A charitable gift is considered made on the “date of delivery.” 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 (e.g., stock); and (3) in close cases, whether a gift is of a long-term or short-term property.
The rules vary, depending on the type of property contributed and how it’s transferred.
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 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 to its agent, provided that the securities are then received by the charity or its agent in the “ordinary course of the mails.” 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 its bank or broker (as 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 changes when the securities fluctuate in value.
Depository trust company; electronic transfers. The Internal Revenue Code and the regulations regarding 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.
The donor should direct the fund’s management to transfer its shares to the charity’s name; the delivery date is the date the transfer takes place. Depending on the fund, it may take several weeks to complete the transfer, so mutual fund gifts should be planned well in advance.
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 2017 income tax return for a check mailed on Dec. 31, even though it isn’t received by the charity until January 2018.
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.1 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.”2
Thus, a donor who depends on a private postage meter is placed 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.3
Another caveat. Don’t rely on online postage service. The U.S. Tax Court has ruled that a Stamps.com “postmark” is disregarded in favor of the USPS Tracking data.4 A petition for redetermination of an IRS determination was delivered to the Court by the USPS 98 days after the IRS mailed the notice of deficiency. The envelope containing the petition bore a mailing label generated by petitioner that included the postmark by Stamps.com of the 90th day, the last day for filing the petition. The envelope also had a certified mail sticker with a tracking number. The certified mail receipt wasn’t postmarked by a USPS employee but had a handwritten notation of the same date by an employee of petitioner’s attorney. Although the envelope didn’t bear a USPS postmark, USPS Tracking data for the envelope, which provides information regarding the flow of mail pieces through the mail system from arrival through delivery, reflected an arrival date of the 92nd day and a delivery date of the 98th day. The Court ruled that USPS Tracking represents “official records of the U.S. Postal Service” and can serve as the functional equivalent of, or be tantamount to, a USPS postmark. “The U.S. Postal Service Track and Confirm [now called USPS Tracking] service provides reliable data from a neutral third-party source that is not susceptible to manipulation by the parties.”
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.5
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,6 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.”
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 at that time.
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 the gift was actually made.7
Heads up. Rules enacted by the Pension Protection Act of 2006 (PPA) make it essential that the charity have physical possession.
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 to prove the donor hasn’t kept title, dominion or control over the gift.
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. 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 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.
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.8
For income tax purposes, pledges are deductible in the year they’re fulfilled, not in the year they’re made.9 Satisfying a pledge with property doesn’t give rise to taxable gain or deductible loss.10
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 the 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 FMV of the property on the date the option is exercised (the date of delivery), minus the exercise price.
Caveat. In Private Letter Ruling 9501004, the IRS concluded 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.
The deductibility rules for the gift of a promissory note depend on whether the donor gives a note that he holds as a creditor or whether the donor gives his 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.11 But if a donor gives a promissory note that he holds as a creditor (a third-party note), the donor may claim a charitable deduction for the note’s FMV in the year of the gift.12
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 is similar, says IRS, to the use of borrowed funds to make a contribution.13 But in a 2006 IRS news release,14 the IRS said “Credit card statements should show the name of the charity and the transaction posting date” (emphasis supplied). Suppose the charity receives the credit card information on Dec. 31, and the transaction posting date is in the following year. That same news release says: “[D]onations 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 not widely 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 its 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.15
Another, more recent method of contributing to charity, similar to a gift by telephone, is by text message. 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.
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.16
- Shipley, 572 F.2d 212 (9th Cir. 1978); Lindenmood, 566 F.2d 646 (9th Cir. 1978); and Estate of Labovitz, 50 TCM 1325 (1985).
- Treasury Regulations § 301.7502-1(c)(1)(iii)(B).
- See Correia, 58 F.3d 468 (9th Cir. 1995).
- Tilden, T.C. Memo 2015-188, citing Treas. Regs. § 301.7502-1(c)(1)(iii)(B)(3).
- Haaland, 48 TCM 348 (1984).
- Griffin, 49 TC 253 (1967).
- See, e.g., Bennett, TCM 1991-604 (grand piano); and Estate of Miller, TCM 1991-515 (hunting trophies).
- See Ankeny, TCM 1987-247 and Private Letter Ruling 8901004.
- Revenue Ruling 75-348.
- Rev. Rul. 55-410.
- Petty, 40 TC 521 (1964).
- Woodward, 37 TCM 715 (1978).
- Rev. Rul. 78-38.
- IR 2006-192 (Dec. 14, 2006).
- Rev. Rul. 80-335.
- Rev. Rul. 55-157.
© Conrad Teitell 2017. This is not intended as legal, tax, financial or other advice. So, check with your adviser on how the rules apply to you.