Why Tuesday’s Supreme Court Ruling Matters to You

The Supreme Court yesterday handed down a decision (ACSTO v. Winn) that experts consider a win for proponents of parental choice in education. But the case has other significant ramifications for charitable giving, as explained by National Christian Foundation’s President, David Wills:

Tuesday’s ruling on parental choice in education is undoubtedly a significant victory for several states, including my home state of Georgia. However, there is another angle at the heart of this case that is quite important to us all: the nature of dollars deducted as charitable donations. Are charitable gifts government money or private money? The answer over the last several years coming out of DC has clearly been the former. In fact, you may have heard me mention that the the term ‘government subsidy’ is often used by our elected officials and their key staffers – both Republican and Democrat – when describing any funds that generate a charitable income tax deduction.

Whose Dollars Are Your Dollars?

The majority opinion makes the point that there is a distinction between a government appropriation and a personal expenditure that results in a tax benefit. The former is public money. That is to say, when the government collects tax revenue and then determines where those funds are to be spent, that is money over which the government does and should have control.

On the other hand, when a taxpayer makes a charitable gift and receives a deduction for doing so, the reality of the deduction does not change the nature of the funds.  The funds retain their status as private, non-governmental dollars.  The individuals who have earned and given those funds retains the private right to determine the use of those funds. Simply, a deduction or credit does not cause such funds to become the property of the federal government.

At first blush, one might think, ‘Of course, those are private funds.’ Don’t think so too quickly…and read Justice Kagan’s dissenting opinion.  Though I disagree with it, it is well reasoned. We are to be thankful that Justice Kennedy sided with the conservatives on the court and a 5-4 decision was rendered.  He essentially said that there was no standing for bringing the suit because the taxpayer (Winn) was not harmed because the funds were not governments funds.

Kennedy wrote: “A dissenter whose tax dollars are ‘extracted and spent’ knows that he has in some small measure been made to contribute to an establishment [of religion] in violation of conscience…”  On the other hand, with a tax credit the funds were never collected in the first place. “When the government declines to impose a tax,” Kennedy wrote, “there is no such connection between dissenting taxpayer and alleged establishment.”

Inside The Progressive Mind

Kagan countered by calling the distinction between tax appropriations and credits “arbitrary.”  She wrote, “Either way, the government has financed the religious activity. And so either way, taxpayers should be able to
 challenge the subsidy.”

Here is an excerpt from the NYT regarding Kagan’s dissent:

In her dissent in the case, Arizona Christian School Tuition Organization v. Winn, No. 09-987, Justice Kagan said the majority’s position was an elevation of form over substance. “Taxpayers experience the same injury for standing purposes,” she wrote, “whether government subsidization of religion takes the form of a cash grant or a tax measure.”

She offered examples. “Suppose a state desires to reward Jews — by, say, $500 per year — for their religious devotion,” she wrote. Would it matter to
 taxpayers offended by the practice whether the reward came in the form of a government stipend or a tax credit?

“Or assume,” she wrote, “a state wishes to subsidize the ownership of crucifixes” in one of three ways. It could purchase them in bulk and distribute them; it could reimburse buyers with a check; or it could pay with a tax credit.

“Now, really — do taxpayers have less reason to complain if the state selects the last of these three options?” Justice Kagan asked. Justice Kagan said the majority’s opinion was particularly surprising because the court had never thought the point even worth arguing over. “To the contrary: We have faced the identical situation five times — including in a prior incarnation of this very case! — and we have five times resolved the suit without questioning the plaintiffs’ standing,” she wrote.

Note where she uses the phrase: ‘government subsidization of religion’. When this belief becomes widespread, the charitable income tax deduction (or in this case a tax credit) for contributions to any religious organizations will eventually end.

A WSJ op-ed with a different slant began, “The Supreme Court’s big school choice decision yesterday is notable mainly for its insight into the progressive mind. To wit, no fewer than four Justices seem to believe that all wealth belongs to the government, and then government allows citizens to keep some of it by declining to tax it.”

Hanging in the Balance

This decision is a good news case for charitable giving, but let us not be lulled into thinking we have won the war.  We have only won a battle and are only one vote away from sweeping changes regarding the taxpayer and religious activity of many kinds.

