A charitable gift is considered made on the “date of delivery.” Establishing that date is important. It determines: (1) the tax year in which the gift is deductible; (2) the value of the gift for assets that fluctuate in value (for example, stock); and (3) in close cases, whether a gift is of long-term or short-term property.
The date of delivery rules vary—depending on the type of property contributed and how it's transmitted to the charity.
Securities. The delivery date depends on how and to whom delivery is made. Delivery must be unconditional and the stock certificate must be properly endorsed. If the stock certificate isn't endorsed, the donor should give the charity a properly endorsed stock power with the stock certificate. (Electronic transfers are discussed below.)
Hand-delivered. For securities that are hand-delivered to the charity by the donor (or delivered to the donor’s broker or agent who then hand-delivers them to the charity), the delivery date is the day the charity receives the securities.
Mailed. For securities that are mailed by the donor to the charity or to its broker or other agent (or delivered to the donor’s broker or agent who then mails them to the charity), the delivery date is the day the securities are mailed to the charity or its agent, provided the securities are received by the charity or its agent in the “ordinary course of the mails.” Caveat Donor: The delivered-when-mailed rule only applies to the U.S. Postal Service, not to private couriers.
Reissued in charity’s name. For securities that are delivered by the donor to her bank or broker (as her agent) or to the issuing corporation (or its agent) with instructions that the securities be reissued in the charity’s name, the delivery date is the day the stock is transferred to the charity’s name on the corporation’s books. Doing it that way, a donor loses control over the delivery date and the value of the contribution if the securities fluctuate in value.
Depository Trust Company (DTC)—electronic transfers. The Code and the regulations on date of delivery were written back in the pony express days and haven’t been updated. But relying on general principles, the gift is made when the transfer to the charity’s account is completed.
Mutual fund gifts. The donor should direct the fund’s management to transfer her shares to the charity’s name; the delivery date is the date the transfer takes place. Depending on the fund, it can take several weeks to effect the transfer, so mutual fund gifts should be planned well in advance.
Gifts by check. Under the “mailbox rule,” the date of mailing to the charity is deemed the date of delivery if there are no restrictions on the time or manner of payment and the check is honored when presented. Thus, a donor will get a deduction on a 2014 income tax return for a check mailed on December 31, even though it isn’t received by the charity until January 2015.
Caveat. A donor shouldn’t rely on a postage meter to establish the date of delivery for a gift that's mailed. In three cases (not in the charitable area), the Tax Court dismissed petitions that weren't timely filed, even though the envelopes containing the petitions had been stamped on the proper date by a private postage meter. (Shipley, 572 F.2d 212 (9th Cir. 1978); Lindenmood, 566 F.2d 646 (9th Cir. 1978); and Estate of Labovitz, 50 TCM 1325 (1985).) Not only must the date be correct, but: “the document . . . must be received . . . not later than the time when a document . . . contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service.” Reg. Section 301.7502-1(c)(1)(iii)(B).
Thus, a donor who depends on a private postage meter places herself at the mercy of the post office (not a good place to be). When it's important to establish the delivery date, the gift should be mailed through the post office, certified or registered mail, return receipt requested. See Correia, 58 F.3d 468 (9th Cir. 1995).
A Certificate of Mailing is no substitute for certified mail. Unlike registered or certified mail, a certificate doesn’t identify the item sent; it merely vouches that some piece of mail was received by the post office. Haaland, 48 TCM 348 (1984).
Reminder. As noted earlier, the delivered-when-mailed rule only applies to U.S. postal mail, not to private couriers.
The date of mailing won’t make any difference if the check is postdated. In Griffin, 49 TC 253 (1967), the Tax Court disallowed a deduction for the year of mailing, stating: “A postdated check is not a check immediately payable but is a promise to pay on the date shown.”
Gifts of works of art and other tangible personal property. The date the property is received by the charity is the delivery date. Title must also be transferred.
Some donations can present logistical problems when, for example, the donee doesn’t have the facilities to store or display the gift. Donors may try to surmount those difficulties by transferring title to the property while keeping possession until the charity is ready. The IRS may deny that a gift was actually made. See, e.g., Bennett, TCM 1991-604 (grand piano), and Estate of Miller, TCM 1991-515 (hunting trophies).
Heads up. Rules enacted by the Pension Protection Act ‘06 (PPA ‘06) make it essential that the charity have possession. More about this requirement below.
Usually, state law determines what sort of legal formalities are necessary to effectuate “constructive delivery.” Courts will sometimes give credence to constructive delivery, but only with substantial evidence that the donor hasn’t kept title, dominion and control over the gift. In Murphy, TCM 1991-276, the Tax Court agreed that the charity had no place to put a 7½ foot sandstone statue of John Wayne’s face. Besides, the donee had paid for storage and insurance in the interim.
