SC Department of Revenue
non-profit update #13- 05/11/1998


May 11, 1998

RE: Non-Profit Update #13


Below you will find an update of selected items of interest to the Non-Profit Community.

Upcoming DOR Advisory Committee Meeting

We will be meeting on Thursday, May 28 at 2:00 p.m. in the educational auditorium at Riverbanks Zoo, Columbia. Topics for the meeting will include a variety of items, including a property tax exemption update, planned giving update, an Internet demonstration and an overview of partnerships in community service. If you would like to join us please call Jane Baker at 898-5445.


Federal Tax Law Update

A. IRS Priority Guidance Plan

The IRS annually publishes a Priority Guidance Plan which provides valuable insights into the Agency. The 1998 Priority Guidance Plan lists the following eight exempt organizations projects:

  • Guidance regarding the formation of a joint venture between an exempt organization and a non-exempt organization. (This project was published as Rev.Rul. 98-15.)

  • Guidance regarding educational tours sponsored by exempt organizations. (The IRS very recently issued Proposed Regs (Reg-121268-97) in this regard.)

  • Guidance regarding corporate sponsorship.

  • Guidance regarding qualified state tuition plans.

  • Guidance under section 4958 regarding excise taxes for certain excess benefit transactions.

  • Final regulations under section 6104 regarding disclosure of documents by certain tax exempt groups. (This project deals with the new rules for providing copies of Form 990 and the exemption application.)

  • Modification of Rev. Proc. 95-35 and Rev. Proc. 95-35A. (This deals with the reporting and notice requirements for exempt organizations (other than section 501(c)(3) organizations) that incur lobbying and political expenditures, and was recently completed in Rev.Proc.98-19).

  • Consideration of a volume submitter/master and prototype program for exempt organization applications.

The Priority Guidance Plan contained other items of interest to the non-profit community. The section on "Corporations and their Shareholders" included issuing Final Regulations under section 337(d) regarding the transfer of assets to, or other conversion of a taxable entity into, a tax-exempt entity.

The Gifts, Estates and Trusts Section contained the following:

  • Guidance under section 1(h)(11) and 664 regarding the application to capital gains of the tier system for distributions from charitable remainder trusts.

  • Guidance regarding certain unrelated business taxable income consequences of certain exempt organizations investing in common trust funds.

  • Final regulations under section 664 regarding charitable remainder trusts.


B. Overlooked Deductions

The Accounting Firm, Ernst & Young's Website [] contains an annual list of the "50 of the Most Easily Overlooked Deductions." Included on it are:

  • Appraisal fees for charitable donations or casualty losses

  • Appreciation on property donated to a charity

  • Out-of-pocket expenses relating to charitable activities, including the standard mileage deduction

  • Out-of-pocket expenses in giving services

  • Car expenses


C. IRS Issues Inflation Adjusted Rules on Deductions

In Rev.Proc. 97-57, the IRS announced several changes for the 1998 tax year that adjust tax laws to reflect inflation. One change affects the way donors calculate their deductions. Federal law allows donors to take income-tax deductions only for the portion of their contributions that are outright gifts. If donors receive any item of value in return, they must subtract the cost of such items. But donors may ignore small items they receive from charities.

The IRS said a charity could tell a donor that gifts were fully deductible in these circumstances:

  • The donor contributed $35.50 or more and received premiums that cost $7.10 or less. (In 1997, those figures were $34.50 and $6.90.)

  • The donor received premiums that had a fair market value equal to no more than 2 per cent of the amount of the contribution, or $71, whichever was less. (In 1997, the dollar figure was $69.)

  • The donor received appeals that contained small items --such as mailing labels-- that were worth a total of no more than $7.10. (The figure was $6.90 last year.)

The IRS also announced new threshold figures for taxpayers affected by a limit on overall deductions, including those for gifts to charity.

In 1998, taxpayers with adjusted gross incomes of $124,500 or more have to subtract from their deductions 3 per cent of the amount by which their income exceeds that amount. (The income figure was $121,200 in 1997.)


D. IRS Announces 1998 Standard Mileage Rates

The Service has announced (Rev.Proc. 97-58) the optional standard mileage rates used in computing the deductible costs paid or incurred on or after January 1, 1998, for operating an automobile for business, charitable, medical, or moving purposes. The rate for charitable use of an automobile is 14 cents per mile.


E. June 30, 1998, Deadline for Favorable Tax Treatment of Gifts to Private Foundations of Qualified Appreciated Stock

Once again, the income-tax provision permitting full fair market value deductibility of gifts of qualified appreciated stock to private foundations is about to expire. The current expiration date is June 30, 1998. If the provision is not extended by Congress, private foundation donors will generally be permitted to claim an income-tax deduction only for the cost (or basis) of appreciated publicly traded stock.

Fair-market-value deductibility of gifts of appreciated property to public charities and to private flow-through and operating foundations is not affected by the expiration of this provision.



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