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Nonprofi t Law for Colleges and Universities

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Nonprofi t Law for Colleges and UniversitiesEssential Questions and Answers for Offi cers, Directors, and Advisors

BRUCE R. HOPKINSVIRGINIA C. GROSSTHOMAS J. SCHENKELBERG

John Wiley & Sons, Inc.

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Copyright © 2011 by Bruce R. Hopkins, Virginia C. Gross, and Thomas J. Schenkelberg. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978)750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data

Hopkins, Bruce R.

Nonprofi t law for colleges and universities : essential questions and answers for offi cers, directors, and advisors / Bruce R. Hopkins, Virginia C. Gross, Thomas J. Schenkelberg. p. cm.—(Wiley nonprofi t authority series ; 10) Includes bibliographical references and index. ISBN 978-0-470-91343-7 (pbk.); ISBN 978-1-118-08855-5 (ebk); ISBN 978-1-118-08856-2; ISBN 978-1-118-08857-9 (ebk) 1. Universities and colleges—Finance—Law and legislation—United States— Miscellanea. I. Gross, Virginia C. II. Schenkelberg, Thomas J. III. Title. KF4234.H67 2011 346.73'064—dc22

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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To the trustees and offi cers of, and advisors to, the nation’s nonprofi t colleges and

universities, who must function in an increasingly complex, challenging, and sometimes

mysterious law environment.

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vii

Contents

Preface xliii

About the Authors xlvii

CHAPTER 1 Nonprofi t Organizations Law Generally 1

Nonprofi t Law Basics 1 1.1 What is a nonprofi t organization? 1 1.2 Sometimes the term not-for-profi t organization is used instead of nonprofi t

organization. Are the terms synonymous? 2 1.3 What are the types of nonprofi t organizations? 3 1.4 What is the appropriate form of nonprofi t organization? 3 1.5 How is a nonprofi t organization started? 3 1.6 How does a nonprofi t organization incorporate? 4 1.7 What is a registered agent? 4 1.8 What does the registered agent do? 5 1.9 Does the registered agent have any liability for the corporation’s affairs? 5 1.10 Who are the incorporators? 5 1.11 How does a nonprofi t organization decide in which state to incorporate? 5 1.13 How does a nonprofi t organization qualify to do business in another state? 6 1.12 What constitutes doing business in a state? 6 1.14 How is a nonprofi t trust started? 6 1.15 How is a nonprofi t unincorporated association started? 7 1.16 Who owns a nonprofi t organization? 7 1.17 Who controls a nonprofi t organization? 7 1.18 How many directors must a nonprofi t organization have? 8 1.19 Can the same individuals serve as the directors, offi cers, and incorporators? 8 1.20 Can the same individual serve as a director, offi cer, incorporator,

and registered agent? 9 1.21 What is the legal standard by which a nonprofi t organization

should be operated? 9 1.22 What is the legal standard for an organization that is tax-exempt

and charitable? 9 1.23 What is the rationale for this standard for charities? 10 1.24 What does the term fi duciary mean? 10 1.25 What is the legal standard underlying fi duciary responsibility? 10

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1.26 What is the meaning of the term reasonable? 10 1.27 Who are the fi duciaries of a charitable organization? 11 1.28 What does the term ex offi cio mean? 11 1.29 What does the term ultra vires act mean? 11 1.30 What are the rules regarding the development of chapters? 12 1.31 Do chapters have to be incorporated? 12 1.32 Is the concept of chapters relevant in the higher education context? 13

Federal Tax Law Basics 13 1.33 What is the organizational test? 13 1.34 What is the operational test? 13 1.35 What does the term primarily mean? 14 1.36 What is the commensurate test? 14 1.37 What is the commerciality doctrine? 15 1.38 What are the categories of charitable organizations? 16 1.39 What are the other categories of tax-exempt organizations? 17 1.40 What is a governmental unit? 18 1.41 Can a nonprofi t organization be affi liated with a governmental unit? 18 1.42 How is this type of affi liation established? 18 1.43 What are the federal tax law consequences for a nonprofi t organization

that is affi liated with a governmental unit? 19 1.44 When can a college or university that is operated by a government

qualify under the conventional rules for tax exemption? 19 1.45 Can a state college or university be considered a political subdivision for

federal tax law purposes? 20 1.46 How is the IRS structured in connection with its oversight of tax-exempt

organizations? 21 1.47 Does the IRS communicate what its efforts and priorities are in connection

with its administration of the law of tax-exempt organizations? 21 1.48 What is the role of a lawyer who represents one or more

nonprofi t organizations? 22 1.49 What is the role of a lawyer who represents a nonprofi t college or university? 22

CHAPTER 2 Nonprofit Educational Organizations 25

Education Law Basics 26 2.1 What is the defi nition in law of the term education? 26 2.2 What is the defi nition in law of the term educational? 26 2.3 What, then, is the opposite of the concept of educational? 27 2.4 Please provide some illustrations of these distinctions. 28 2.5 Please expand on the constitutional law principles in this context. 28 2.6 What is the state of this aspect of the law today? 29 2.7 What is the methodology test? 30 2.8 How are the courts applying the methodology test today? 31 2.9 Has the IRS applied the methodology test in recent years? 31 2.10 What is the defi nition in law of an educational organization? 31

