Archive for June, 2012

Forgive me for feeling a bit full of myself right about now, but I just successfully completed the third and final exam toward my designation as a Chartered Advisor in Philanthropy® (CAP®) from the American College in Bryn Mawr Pennsylvania. 



I officially now have more letters after my name than in my name, which I might add, is no small accomplishment, and requires me to switch to a smaller font on my business cards.  So please don’t deflate my bubble by telling me you never heard of the CAP® designation.  Few people actually have, which begs the question – if a professional earns an unknown designation, does it make a sound?  More to the point – how important is a designation in a field that is still trying to find itself? (As one rather arrogant attorney put it to me once “there are more crap designations around……”)


Many people are involved in the nascent profession of “gift planning.”  And like the financial planners of 25 years ago, the professional status of gift planners and philanthropic advisors appears to be tied directly to the fields from which they emerge.  Right or wrong, accountants and attorneys may tend to get more respect as gift planners because they are perceived as technicians cobbling together tax and estate plans that encompass philanthropy as one piece of the puzzle.  Anecdotal evidence suggests that they get more respect than, say, life insurance or wealth management professionals who may be perceived as more product-focused and less client-focused.  And development officers working for the charities themselves, well, we all know what they want!  (If you don’t believe me, check out this fascinating discussion in the Chronicle of Philanthropy group on LinkedIn.)  So because we all come from different backgrounds and pedigrees, I believe that a really good argument can be made for the development of a professional designation that attempts to reach across all of these professional silos and achieve common ground.  Isn’t that part of the growth of any profession? 


So, what can I do now with the CAP® designation that I couldn’t do before as a “mere” CPA?  Not much.  But studying for the designation has enhanced my technical knowledge of some tax tools and techniques and it has also helped me develop a more global perspective on the field of philanthropy.  I have new appreciation for the work done on the other side of the table by development officers and fundraising executives.  But most important, I have newfound respect for the philanthropic impulses that motivate many of my clients.  What we do as technicians is help our clients select and develop the most efficient tools for the transfer of wealth to their families and suitable charities, but those techniques are the mere tools of the trade and we cannot forget that.  Understanding what motivates our clients is far more important because that will enable us to plan more effectively for the optimal solution.  As Phil Cubeta, the Sallie B. and William B. Wallace Chair of Philanthropy at the American College has written:  “The purpose of CAP….is to bring advisors and fundraisers together in common purpose around a shared body of knowledge and to help our donors and clients do great things for the charities they love and support while also taking care of the family’s financial needs.”


That sounds like a winner to me.

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One activity that ranks very low on my list of “fun things to do” is the selling or trading in of an automobile.  More likely than not, that explains why I tend to keep cars for many, many years.  I’ll never forget a recent trip to a new car showroom – the salesman used the detached bumper from our old jalopy as a visual aid to explain why our trade-in allowance was so low!  Anyway, last week, I think we set actually set our own personal automobile longevity record when we finally disposed of our 1995 Ford Taurus station wagon.  Yes, the car was a bit “out of style” and, yes, the interior was a bit shopworn, but given that it had over 105,000 miles on it, it was truly in great condition.  The engine ran well, the transmission was recently rebuilt, and the tires were fairly new.  But, despite the tender memories attached to this vehicle, it was time for us – and it – to move on.  

Given my aversion to selling automobiles, particularly ones that are approaching 17 years of age, I needed to find a more viable alternative for disposing of this car.  Trade-in?  Perhaps, but I was really too embarrassed from the prior “detached bumper” incident.  Leave it parked on the side of the road in a bad neighborhood with the keys in the ignition and the engine running?  Too “Seinfeldian.”  Hey – how about donating it to charity?  We hear ads on the radio all the time for such donations, and this car, while not a cream puff, could certainly find a good home this way while possibly providing us with a tax deduction along the way. 

A car donation can make sense, and it certainly did in this instance, but like everything else in the tax world, you have to make sure you follow the rules and that you are reasonable with your valuation.  Understand that automobile deductions were a highly abused area until a few years ago when the IRS sensibly tightened the rules.  Gone are the days when taxpayers could claim a healthy (read: inflated) deduction for the donation of a trashed out Yugo with no tires and a rubber band for an engine to a sketchy charity that would then sell the vehicle for scrap.  As well those days should be gone. 

