The New Income 

 Tax Law and 



Charitable 

 Giving 



by Clifford Buzard 

 Planned Giving Officer 



JL un 



und-raising efforts of most not-for-profit institutions 

 like Field Museum will neither rise nor fall as a result of 

 any new income tax law. 



So states Thomas R. Sanders, vice president for 

 Development at Field Museum. "People give to their 

 favorite charities because they want to give," Mr. Sand- 

 ers said. "For many of our donors, tax benefits from their 

 giving have been 'icing on the cake,' because they are 

 motivated by more positive factors. They give because 

 they get tremendous self-satisfaction out of giving. They 

 give because they understand and appreciate the impor- 

 tant educational programs and scientific research proj- 

 ects to which the Museum and its staff" (including 45 

 PhDs, of whom 32 are curators) are committed." 



The Senate and House of Representatives Joint 

 Conference Committee on tax reform made what 

 observers call a "miraculous" compromise between ear- 

 lier passed Senate and House bills on tax reform. The 

 two bodies approved the compromise on their return to 

 session in late September. President Reagan later signed 

 the bill. 



The Tax Reform Act of 1986 makes major changes 

 that not only will affect the nation's businesses, but also 

 will affect individuals — changes that increase the per- 

 sonal exemption, reduce the rates and number of rates, 

 and eliminate or limit deductible items. 



Changes in the rules concerning charitable giving 

 and related deductions are relatively few. Just how gift 

 receipts in the independent sector (the not-for-profit 

 world) will be affected and to what extent remains to be 

 seen; as yet there is no consensus among nonprofit lead- 

 ers. As drafted at this writing, the new law affects charit- 

 able giving and the charitable deduction in three ways: 



First: The deduction is eliminated for charitable 



gifts from those persons who use the short form 1040 

 (non-itemizers), effective January 1, 1987. 



It is expected that non-itemizers who give to the 

 Museum will continue their giving, because they will be 

 either in the lower bracket or off the tax rolls. For 1986, 

 the graduated deduction for charitable gifts by non- 

 itemizers rose to 100 percent, or the total amount of the 

 gift. And the same rule as for other taxpayers applies: a 

 person may give up to 50 percent of adjusted gross in- 

 come to charity if giving cash, or up to 30 percent of 

 adjusted gross income if giving appreciated securities. 



Second: For the most part, rules for recognizing 

 capital gains and capital gains tax on gifts of appreciated 

 property stay the same, except for one important limita- 

 tion: Under current law, a person may deduct the total 

 market value of a gift of appreciated property, such as 

 stocks, and recognize no capital gain or capital gains tax. 

 Under the Tax Reform Act of 1986, tax on a portion of 

 the capital gain reflected in a gift of appreciated property 

 will be assessed, but assessed only on those persons who 

 are subject to the alternative minimum tax. 



Third: Congress always has encouraged charitable 

 giving and, through the charitable deduction, in effect, 

 subsidizes the gift. For example, under the current max- 

 imum tax rate of 50 percent, a $100 gift reflects a "sub- 

 sidy" by the government of $50. Under the two-year 

 graduated maximum rate, 38.5 percent in 1987 and 28 

 percent in 1988, a $100 gift would reflect a "subsidy" of 

 $38.50 in 1987, $28 in 1988 and thereon, assuming no 

 further rate changes. 



"The effect on charitable and not-for-profit institu- 

 tions, such as Field Museum, should be minimal," Mr. 

 Sanders said, "because so many non-itemizers will either 

 drop to the 15 percent minimum tax rate or even pay no 

 taxes, that they will have more discretionary income and 

 will continue their giving beliefs and practices," he 

 explained. 



"Not all those who give appreciated stock will be 

 affected by the capital gains tax. Those donors will con- 

 tinue to give appreciated stock, and as much as before; 

 those donors subject to the alternative minimum tax will 

 probably still give stock, if they are properly motivated 

 to continue their charitable interests. 



"At Field Museum, donors come from the member- 

 ship rolls, and those members give over-and-above 

 membership dues. As our membership grows, we will 

 have an opportunity to increase our number of donors," 

 Mr. Sanders continued. 



Mr. Sanders pointed to Giving USA, 1986, pub- 

 lished annually by the American Association of Fund- 

 Raising Counsel. In that report, Robert L. Thompson, 

 chairman, said: "In the 50-year history of the. . . Counsel 9 