One thing that is needed now are well reasoned law review articles that substantiate the ruling of the majority in this case and help under gird this ruling for future courts. A great deal is hanging in the balance.

David Wills serves as president of the National Christian Foundation in Atlanta, Georgia. He lectures throughout the country on issues involving foundations and nonprofit organizations, the transition of wealth, responsibility from one generation to the next, as well as tax and spiritual issues in charitable giving. Learn more about the National Christian Foundation and our other affiliates at www.servantchristian.com.

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Better Together?

The Chronicle of Philanthropy recently published an article, A Grant Maker Requires Grantees to Collaborate, that indicates a trend of how funders are thinking.  The article shares how the Community Foundation for Southern Arizona has made big changes in its grant making in response to the recession. The fund now only grants to coalitions of groups that work together to solve important community problems, not individual organizations.

The grant maker sees several benefits in this new paradigm of grantmaking:

1)   the collaborating groups can make sure they are not duplicating programs;

2)   the groups can close the gaps in the services they offer;

3)   collaboration allows each group to focus on its area of expertise

For these reasons, the grant maker believes that collaboration leads to better quality services. A spokesperson for the Tuscon community fund argues that “no one agency can meet any one person’s needs – and probably shouldn’t, when you start being everything to everybody, oftentimes you water down the quality of what you are providing.”

While this is a new idea from a grant making position the idea itself goes back much further.  ICorinthians 12 reminds us that we all have a unique purpose but the real power comes when together we become the Body of Christ.

Giving in the News: IRA Charitable Rollover Extension Likely

UPDATE: On December 17, 2010, the President signed this bill into law, extending the IRA Charitable Rollover for 2010 & 2011. Read about doing this through Servant Foundation here.

As part of the ongoing tax debate in Washington, last night the Democrats in the Senate released The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, their version of the bill central to the debate over the extension of the Bush tax cuts. It includes a number of popular extenders that were not included in the House version, including the ability for some taxpayers to make gifts to charity from Individual Retirement Accounts (IRAs).

The provision, which originally expired on Dec. 31, 2009, allows taxpayers over age 70 1/2 to distribute gifts of up to $100,000 to charities from an IRA without paying taxes on the gifted amount. This helps retirees meet their minimum distribution requirements without boosting their incomes. If this new bill passes, this would be available until Dec. 31, 2011. Gifts made in January 2011 could also count towards 2010.

Political pundits expect the bill to meet little resistance in the Senate, but it may face difficulties in the House. Congressional Democrats, disgruntled over the President’s compromise with the Republicans, are expected to cause some delays.

Though donor advised funds do not qualify for IRA charitable distributions, Servant Foundation offers donors the ability to open “designated funds” to receive these gifts. Designated funds are similar to DAFs, but require the donor to name the recipient charity up front. The donor then advises Servant on the timing for sending grants out to the designated charity. Donors can establish multiple designated funds if a number of charities are intended as recipients.

For more information on designated funds or questions on IRA distributions, contact Jonathan at 913-538-7842 or jharrison@servantchristian.com.

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Tis’ the season for stock giving, Servant can help!

With the rebound in the market, you may have some gains in your stock investments. You can rebalance your portfolios and gain more money for charitable giving this season when you give these appreciated securities through Servant Foundation. Any stocks, bonds, or mutual funds that have been held for more than a year and are worth more than the purchase price can be given directly to charity through a Servant Giving Fund… a much wiser solution than liquidating the stock and locking in a capital gains tax.

Clay Carlile had a nice run in the stock market recently and was getting ready to sell some of that stock. But then he thought about the taxes. He says, “I thought it sure would be great not to have to pay the tax on this. I had heard people say that the wisest way to give is not cash, but assets.” So he donated the stock to his Giving Fund, received a tax deduction for the fair market value of it, and avoided the capital gains tax. Now he has a lot more funds available for giving to his church and favorite charities. If you have stocks, bonds, or mutual funds that you’ve held for more than a year and are worth more than you paid for them, consider donating them to your Giving Fund before January 1.