Nevertheless, as a result of actual and perceived abuses for gifts of artworks and other tangible personal property, make certain that the charity has actual possession.
Physical possession requirement—PPA ‘06. If the donee of a fractional interest in an item of tangible personal property fails to take physical possession within one year of the initial gift (and within one year of any additional gifts)—for a period equal to the donee’s fractional ownership—the donor’s income and gift tax charitable deductions for all previous contributions of interests in the item will be recaptured, plus interest.
The related-use requirement—penalties. If the donee doesn’t use the property for a use related to its exempt purpose, the donor’s income and gift tax charitable deductions for all previous contributions in the item will be recaptured, plus interest.
Additional penalty. If deductions are recaptured under the physical possession or related use rules, an additional tax is imposed equal to 10 percent of the amount recaptured.
Real estate. The date the charity receives a properly executed deed is the delivery date. But, if the deed must be recorded to effectuate title under local law, the delivery date is the date of recording. See Ankeny, TCM 1987-247, and Letter Ruling 8901004. See Zarlengo and McMahon-Zarlengo, T.C. Memo 2014-161, holding that under New York law, a conservation easement isn’t delivered until it's recorded.
Pledges. For income tax purposes, pledges are deductible in the year they’re fulfilled, not in the year they’re made. Rev. Rul. 75-348, 1975-2 CB 75. Pointer. Satisfying a pledge with property doesn’t give rise to taxable gain or deductible loss. Rev. Rul. 55-410, 1955-1 CB 297.
Options. An option is a promise to sell specified property at a certain price in the future. The gift of an option is treated like a transfer of a donor’s own promissory note or pledge. If the option allows the holder to buy property for less than fair market value, it’s considered a promise to make a bargain sale at a future date. Even though the promise may be enforceable, it isn’t deemed a “payment” for purposes of the income tax charitable deduction. Due to the deductibility rules for options, a donor doesn’t know the amount of his deduction until the charity exercises its option. The amount of the contribution is the fair market value of the property on the date the option is exercised (the date of delivery), minus the exercise price.
Caveat. The IRS concluded, in Letter Ruling 9501004, that a donor who transferred an option to a charitable remainder trust wasn’t entitled to a charitable deduction. Donors should tread carefully when making gifts of options.
Promissory notes. The deductibility rules for a promissory note gift depend on whether the donor gives a note that she holds as a creditor or her own note. A gift of a donor’s own promissory note may not be deducted until the year the note is paid, even if the charity discounts the note at a bank and gets the money immediately. Petty, 40 TC 521 (1964). But, if a donor gives a promissory note that she holds as a creditor (a third-party note), the donor may claim a charitable deduction for the note’s fair market value in the year of the gift. Woodward, 37 TCM 715 (1978).
Credit card gifts. Charitable contributions made using a credit card are deductible when the bank pays the charity; it isn’t necessary to wait until the donor pays the bank. Because use of a credit card creates the cardholder’s own debt to a third party, it's similar, according to the IRS, to the use of borrowed funds to make a contribution. Rev. Rul. 78-38 , 1978-1 CB 67. But in a 2006 IRS News Release, IR 2006-192 (12/14/06), the IRS said “Credit card statements should show the name of the charity and the transaction posting date” [emphasis added]. Suppose the charity receives the credit card information on Dec. 31, and the transaction posting date is in the following year. That same 2006 news release says: ”Thus, donations charged to a credit card before the end of the year count for 2006. This is true even if the credit-card bill isn’t paid until next year.” So what does “charged” mean—posted or giving the credit card information to the charity? When a published revenue ruling is clear and a narrowly-distributed IRS news release is ambiguous, the revenue ruling should prevail. Nevertheless, don’t wait until the last minute to charge a gift.
A process similar to the use of a credit card, but having the opposite result, is the use of a “pay-by-phone” account with a bank. If a donor directs his or her bank to make a charitable contribution, the gift is deemed made as of the date the bank mails, transfers, or delivers the funds to the charity. That date is shown on the bank’s monthly statement, but it might not be the date (or, more significantly, the year) that the donor directed the transfer. Rev. Rul. 80-335, 1980-2 CB 170.
Contributions made by text message are deductible in the year the text message is sent. A telephone bill showing the name of the donee organization, the date of the contribution, and the amount of the contribution will be proof of the date of the gift.
Watch out for installment obligations. A gift of an installment obligation (gain is reportable in installments under IRC Section 453) accelerates any remaining deferred gain in the year of the gift. Rev. Rul. 55-157, 1955-2 CB 293.
© Conrad Teitell 2014. This is not intended as legal, tax, financial or other advice. So, check with your adviser on how the rules apply to you.