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DEDUCTIONS FOR GIFT TO CHARITY/CRT


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I apologize if this is not very thoughtfully put together. I started several hours ago surrounded by my children, got through dinner and am now fighting sleep so I can get this post completed and up. Please forgive any grammar problems, etc....

I am kind of sticking myself out there with this post. I am going to contradict not only what I have said in the past, but the basis of much of the discussion I have had with other attorneys about the dinar.

Before anyone starts thinking I am changing my stance on the ordinary income nature of the gains you will have from exchanging dinar, I want to let you know that I am more sure than ever about my position on the taxes that will be due under section 988. If anything, this solidifies my views. See the following link for a discussion on the income tax topic:

CHARITABLE DEDUCTIONS

Now I want to discuss the charitable contribution deductions. I hope this helps many attorneys and CPA's save their clients millions.

It may make all the difference in the world on your planning. I know it makes a HUGE difference in my planning.

THE PROBLEM & DOUBTS ABOUT THE ANSWER

Initially all the attorneys I have spoken with /emailed/etc... and I have discussed the post RV dinar as an appreciated asset with different income rules because of section 988. There was the fear that because we would be taxed as ordinary income on any exchange or disposition of the dinar that the only deduction you would be able to take for charitable contributions would be what you spent on the dinar. I came up with a counterargument that I posted. However, I am not even going to send you to the link because it was incorrect. The whole premise of the discussion was incorrect. (In fact if you go to the topic I started on this issue, You will find a post telling you that it is garbage and sending you back here.) I am so glad I did not stop thinking about it or researching it.

TURNING POINT

I got to the point where I was very sure of myself but still could not support my claims with anything other than circumstantial or non-authoritative evidence. Still I became so sure of what I had found that I began telling people my thoughts privately. Today, I received an email from someone who offered to pay for my time in answering this very question. I had my motivation to really dig into the research. Now that I have the answer and I'm telling everyone for free, I don't know whether or not he will want to pay me. (I'll leave that up to him.) Anyway, you should all send out a thanks to this unknown individual. His request is why I finally found the answer today.

INITIAL RESEARCH

I know there must be some term or saying for an obvious point that escapes you. Whatever it is, it fits here. The obvious thing is that dinar is cash. I can hear the, “Well duh!!!” answer coming from many of you. It seems obvious, but do you know how easy it is to look past that and how hard it is to “prove” it? Do you have any idea how important this is? This is HUGE.

Once my suspicions began to develop that we were thinking about this all wrong, I started researching and putting requests out for help. The requests for help were largely unanswered. The research turned up tons of non-authoritative evidence that I was correct.

Lots of places throughout the internal revenue code you will see the word “cash” where foreign transactions are being discussed. I even found the instructions to one form (form 8300) where cash is defined as currency and coin whether foreign or domestic. I also found an Academy and three universities that “appreciate cash donations of any kind whether foreign or domestic.” [paraphrased] All of these things indicated that I was correct, but none were authoritative or even acted as strong indicators of which way the IRS would rule on an issue dealing with a deduction for a charitable gift of dinar.

FINALLY THE ANSWER

Today I spoke with an acquaintance in the legal profession. (He designed the website that I modeled my own website's charitable section after.) He is one of the lead attorneys for a charitable organization. (I've decided no to mention the charity or his name because I don't want people bugging him.) He set me on the correct track in my research. The following is what I found.

In 1969 a Revenue Ruling was produced. Rev. Rul. 69-63 looked at the allowable deductions for contributing two items to a charitable trust; a coin collection and 1,000x dollars. (The “x” (as far as I understand) indicates missing information which would indicate the country of origin of the currency.) What most people focus on in the ruling is that, because the coins had a value apart from their face value, the coin collection was tangible personal property. Because of that (and some other circumstances) the deduction for the coins was disallowed. However, what is important to us is that the 1,000x dollars had only their face value and were used as a means of exchange. Because of this, they were considered cash and the charitable deduction was allowed. The 1,000x dollars were not an appreciated asset for which a valuation had to be done. They were just cash. Simple as that. Your dinar could easily replace the “x” in “1,000x dollars.”

Revenue Rulings like Rev. Rul. 69-63 are precedent for the IRS. The following Private Letter Ruling is not precedent for anyone other than the person it was drafted for. However, PLRs are good support for how the IRS is likely to handle an issue.

Private Letter Ruling 92-25036:

Typically sets of coins have value separate from their stated value (numismatic value). There are two exceptions, the South African Krugerrand and the Canadian Gold Leaf. Since neither have value outside of their value as a medium of exchange, they are considered cash and not tangible personal property.

Synopsis of the PLR:

the Donor has owned 740 South African Krugerrand gold coins for more than one year

that he proposes to transfer to a Charitable Remainder Trust (CRT).