School Law Basics 32 2.11 What is the defi nition in law of a college? 32 2.12 What is the defi nition in law of a university? 32 2.13 What is the defi nition in law of a school? 32 2.14 What are the federal tax law requirements for qualifi cation as a school? 33

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2.15 What is a private school? 33 2.16 What is a public school? 34 2.17 What is a primary school? 35 2.18 What is an elementary school? 35 2.19 What is a secondary school? 35 2.20 What is a postsecondary school? 35 2.21 What is the defi nition in law of an institution of higher education? 36 2.22 What is a school district? 36 2.23 What is a school system? 36 2.24 What is a school year? 36 2.25 What is the defi nition of the term faculty? 36 2.26 What is the defi nition of the term curriculum? 36 2.27 What is a student? 37 2.28 What is an undergraduate student? 37 2.29 What is a graduate student? 37 2.30 What is a fellow? 38 2.31 What is the defi nition of the term bachelor’s degree? 38 2.32 What is the defi nition of the term master’s degree? 38 2.33 What is the defi nition of the term doctor’s degree? 38

Demographics 39 2.34 What is a small institution of higher education? 39 2.35 What is a medium-size institution of higher education? 39 2.36 What is a large institution of higher education? 39 2.37 How many students are in attendance at colleges and universities

on a full-time basis? 39 2.38 How many students are in attendance at colleges and universities

on a part-time basis? 40 2.39 How many full-time faculty are there? 40 2.40 How many part-time faculty are there? 40 2.41 Overall, how many are employed at colleges and universities? 40 2.42 What is the average student–faculty ratio at colleges and universities? 40 2.43 What are the undergraduate annual full-time tuition rates? 40 2.44 What are the undergraduate annual full-time tuition rates at the private

institutions? 41 2.45 What are the undergraduate annual full-time tuition rates at the public

institutions? 41 2.46 What are the net average tuition discount rates? 41 2.47 What is the average value of gross assets of colleges and universities? 42 2.48 What is the average amount of annual gross revenue received

by colleges and universities? 42 2.49 What is the average amount of annual expenses incurred by colleges

and universities? 42 2.50 What is the average amount of annual net revenue received by colleges

and universities? 42 2.51 What percent of colleges and universities conduct distance learning activities? 42 2.52 What percent of colleges and universities conduct educational

programs outside the United States? 43 2.53 What percent of colleges and universities maintain campuses, offi ces, and/or

employees in at least fi ve countries other than the United States? 43

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2.54 Colleges and universities have related organizations. How is the word related defi ned in the law? 43

2.55 What percentage of colleges and universities have at least one type of related organization? 43

2.56 What percent of these types of related organizations were tax-exempt organizations? 44

2.57 What percent of these types of related organizations were entities taxable as a corporation or trust? 44

2.58 What percent of these types of related organizations were treated, for federal tax purposes, as a partnership? 44

2.59 What percent of these types of related organizations were treated, for federal tax purposes, as a disregarded entity? 44

2.60 What percent of colleges and universities are controlling organizations? 45 2.61 How frequently are management fees paid to colleges and universities from

controlled entities? 45 2.62 How many colleges and universities are utilizing the special exception

available to tax-exempt organizations in this setting? 45

Nonprofi t Law Basics 46 2.63 What aspects of the federal tax law must a private college or university

satisfy to be tax-exempt? 46 2.64 What aspects of the federal tax law must a public college or university

satisfy to be tax-exempt? 46 2.65 What are the federal tax consequences where a public college or

university has a determination from the IRS that it also qualifi es as an organization described in Internal Revenue Code section 501(c)(3)? 47

2.66 What is the tax status of entities that are affi liated with public colleges and universities? 47

2.67 Can a college or university, public or private, be the benefi ciary of a supporting organization? 48

2.68 Can a college or university, public or private, have a separate fundraising foundation? 48

2.69 Can a college or university, public or private, have one or more separate endowment funds? 49

2.70 Can colleges and universities, public or private, utilize other types of related funds? 49

2.71 Can a college or university be the benefi ciary of a charitable remainder trust? 49 2.72 Can a college or university be the benefi ciary of a pooled income fund? 50 2.73 Can a college or university be the benefi ciary of a charitable lead trust? 50 2.74 Can a college or university participate in a charitable

gift annuity arrangement? 50

CHAPTER 3 Acquiring and Maintaining Tax-Exempt Status 53

Nonprofi t and Tax-Exempt Entities 54 3.1 Are all nonprofi t organizations tax-exempt organizations? 54 3.2 Are all tax-exempt organizations nonprofi t organizations? 54 3.3 Concerning tax exemption, what taxes are involved? 55 3.4 How many categories of tax-exempt organizations are provided

for in the federal income tax law? 55 3.5 What are the federal tax law rules concerning qualifi cation as a tax-exempt

educational organization? 56

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3.6 What are the federal tax law rules concerning qualifi cation as a tax-exempt charitable organization because the entity advances education? 56

