IRS Advises Lawmakers that Payments Received by Members of Charitable Class from Charitable Organization May Be Excludible Gifts

Tax Notes Todayreports that the Internal Revenue Service’s Office of Associate Chief Counsel(Branch 5), in letters addressed to Senator Mark Udall, Congressman Ed Perlmutter,and Senator Michael F. Bennet, has advised that payments received by individualsfrom a charitable fund “may constitute gifts that are excludible from therecipients’ gross income.”  According tothe letters, a tax-exempt charitable foundation had created a fund to “providea vehicle for donors to assist the victims and their families.”  The letter does not disclose precisely whatevent rendered the payees victims, but I can speculate that they were victimsof a natural disaster.  The fund arosefrom donations from the public.  Citingthe “test” for a gift under Duberstein v. Commissioner, 363 U.S. 278 (1960) (i.e., whether a payment proceeds from “detached and disinterested generosity”), the IRS explainedthat payments from the fund had been made “in response to the victims’ andtheir families’ needs and not out of any moral or legal duty that theFoundation or any particular donor may have had.”  Under such circumstances, noted the IRS, the payments“will be excludible from the recipients’ gross income as gifts.”

I am intrigued that the letters focus not simply on theintent of the charitable foundation, but also on that of donors to thefoundation.  If the “gift” is deemed tohave been made to the victims by the foundation – meaning that the foundationis not a mere conduit – why does the intent of individual donors to thefoundation matter for purposes of determining the tax consequences of transfersto the individual victims from the foundation?  If the foundation is not a mere conduit, the foundation is the “donor” of funds transferred to the victims.  As such, only the foundation’s intent should be scrutinized under Duberstein.

The letters are available at 2013 TNT 71-22.

JRB