Law Commons^™

Preventing Tax-Exempt Propaganda: The Case For Defining The Second Prong Of The Methodology Test, Jordanne Miller

Catholic University Law Review

Under current Treasury Regulations, various propaganda groups throughout the United States are exempt from paying federal income tax. This is so because the current test used by the IRS to determine tax-exempt eligibility, the methodology test, is incapable of separating wild propaganda from viewpoints supported by facts.

The IRS created the methodology test in the late 1970s/early 1980s. Since then, groups denied tax-exempt status have repeatedly challenged its validity. The IRS has responded, and the test has evolved. However, the second prong of the test remains undefined—it is still unclear what it means for facts to be “distorted.” This Comment …

Failed Charity: Taking State Tax Benefits Into Account For Purposes Of The Charitable Deduction, Roger Colinvaux

Buffalo Law Review

The Tax Cuts and Jobs Act (TCJA) substantially limited the ability of individuals to deduct state and local taxes (SALT) on their federal income tax returns. Some states are advancing schemes to allow taxpayers a state tax credit for contributions to a charity controlled by the state. The issue is whether state tax benefits are deductible as a charitable contribution for purposes of the federal income tax. Under a general rule of prior law—the full deduction rule—state tax benefits were ignored for purposes of the charitable deduction. If the full deduction rule is applied to the state workaround schemes, then …

Charitable Contributions In Lieu Of Salt Deductions, David Gamage

Articles by Maurer Faculty

State governments are considering new charitable tax credits designed to circumvent the 2017 federal tax overhaul’s cap on state and local tax deductions. Will these plans work? This essay argues that the answer is: yes, but with some qualifications.

The Future Of Salt: A Broader Picture, David Gamage, Darien Shanske

Articles by Maurer Faculty

In this essay, we evaluate the new cap on the state and local tax (SALT) deduction. We argue that the structure of the new cap is not consistent with any theory as to what the SALT deduction is or should be. In canvassing these theories, we further evaluate how future reforms to the SALT deduction might proceed.

Caveat Irs: Problems With Abandoning The Full Deduction Rule, David Gamage, Joseph Bankman, Jacob Goldin, Daniel J. Hemel, Darien Shanske, Kirk J. Stark, Dennis J. Ventry Jr., Manoj Viswanathan

Articles by Maurer Faculty

Several states have passed — and many more are considering — new tax credits that would reduce tax liability based on donations made by a taxpayer in support of various state, local or non-profit programs. In general, taxpayer contributions to qualifying organizations — including public charities and private foundations, as well as federal, state, local, and tribal governments — are eligible for the federal charitable contribution deduction under section 170. In a previous article, we explained how current law supports the view that qualifying charitable contributions are deductible under section 170, even when the donor derives some federal or state …

Charitable Subsidies And Nonprofit Governance: Comparing The Charitable Deduction With The Exemption For Endowment Income, David M. Schizer

Faculty Scholarship

Charitable subsidies are supposed to encourage positive externalities from charity. In principle, the government can pursue this goal by evaluating specific charitable initiatives and deciding how much each should receive. Although the government sometimes makes this sort of fine-grained judgment, this Article focuses on two income tax rules that leave the government essentially no discretion about which charities to fund: the deduction for donations to charity ("the deduction") and the exemption of a charity's investment income ("the exemption"). With each subsidy, federal dollars flow automatically as long as charities satisfy very general criteria.

As a result, these subsidies are especially …

Economic Recovery Tax Act Of 1981, Merlin G. Briner

Akron Law Review

In essence this Act and the results it either produces or fails to produce will be a test of our free enterprise system. The Act, coupled with the administration's policy of deregulation and relaxing government controls of business, provides the opportunity business leaders have been looking for.

A key to future economic health is the reduction of federal expenditures. If these cannot be curtailed, the combined effect of expenditures and reduced tax revenues on inflation will be disastrous. If expenditures cannot be controlled, then taxes will have to be increased substantially in the not too distant future.

An Introduction To Conservation Easements In The United States: A Simple Concept And A Complicated Mosaic Of Law, Nancy Mclaughlin, Federico Cheever

Utah Law Faculty Scholarship

The idea of a conservation easement – restrictions on the development and use of land designed to protect the land’s conservation or historic values – can be relatively easily understood. More significant and more challenging is the complex body of state and federal laws that shapes the creation, funding, tax treatment, enforcement, modification, and termination of conservation easements.

The explosion in the number of conservation easements over the past four decades has made them one of the most popular land protection mechanisms in the United States. The National Conservation Easement Database estimates that the total number of acres encumbered by …

An Introduction To Conservation Easements In The United States: A Simple Concept And A Complicated Mosaic Of Law, Federico Cheever, Nancy A. Mclaughlin

Sturm College of Law: Faculty Scholarship

The idea of a conservation easement – restrictions on the development and use of land designed to protect the land’s conservation or historic values – can be relatively easily understood. More significant and more challenging is the complex body of state and federal laws that shapes the creation, funding, tax treatment, enforcement, modification, and termination of conservation easements.

