280
Organizations that are pass-through entities are not entitled to charitable contribution deductions. The deductions are instead passed through to the shareholders, partners, or members of the organization.281
A charitable contribution may be effected through the efforts of an agent acting for the donor.282 For this to occur, the principal must be the party who bears the economic burden of the charitable contributions involved. For example, an individual, the chief executive officer of a company, was allowed to deduct charitable contributions made by the company because he reimbursed the company for the amount of the gifts, although another “circular flow of funds” resulted in the company bearing the economic burden of gifts so that the individual's corresponding deductions were disallowed.283
§ 2.3 DEFINITION OF CHARITABLE ORGANIZATION
At the simplest definitional level, a charitable contribution is a gift to a charitable organization.284 Having explored the concept of a gift, it is appropriate to consider the meaning of the term charitable for purposes of the law of charitable giving.
(a) Overview of Law
The law of charitable organizations is more fundamentally the province of the law of tax-exempt organizations.285 There is not, however, absolute parity between the law of tax-exempt organizations and the law of charitable giving on this point. That is, there are organizations that are considered charitable for purposes of federal income tax exemption but not for purposes of the federal income tax charitable contribution deduction. Likewise, there are organizations that are considered charitable for purposes of the federal charitable deductions that are not charitable entities under the tax-exempt organizations rules. This is because federal tax law defines organizations that are charitable ones for charitable deduction purposes in a provision of the Internal Revenue Code that is different from that used for purposes of tax exemption; for charitable giving purposes, the charitable status does not derive from an organization's tax exemption but from its treatment as a charitable donee.
Four Internal Revenue Code sections require highlighting at this point:
1 The one providing federal income tax exemption for charitable organizations286