Here are the planning takeaways:

  • The value of the car (or boat or plane or other vehicle) will be based on its fair market value (FMV), that is, the amount that would result in a transaction between a buyer and a seller, neither of which has a gun to his/her head to complete the transaction.  If that value is $5,000 or greater, you will need a written appraisal from a qualified appraiser to substantiate the value.  But read on….
  • This theoretical FMV will only be available to you if the charity actually uses the vehicle in the furtherance of its charitable mission.  If the charity sells the vehicle “without significant intervening use or material improvement” the value of the deduction on your tax return will be limited to the gross proceeds of that sale – and the charity will have to advise you and the IRS of that amount. 
  • In addition, if the value of the automobile exceeds $500 at the time of contribution, the charity is required to provide you with form 1098-C acknowledging receipt and certifying their use or sale of the vehicle.  Note however, that the charity does not value the car for you – that is your responsibility. 
  • Finally, if the charity sells the vehicle to a needy individual at a price significantly below fair market value or gratuitously transfers the vehicle, you will only be able to claim the fair market value if the sale or transfer furthers the charity’s mission. 

In the right situation, the donation of a vehicle can be a great thing.  Just remember that you do not get something for nothing.  You may think the car is worth $4,500 but if the charity only clears $300 for scrap metal, your deduction will be adjusted accordingly.  And, in any case, your tax savings will equate to only a fraction of what you could get if you sold the car in the open market.

Oh, the ending of our personal story?  Well, the old Ford was gifted to New Ground, a local Long Island charity committed to educating and empowering families and Veterans caught in the web of homelessness.  Their goal is nothing less than the truly independent functioning of their clients for generations to come.  Since Long Island is not a particularly mass-transit friendly area (except perhaps for the LIRR and a couple of bus lines), commutation ends up being a major hurdle for families of modest means.  It is our hope that this vehicle will make life a little bit easier for one of these families.  If so, then this transaction will have been a home run for everyone.

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I follow a LinkedIn group sponsored by the Chronicle of Philanthropy.  A recent discussion started by Gary Ravetto, a nonprofit strategist from Cleveland Ohio raised the following issue:  “We are a bunch of beggars, I was told tonight……[by someone who] doesn’t work in the nonprofit sector.  His exact words were, “I’ve been reading you and the others who are with those charities. You work pretty hard at ignoring the obvious. You are a bunch of beggars. You people always have your hand out whining about how you need more money. I’m for shutting all of you down so you’ll stop pestering the rest of us who make a living the hard way.”

Well, that told Gary and all those other whiny fundraisers!!

Fundraising is a difficult task.  Fundraisers constantly toe the line between being statesman-like representatives of their organizations and ” persuasive salespeople”.  Friend-raising, fundraising, the line is often blurred.  And board members who find themselves placed in the position of “softening up prospects” often have the hardest jobs of all – they DO tend to see themselves as beggars and desperately want to avoid becoming the cocktail party pariah, the one whom everyone else wants to avoid because of a perception that they are picking pockets.  In their mind’s eye, they end up ranking right up there with life insurance and used car sales people.   What a life!

But step back a minute. The not-for-profit sector is huge.  What rings true for me may not ring true for you, but that’s okay.  There are plenty of religious, social, international, animal-rights, civil rights, sports, cultural, educational, etc., etc., etc. groups around to spark philanthropic interest in just about anyone’s mind (except maybe Gary’s “beggar-epithet” throwing correspondent noted above.)  When viewed in that light, one cannot help but drop the beggar tagline and begin to realize that (1) fundraising is necessary (and not a necessary evil) because (2) the government can’t or won’t do it all and (3) people need to feel part of the solution to the problem. 

Most of the responses to Gary’s post were very interesting, but I want to share one with you that especially quantifies the importance of the work done in not-for-profit sector.  John Biggins, a fundraising consultant in the Chicago area, offered the following response to the Machiavellian correspondent:

“You can’t combat ignorance. For all of us who proudly work in this field and witness the impact on a day-to-day basis on humanity, Peter Drucker’s quote always resonates with me:  ‘Fundraising is going around with a begging bowl, asking for money because the need is so great. Fund development is creating a constituency which supports the organization because it deserves it.’