The explosion in the number of conservation easements over the past four decades has made them one of the most popular land protection mechanisms in the United States. The National Conservation Easement Database estimates that the total number of acres encumbered by …

Alms To The Rich: The Facade Easement Deduction, Wendy G. Gerzog

All Faculty Scholarship

This article presents the case for repeal of the façade easement deduction. Proponents of this benefit argue that the deduction encourages historic preservation by reimbursing property owners for relinquishing their right to alter the façade of their property in a way inconsistent with that conservation goal; however, this article shows that there are many reasons to urge its repeal: the revenue loss, the small number of beneficiaries, the financial demographics of that group of beneficiaries; the dubious industries that are supported by the deduction; and the continual marked overvaluation and abuse despite Congressional, court, and administrative review and expense.

After …

Graev: Conditional Facade Easement, Wendy G. Gerzog

All Faculty Scholarship

In Graev v. Commissioner, the Tax Court decided whether the taxpayers’ donations of a facade easement and cash contributions were conditional gifts and therefore disallowable as charitable deductions under the requirements of the regulations. The court reviewed the facts to determine whether the condition was allowed because it was “so remote as to be negligible.” The taxpayers argued that case law at the time of the donation allowed for a donation of between 10 and 15 percent of the value of the property, and that they had deducted a value constituting 11 percent of the property’s appraised value; that the …

Rationale And Changing The Charitable Deduction, Roger Colinvaux

Scholarly Articles

There are two principal rationales for the charitable deduction. Depending upon choice of rationale, some tax reform changes are suggested and others are not. A base measurement rationale suggests eliminating the deduction for unrealized appreciation, keeping the benefit as a deduction and not a credit, not adopting caps or a nonitemizer deduction, and protecting the tax base by narrowing the class of organizations eligible to receive deductible contributions. A subsidy rationale, depending upon which strand is emphasized, might favor a more equitable tax benefit in the form of a credit or through caps or a nonitemizer deduction, and could lead …

Not All Defined Value Clauses Are Equal, Wendy G. Gerzog

All Faculty Scholarship

Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

The Hidden Limits Of The Charitable Deduction: An Introduction To Hypersalience, Lilian Faulhaber

Faculty Scholarship

Behavioral economics introduced the concept of salience to law and economics. In the area of tax policy, salience refers to the prominence of taxes in the minds of taxpayers. This article complicates the literature on salience and taxation by introducing the concept of “hypersalience,” which is in many ways the mirror image of hidden taxation. While a revenue-raising tax provision must be hidden for taxpayers to underestimate their tax bill, a revenue-reducing tax provision – such as a deduction, exclusion, or credit – must be more than fully salient for taxpayers to underestimate their tax bill. In other words, the …

Not All Defined Value Clauses Are Equal, Wendy Gerzog

Wendy Gerzog

Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Not All Defined Value Clauses Are Equal, Wendy Gerzog

Wendy Gerzog

Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Not All Defined Value Clauses Are Equal, Wendy Gerzog

Wendy Gerzog

Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.

The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Not All Defined Value Clauses Are Equal, Wendy Gerzog

Wendy Gerzog

Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses. The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying …

Facade Easement: Inexpert Valuation, Wendy G. Gerzog

All Faculty Scholarship

The article discusses the recent Dunlap decision, which involved facade easement transfers to the National Architectural Trust, a qualified charity that preserves building easements across the country, although most are in New York City. Although allowing a deduction for their cash contributions to NAT to enforce the easement and not finding any penalties applicable, the Tax Court held that despite two valuation reports written by accepted valuation experts, the taxpayers had not established any value for their easement.

Increase In Standard Mileage Rate For Certain Charitable Work

The Contemporary Tax Journal

No abstract provided.

Mitigating The Effects Of An Economic Downturn On Charitable Contributions: Facing The Problem And Contemplating Solutions, Grace S. Lee

Grace S Lee

Charitable giving has been a foundation of American society almost since the nation began, but the issue of how such giving should be treated for tax purposes has been the subject of frequent debate. Scholars have proposed various theories explaining why the positive effects of this deduction on both donors and donees outweigh the negative impact on government coffers of this tax expenditure, although many still criticize certain features of the deduction in its current form. However, one area of this research that has been neglected is how the charitable sector is affected by changes to the economy at large. …

The Conservation Easement Tax Expenditure: In Search Of Conservation Value, Roger Colinvaux

