By Jerome Landau, JD, CPA

It's that time of year again!
December is the month for "numbers crunching," and final year-end tax planning and forecasting--what's my taxable income apt to be for 1996, and what am I looking forward to for 1997; what's my attained tax bracket for 1996, and what will it be in 1997? Shall I attempt to defer receipt of income to 1997, or should I accelerate deductions for 1996. Finally, do I need to a amend my declarations of estimated tax for the last installment due for 1996.

During the month of December, many will see promotions and advertisements by tax-exempt organizations soliciting contributions in cash or in kind. There are myriad kinds of charitable contributions which are deductible under the provisions of IRC section 170 and related sections for the charitably inclined who are also considering their tax liability for 1996. There are, among other charitable vehicles, public charities, private foundations, private operating foundations, supporting foundations, pooled income funds, donor-advised funds, and others.

Gifts to donor-advised funds, unlike those to some of the more esoteric forms of charitable organizations, usually require no legal procedures on behalf of the donor and no IRS applications or annual IRS filings by such donor. The typical donor-advised fund is already in effect and has been determined to be organized and tax exempt pursuant to IRC section 501(c)(3), or other related sections of the Code, in order to benefit charitable, educational, religious, scientific and other similar organizations.

Since the donor-advised fund already has been determined to be a tax-exempt organization, contributions to it are immediately tax deductible within the donor's adjusted gross income (AGI) percentage limits. The modus operandi of the donor-advised fund is that it accepts contributions and written recommendations thereafter from the donor about gifts the fund will make to specific organizations and in specific amounts. Thus, if a taxpayer makes a $10,000 gift on December 20, 1996, to a donor-advised fund, he or she typically is entitled to a $10,000 charitable contribution deduction, within AGI limits, for 1996, and can, in 1997 and thereafter, designate by recommendation to which organization, and in what amounts the funds are to be donated. In order to preserve the tax deduction for the year when paid to the donor-advised fund, the donor-advised fund technically reserves the right to reject the recommendation, but very rarely does. The individual donor has the right to designate his contribution as a separate fund established in his or her family name (The John Doe Charitable Fund). While the individual fund is comingled with other similar funds for investment purposes, the donor is provided with periodic statements showing how much was contributed; the earnings allocated to his fund; the expenses, distributions, and charges against his fund; and the balance in his fund at the statement date. Typically, the fund will have an annual administration charge (say one percent) of the annual value of each fund. Most donor funds now permit the individual donor (within limits) to designate how funds are to be invested: e.g., securities in the area of growth, growth and income, fixed income, money market, governmental, etc. The donor-advised fund usually acts very speedily on the donor's requests. The donor fund may require a minimum initial contribution of as much as $10,000 and may require that any distribution recommended by the donor be for a minimum amount of $250. Once approved by the grant committee, the designated gift is then sent to the donee organization in the name of "John Doe Charitable Fund."

Another major benefit is obtained by the contribution of appreciated securities to a donor-advised fund, since the capital gain tax normally due on the gain on the sale of securities is avoided when such securities, within specific AGI limits, are donated to a tax-exempt organization. Contributions, including other direct contributions by the donor that are in excess of the donor's AGI limits for the year, can be carried over and deducted in the next succeeding five (5) years. Contributions in cash are subject to a limit of 50% of AGI, whereas contribution of appreciated securities are limited to 30% of AGI. If the donor is willing to limit his deduction to his cost basis in the stock or securities, he can use the 50% of AGI rule for such
contribution.

Among the well known tax-exempt donor-advised funds are the following: Fidelity Charitable Gift Fund (Boston), Jewish Communal Fund (New York City), and NY Community Trust (New York City).