Call us at 913-310-0279 or email Jonathan if you would like to talk with us about gifting appreciated securities.

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Year-End Taxes & Giving

As we turn the corner to December, many people are beginning to think about their year-end tax calculations and correspondingly, their available tax deductions.

The biggest available deduction in any one year is typically the charitable deduction.  I find many do not realize the rules.  Here are the big ones in brief:

1. In total, you may deduct up to 50% of your income each year from charitable gifts.

2. You may deduct up to 30% of your income in the form of a noncash asset (things like publicly traded stock, real estate, cars, collectibles, and closely held stock);

3. Even if an individual goes over the 50% or 30% levels, the deduction can carry over for another 5 years.

These are the basics, but in short, there’s a lot of room to increase your giving and take a deduction.  Now is the time to evaluate whether you have publicly traded stock that has appreciated in value.  That is a good candidate for deduction because not only do you get to deduct the fair market value, but you also don’t have to pay capital gains tax on anything donated.

On the other hand, the most missed tax deduction is the 30% of income non cash deduction.  Are you planning to get another car?  Give your old one.  If you give it straight to a charity that can use it, you get to deduct the fair market value.  On the other hand, the car can be sold and you can deduct the amount of what the car sold for.  Look at real estate holdings as an option as well.  For the business owner, you can also give shares in your closely held business.

With tax rates expected to go up in 2011, now is the time to make your gift.  If you need to make the gift and have it available for future years, then donate to a donor advised fund.  That way you get the deduction now, but preserve the opportunity to gift to your favored charity.

William F. High is the President/General Counsel of the Servant Christian Community Foundation (www.servantchristian.com).  Servant’s mission is to inspire, teach and facilitate revolutionary biblical generosity.  He may be reached at whigh@servantchristian.com.

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Giving Lags With Continuing Economic Downturn

Downturn. It continues to be the language of the day. This weekend’s edition (July 31-August 1, 2010) of the Wall Street Journal reports that the outlook for the remainder of 2010 remains bleak.

The growth the economy experienced in late 2009 and early 2010 is now slowing. Some economists and now predicting that they will cut growth estimates for the second half of the year.

Perhaps most troubling is that “growth” is largely dependent on consumer spending. As the Journal reports, “purchases account for 70% of economic activity.” It is a vicious cycle. Consumers won’t spend if they think their jobs are in danger, but businesses won’t hire unless they see consumers spending.

This stalemate of activity will certainly lead to stagnant giving trends. Like their corporate counterparts, many non profits slashed budgets to match decreases in giving. The ongoing message, however, appears to be that robust giving is not likely to return for sometime.

As we ponder the decrease in giving, we must also ponder the foundation of our economy. When we become dependent on consumer spending to drive growth, we have misaligned priorities. Whatever happened to production? Making something? When we return to an economy of production, we can see a robust economy and ultimately an increase in giving.

William High is the President/General Counsel of the Servant Christian Community Foundation. Servant’s mission is to inspire, teach and facilitate revolutionary biblical generosity. He may be reached at whigh@servantchristian.com.

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An Inconvenient Truth: Charitable Climate Change on Capitol Hill

While heated issues like health care and the housing market take center stage, the climate for charitable giving in America is quietly headed for the big chill as Capitol Hill turns a cold shoulder to tax breaks and other key incentives. The government’s insatiable appetite for spending and regulation combined with current financial woes has created the perfect storm, unlike anything to hit the nonprofit world in our era.

So is giving headed for extinction?
Let’s look at some of the underlying philosophy that has given rise to the charitable climate crisis. Since the 1940s, when taxes started to be collected through automatic withholding, there’s been a growing belief in government that a taxpayer’s paycheck belongs to them. In essence, you’re only allowed to spend what the government does not keep, or “withhold” from you.

So if the government allows a tax break for what you spend on charity, they believe that they should mandate the use of those funds (after all, they own it all anyway). In reference to nonprofit funding, Congressman Xavier Becerra (D-CA) has said, “Congress has an obligation to assure that their dollars are being well-spent.” Some have even gone as far as to say that the charitable income tax deduction is a government subsidy. Read the rest of this entry »