Scholarly Articles

Federal tax law has long provided a tax benefit for charitable contributions of easements for conservation purposes. A fundamental problem with this conservation easement tax expenditure is that the measure for the tax benefit – lost economic development value – is erroneous. Use of such an erroneous measure obscures the conservation benefits of the program by focusing attention and resources on divining a largely extraneous and unhelpful number. Further, to a considerable extent, the easement program is reflexively justified and understood based on this false measure, as if it represented the conservation value of the program. The Article argues that, …

The Political Speech Of Charities In The Face Of Citizens United: A Defense Of Prohibition, Roger Colinvaux

Scholarly Articles

The Supreme Court’s decision in Citizens United v. Federal Election Commission makes a Supreme Court challenge to the tax law rule that prohibits charities from involvement in political activities more likely, and a reexamination of the political speech of charities necessary. Part I of the Article surveys the history of the political activities prohibition in order to emphasize that it was not a reactionary policy but quite considered, and that there are strong State interests supporting it, including protection of the definition of charity from further dilution. Part II of the Article analyzes Citizens United in detail and argues that …

The Hidden Limits Of The Charitable Deduction: An Introduction To Hypersalience, Lilian V. Faulhaber

Georgetown Law Faculty Publications and Other Works

Behavioral economics introduced the concept of salience to law and economics. In the area of tax policy, salience refers to the prominence of taxes in the minds of taxpayers. This article complicates the literature on salience and taxation by introducing the concept of “hypersalience,” which is in many ways the mirror image of hidden taxation. While a revenue-raising tax provision must be hidden for taxpayers to underestimate their tax bill, a revenue-reducing tax provision – such as a deduction, exclusion, or credit – must be more than fully salient for taxpayers to underestimate their tax bill. In other words, the …

Excluding Expert Valuation Testimony, Wendy G. Gerzog

All Faculty Scholarship

In Boltar, a case in which the Tax Court addressed the valuation of a conservation easement, the court ruled on the admissibility of expert testimony.

The Economics Of Section 170: A Case For The Charitable Deduction Of Parochial School Tuition, Meir Katz

Meir Katz

That payments for parochial school tuition are not deductible under Section 170 of the Internal Revenue Code is a foregone conclusion in the eyes of many tax policy scholars. Tuition provides an easy case because the donor receives something of great value in return for his donation: the education of his children. This Article questions that conclusion. By taking a close look at the economics behind these tuition payments in the context of a discrete population, the religious Jewish community, I show that traditional economic assumptions are inappropriate for analysis of those payments. Rather than a traditional economic exchange for …

What Leona Helmsley Can Teach Us About The Charitable Deduction, Ray D. Madoff

Chicago-Kent Law Review

Leona Helmsley named a number of beneficiaries under her will (both human and canine), but among the unnamed beneficiaries are scholars interested in studying the role of philanthropy in the United States. By directing that an estimated $8 billion be used for the benefit of dogs, Mrs. Helmsley brought in to high relief policy issues regarding the appropriateness of the unlimited charitable deduction. I argue that these concerns are equally applicable, albeit less obvious, when it comes to more traditional charitable bequests. In this paper I will discuss the appropriateness of the unlimited estate tax deduction (particularly in light of …

Respecting Foundation And Charity Autonomy: How Public Is Private Philanthropy?, Evelyn Brody, John Tyler

Chicago-Kent Law Review

Recent years have seen a disturbing increase in legal proposals by the public and government officials to interfere with the governance, missions, strategies, and decision-making of foundations and other charities. Underlying much of these debates is the premise—stated or merely presumed—that foundation and charity assets are "public money" and that such entities therefore are subject to various public mandates or standards about their structure, operations, and policies. The authors' experiences and research reveal three "myths" that, singly or collectively, underlie claims that charitable assets are public money. The first myth conceives of charities as shadow governments due to the requirement …

The Times They Are Not A-Changin': Reforming The Charitable Split-Interest Rules (Again), Wendy G. Gerzog

All Faculty Scholarship

The article reviews the history of the tax treatment of charitable split interest gifts, explains the inequities that Congress both cured and generated in its 1969 reforms, and proposes solutions that are consistent with the goals of the 1969 legislation. The article discusses variations in the 1969 definition of a charitable split interest, which, because of the enacted statutory language, applies in instances where there is no abuse potential. The inequity produced by that definition penalizes the donor and flouts the rationale behind the 1969 legislation. By contrast, the creation of some required statutory forms of charitable split interests in …

From The Greedy To The Needy, Wendy G. Gerzog

All Faculty Scholarship

In some instances when the taxpayer makes a charitable donation, the loss of revenue to the government, and the corresponding gain to the taxpayer, far exceeds the benefit to the charity. Some of these losses may be generated by government sanctioned complex transactions and even government created devices. This article proposes a new way to examine "quid pro quo" charitable gifts that reflects the rationale for the charitable deduction.The article analyzes various charitable donations in terms of the dollars gained by the taxpayer, the dollars lost by the government, and the dollars received by the charity. After considering a sliding …