In Rev. Rul. 69-63, 1969-1 C.B. 63, the IRS ruled that a collection of rare coins held

as collectors items is tangible personal property. The ruling also ruled that cash is not

tangible personal property within the meaning of the statute.

The IRS determined South African Krugerrand gold coins are more akin to money

than to coins that have value as collectors items.

The Krugerrand has no numismatic value and the Trustee is authorized to dispose of the coins. Therefore, pursuant to the rationale of Rev. Rul. 69-63, the IRS concluded that the South African Krugerrand gold coins are not tangible personal property. A deduction for placing the Krugerrand into the CRT would be allowed.

THE WAY IT WORKS

So what happens? It is really quite simple. You give the charity (or the charitable remainder trust) some dinar and you receive a receipt for a cash donation, denominated in dollars, based on the exchange rates on the date of the gift. The charity then exchanges the dinar (Iraqi cash) for USD (American cash).

If you are the Trustee of a CRT holding dinar, you give a receipt to the donor for a cash contribution in USD based on the exchange rates the date you receive the gift. Then you need to go exchange the dinar for USD.

DEDUCTIBILITY

A cash contribution to a public charity is fully deductible for the full amount of the gift up to 50% of your income. That means that when I pay my tithing in Dinar for income I actually receive, It doesn't matter if I have held the dinar for 12 months or not. Further, not only am I avoiding additional income by gifting the physical dinar, but I also get a full deduction for the exchange value of the dinar on the date I gave it to the church. That also means that if I am using a CRT, it doesn't matter if I have held the dinar for 12 months or not. I am going to get a deduction for the present value of the full amount that will go to charity.

There are some limitations for gifting to private foundations and other charitable entities not considered public charities. Those can be reviewed in “Limits on Deductions” section of IRS publication 526 which can be found here:

http://www.irs.gov/publications/p526/ar02.html#en_US_2010_publink1000229802

PLANNING NOTE

The fact that you are getting a deduction for the exchange value of the dinar on that date of the gift means you should wait until post RV to gift the dinar to the charitable entity.

For me this means that I will get a full deduction for the 10% I give in tithing. It means that I will get to deduct from my taxable income the full remainder value of my CRT. It also means that I will get that full deduction without ever having to claim income from that dinar that I gave away.

EXAMPLE

Lets assume an exchange rate of $3.10 and a total of 5,000,000 dinar.

1,500,000 dinar into a CRT paying out 5% over the remainder of my lifetime, CRT will have $4,560,000 worth of assets to invest on my behalf but I don't pay taxes on that amount. I only pay taxes on the income stream.

3,500,000 dinar left that I can actually receive income on from exchange. I give 10% to my church as tithing.

350,000 dinar given to church

3,150,000 dinar remains and I exchange it producing $9,765,000 in income

Even though I never had the income from the 350,000 dinar given to the church I get a deduction for that gift of $1,085,000

Even though I never had income from the gift the the CRT of 1,500,000 dinar and it will provide income to me for my whole life before a charity gets anything, I still get an additional charitable deduction of $465,000

PLANNING POINT

The CRT has simply received cash at its current value. There is no “basis” to track for the charity. Therefore, if I am able to guide the investments of the CRT into long-term capital gain assets, my income from the CRT can be characterized as LTCG and I can take the preferential tax treatment as long as it exists. If the RV comes this in February 2011, then by March 2012 I could be receiving income for which I would be taxed at 15% instead of 35%

That is all I can spare the time or mental energy for tonight. I hope this is helpful to some of you out there. Bring it to your attorney or CPA to help them in their research about your charitable deductions.

Best of Blessings,

Mark

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EXAMPLE

Lets assume an exchange rate of $3.10 and a total of 5,000,000 dinar.

1,500,000 dinar into a CRT paying out 5% over the remainder of my lifetime, CRT will have $4,560,000 worth of assets to invest on my behalf but I don't pay taxes on that amount. I only pay taxes on the income stream.

3,500,000 dinar left that I can actually receive income on from exchange. I give 10% to my church as tithing.

350,000 dinar given to church

3,150,000 dinar remains and I exchange it producing $9,765,000 in income

Even though I never had the income from the 350,000 dinar given to the church I get a deduction for that gift of $1,085,000

Even though I never had income from the gift the the CRT of 1,500,000 dinar and it will provide income to me for my whole life before a charity gets anything, I still get an additional charitable deduction of $465,000

Mark,

Thanks for the information and analysis! A few question for you, if you have a moment.

I see that your 350,000 NID donation as tithing nets you a deduction of $1,085,000, or 100% of your donation.