Since community impact and serving his fellow citizen does not seem to have much value in his shallow mind, perhaps economic impact may counter his weak observation. Let’s take a look at what would happen to the economy if he had his wish of ‘shutting us down’:

-Nonprofits employ 10% of the nation’s private workers
-Nonprofits represent $800 billion in annual purchasing power
-Nonprofit expenditures account for 8.5% of national income
-Nonprofit sector is the 3rd largest contributor to the U.S. GDP, after retail trade and wholesale trade
-Donations alone accounts for 2.2% of the nation’s GDP

I’d say to him careful for what you wish for…”

So I restate the question – Is fundraising (or fund development in the parlance of Peter Drucker) akin to begging?  Or is it more like planting seeds with style?

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Last week, in his blog Double Taxation (5/29/2012), my partner, Tony Nitti, analyzed the Tax Court case J. Mohamed, Sr., TC Memo 2012-152.  Lest one ever forget that form over substance often prevails in the tax world, one need only read this case to be shocked back into reality.  I won’t attempt to analyze the case itself (Tony is far better at that than I, and you can read his words directly) but I would like to summarize the planning take-aways:

  • The best planning is all for naught if you don’t complete the paperwork.  On the face of it, the Mohamed’s plan was a good one but it failed for lack of form – and how painful is that? They transferred several pieces of valuable real estate into a charitable remainder unitrust (CRUT) which was structured to pay income to the couple for a period of time (either their joint lives or 20 years; this is not specified in the TCM case).  A well-designed CRUT is a beautiful instrument, particularly when interest rates are trending upward – it enables you to take a current charitable deduction equal to the actuarially determined remainder value of the property transferred to the trust, it potentially increases your cashflow from the redeployment of those assets within the trust, and it can defer or even eliminate capital gains tax on the ultimate sale of the properties.  Whatever is left at the termination of the trust passes to specified charities.  Risk can be mitigated and cashflow increased in a tax-efficient manner – a work of art!  But essentially, the Mohamed’s did not complete this great plan because they did not properly complete the paperwork.  How frustrating, and what an expensive waste!


  • Remember the proverb “He who is his own lawyer has a fool for a client.”  Substitute the word “accountant” for “lawyer” and you have just about summed it up.  Not that bright, intelligent folks can’t prepare simple tax returns – in many cases they can but they have to be cognizant of the law.  Mr. Mohamed apparently overlooked that fact:  Joseph filled out the 2003 tax return himself, including the Form 8283, Noncash Charitable Contributions. He admits that he did not read the instructions before completing the form, because he says it seemed so clear that he didn’t think he needed to… even though, in fairness to the Commissioner, the form does say right at the top and center: “See separate instructions.” 


Now, my mother always told me that men have trouble reading and following instructions, but still……  You can’t overestimate the value of good, solid professional advice.


  • Finally, form over substance absolutely matters.  In this case, the Tax Court denied a legitimate $19,000,000 charitable contribution deduction (yes, 6 zeros on that one) because Mr. Mohamed did not dot his I’s and cross his T’s when filing his 2003 and 2004 tax returns.  The law is very specific – contributions of property valued at $5,000 or more (only 3 zero’s there) MUST be accompanied by a qualified appraisal and such appraisal cannot be completed by the taxpayer or his spouse.  Because his self-described occupation was that of “real estate broker, certified real estate appraiser, and a prominent Sacramento entrepreneur,” Mr. Mohamed felt quite qualified in valuing the property himself.  Apparently, not qualified enough.  In his simultaneous roles as the donor and the donee (trustee of the CRUT), Mr. Mohamed by definition was not a qualified appraiser.  (Editorial comment:  Mr. Mohamed may have been qualified to determine the value, but would you hire him to provide a “tax appraisal” if he did not understand the basic tax rules?  It’s probably a moot point; he’s already made his millions elsewhere, so I suspect he is not completing too many tax appraisals for clients.)

In fact, once the transactions were under audit, the Mohamed’s did engage independent appraisers to essentially verify Mr. Mohamed’s valuations, but the damage had already been done.  Ironically, the independent appraisers determined the total value to be about $1.7MM HIGHER than Mr. Mohamed had and subsequent sales of the properties supported both sets of appraisals.  Nevertheless, the Tax Court was absolutely clear in its decision that a greater good was at stake:

We recognize that this result is harsh–a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions–all reported on forms that even to the Court’s eyes seemed likely to mislead someone who didn’t read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.


This is a stark reminder that tax deductions are truly a matter of legislative grace.  Good intentions may be helpful but they are not enough.  You must follow the rules to the letter!

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