Charitable and Non-Charitable Gifts Must Be Made by the End of the Year for Gift Tax Purposes

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Title:
Charitable and Non-Charitable Gifts Must Be Made by the End of the Year for Gift Tax Purposes
Date:
November 29, 2006
Publication:
From the December 2006 Riker Danzig Tax and Trusts & Estates UPDATE.
Area(s) of Practice:
Estate Planning & Administration, Tax Law

In order to receive an income tax deduction this year for charitable contributions, you must complete those contributions by the end of the year. Moreover, if you are planning on utilizing the $12,000 per year/per recipient annual gift exclusion this year for non-charitable gifts, you must complete those gifts by December 31 as well.

Generally, a gift is completed in the year when it is unconditionally delivered to the donee or the donee's agent or when the actual payment is made. On the other hand, a gift that is subject to conditions may not amount to a completed gift at all.

Payments by Checks: Charitable contributions paid by check are considered completed when the check is mailed even though the check is not received by the charity or charged against the donor's bank account until a later date. As a result, if you are planning on making a gift to a charity by check, it should be mailed to the donee on or before December 31 in order for it to be deductible this year. In the case of a gift by check to a noncharitable donee, the IRS generally takes the position that the gift is not completed until the check is paid, certified, or accepted by the drawee, or negotiated for value to a third party. There is, however, a limited exception to this general rule. The IRS has ruled in Revenue Ruling 96-56 that a gift by check to a noncharitable donee is complete on the date that the check is deposited by the donee, provided the check is paid by the drawee bank while the donor is alive and: (1) the donor intended to make a gift; (2) delivery of the check was unconditional; and (3) the donee presented the check for payment in the year for which completed gift treatment is sought and within a reasonable time of issuance.

Stock: A gift of corporate stock may be completed by delivery of the endorsed stock certificate to the donee (or to an agent of the donee). If the donor endorses a stock certificate in favor of a donee and delivers the certificate to the donee or the donee's agent, the gift is complete on the date of delivery, even though the donee does not present the stock certificate to the corporation for transfer on the corporate books until a later time. If, however, the donor delivers the certificate to his or her bank or broker, or to the issuing corporation or its transfer agent, for transfer into the name of the donee, the gift is completed on the date the stock is transferred on the books of the corporation.

Payments by Credit Card: Gifts made to charitable and non-charitable donees that are charged to a credit card are considered completed as of the date that the charge is made to the credit card. Contributions made by credit card are treated by the IRS as cash equivalents because donors using a credit card immediately become indebted to a third party (e.g., the bank) and are unable to prevent the donee from receiving the contribution.