Why does your donation of 1,500,000 NID to your CRT only net you a deduction of 10% of your donation? Why not 100% like the tithing donation?

Aren't you allowed up to 50% of your income as deductible donations? So, I have an income of $9,765,000, I should be able to get a total deduction of $4,882,500 right?

Thanks in advance,

Semper Fidelis,

Kent

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I see that your 350,000 NID donation as tithing nets you a deduction of $1,085,000, or 100% of your donation.

Why does your donation of 1,500,000 NID to your CRT only net you a deduction of 10% of your donation? Why not 100% like the tithing donation?

Aren't you allowed up to 50% of your income as deductible donations? So, I have an income of $9,765,000, I should be able to get a total deduction of $4,882,500 right?

The reason the deduction for the CRT is less is that the way I structured this particular example, all the charity gets in the end from the CRT s 10% of the original gift. (That is the minimum.) If we had structured the CRT to give the charity more, the deduction would have equaled the greater charitable gift.

Best of Blessings,

Mark

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  • 3 months later...

Thank you for all you hard work in regards to helping us less fortunate Pre-RI/RV. please see my other post on gifting letter you created for Dinarvets

I formed the in Acrobat reader and locked the form so no one can chage it only add their information and print it. Thanks again. If I have to make any changes per your guidance or remove it please let me know. GOD Bless - Shabot Shalom, Shalom :)

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  • 2 weeks later...

*+*

Thank-you Mark! I'm still learning and appreciate the knowledge you have shared! The donation of your time is amazing! :)

You are most welcome. However, this post is outdated now by continued research and better understanding. Look at my next post.

Blessings,

Mark

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This post is now outdated. I have done significant amounts of research as well as enlisting the aid of others to research as well. This research points out deficiencies in the code and regulations and was part of what went into my request for guidance recently submitted to the IRS.

Above I mention how charities currently deal with gifts of foreign cash. However, upon further research it was found that there is no basis in the code for the way they handle these gifts. They "should" be looking at basis. There is no authority to support their current position. The current way they deal with gifts of foreign currency (without respect to basis) in the circumstances of a Charitable Gift Annuity, a Charitable Remainder Trust, or similar charitable tool can lead to what the IRS would refer to as "abusive" uses of the code. (These are alluded to in the initial post.) Upon deciding that you have "abused" the code, the IRS is likely to recharacterize your transaction to charge more taxes, penalties and interest and then decide if they should prosecute you criminally or just hit you with additional penalties for your "fraud." (Sounds yucky!!)

You should still (in my opinion) be able to get a full deduction for your gifts to charity. However, you need to be careful how you do it.

If any of you are interested, I'll attach the request I sent to the IRS.

Best of Blessings,

Mark

Recommendation for Guidance Priority List.pdf

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This post is now outdated. I have done significant amounts of research as well as enlisting the aid of others to research as well. This research points out deficiencies in the code and regulations and was part of what went into my request for guidance recently submitted to the IRS.

Above I mention how charities currently deal with gifts of foreign cash. However, upon further research it was found that there is no basis in the code for the way they handle these gifts. They "should" be looking at basis. There is no authority to support their current position. The current way they deal with gifts of foreign currency (without respect to basis) in the circumstances of a Charitable Gift Annuity, a Charitable Remainder Trust, or similar charitable tool can lead to what the IRS would refer to as "abusive" uses of the code. (These are alluded to in the initial post.) Upon deciding that you have "abused" the code, the IRS is likely to recharacterize your transaction to charge more taxes, penalties and interest and then decide if they should prosecute you criminally or just hit you with additional penalties for your "fraud." (Sounds yucky!!)

You should still (in my opinion) be able to get a full deduction for your gifts to charity. However, you need to be careful how you do it.

If any of you are interested, I'll attach the request I sent to the IRS.

Best of Blessings,

Mark

Thanks so much for your research! If you know of a good tax attorney please PM me. When this thing RV's, most of us will need lots of advice!

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Thanks so much for your research! If you know of a good tax attorney please PM me. When this thing RV's, most of us will need lots of advice!

You are in San Diego? I am actually taking a group of people to see an law firm in your back yard. Joseph Strazzeri and Steve Mancini are estate planning attorneys who are very experienced in dealing with people who have very large estates (way beyond anything I have ever dealt with). Understand, they are not sold on the dinar as an investment, but post RV it won't matter. You are just another rich person in need of help and they are good at helping.

Best of Blessings,

Mark

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K.C. Kansas or K.C. Missouri? There is one I could recommend in Overland Park but I don't believe he is familiar with the dinar. However, if you are attempting to get counsel after the RV it won't matter - then everyone will believe and all you need is good counsel. Anyway, KS or MO?

Best of Blessings,

Mark

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