3.7 In connection with the provision of housing as advancement of education, are college and university fraternities and sororities charitable entities? 57

3.8 In connection with the granting of scholarships and fellowships as advancement of education, can fraternities and sororities make these grants? 57

3.9 What is the public policy doctrine and its impact on colleges and universities? 57

Exemption Application Basics 58 3.10 How does a nonprofi t organization become a tax-exempt organization? 58 3.11 Is a nonprofi t organization required to apply to the IRS

for tax-exempt status? 58 3.12 What does recognition of tax exemption mean? 59 3.13 Are certain types of organizations that wish to be tax-exempt required

by law to seek recognition of exempt status from the IRS? 59 3.14 What are the advantages of obtaining recognition of exempt status

from the IRS? 60 3.15 Are there any exemptions from the recognition requirement? 60 3.16 What is the procedure for seeking recognition of tax-exempt status? 60 3.17 What is the content of these applications? 61 3.18 Where are these applications fi led? 61 3.19 What is the formal defi nition of the term determination letter? 61 3.20 What is the formal defi nition of the term ruling? 62 3.21 How long does the IRS take to process an application for recognition

of exemption? 62 3.22 Is there a process by which an applicant organization can request

the IRS to expedite the processing of its application? 62 3.23 Are copies of applications for recognition of exemption publicly available? 63 3.24 Does the IRS share this information with state offi cials? 63 3.25 How long does an exemption determination letter or ruling remain in effect? 63 3.26 Once a determination letter or ruling is obtained, should the organization

review its application periodically to determine whether one or more changes in the facts have occurred? 63

3.27 What happens if there is a substantial change in an organization’s character, purposes, or methods of operation? 64

3.28 Will the IRS issue a determination letter or ruling to an organization in advance of its operations? 64

General Procedures 65 3.29 How much information must be provided to the IRS in these applications? 65 3.30 What happens if the IRS decides an application for recognition of

exemption is incomplete? 65 3.31 Should these applications be treated as business plans? 66 3.32 What is a substantially completed application? 66 3.33 Is the application for recognition of exemption an important

document for a tax-exempt organization? 67 3.34 How long does it take to prepare an application for recognition

of tax exemption? 67 3.35 Is there a charge for the processing of an application for recognition of

exemption? 68 3.36 Can an application for recognition of exemption be referred to the National

Offi ce of the IRS? 68

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3.37 Can an applicant organization seek the assistance of the National Offi ce? 68 3.38 Can an application for recognition of exemption be withdrawn? 69 3.39 What happens when the IRS concludes an applicant organization

does not qualify for tax exemption? 69 3.40 What is the appeal procedure? 69 3.41 What is the protest procedure? 70 3.42 What is the role of the IRS Appeals Offi ce in this regard? 70 3.43 If an organization is denied recognition of exemption, may it reapply? 70 3.44 What is the effective date of a determination letter or ruling? 71 3.45 To what extent can an organization rely on its determination letter or ruling? 71 3.46 How does an organization remain tax-exempt? 71 3.47 When might an organization’s tax exemption be revoked? 72 3.48 Can tax-exempt status be retroactively revoked? 72 3.49 When should a tax-exempt organization consider the establishment

of a related foundation? 73 3.50 Does a lack of fi ling of annual information returns have any impact on an

organization’s tax-exempt status? 74

Application Form 1023 74 3.51 What is required in Part I of Form 1023? 74 3.52 What is required in Part II of Form 1023? 75 3.53 What is required in Part III of Form 1023? 75 3.54 What is required in Part IV of Form 1023? 76 3.55 What is required in Part V of Form 1023? 76 3.56 What is required in Part VI of Form 1023? 78 3.57 What is required in Part VII of Form 1023? 78 3.58 What is required in Part VIII of Form 1023? 79 3.59 What is required in Part IX of Form 1023? 79 3.60 What is required in Part X of Form 1023? 80 3.61 What is required in Part XI of Form 1023? 80 3.62 What happens when the requested ruling as to tax-exempt

status is not granted? 80

Form 1023, Schedule B 81 3.63 What organizations are required to fi le Schedule B of Form 1023? 81 3.64 Do government-operated schools fi le Schedule B? 81 3.65 What other questions about a school’s general operations are

asked on Schedule B? 81 3.66 What are the questions concerning a school and racial discrimination? 82 3.67 What are the questions concerning the establishment of a racially

nondiscriminatory policy? 83

Group Exemption 84 3.68 What is the group exemption procedure? 84 3.69 How is a group exemption initially established? 84 3.70 How is the group exemption maintained? 85 3.71 How are the annual information return reporting requirements satisfi ed? 86 3.72 Do the central organization and the subordinate organizations have

to have the same tax-exempt status? 86 3.73 Are the subordinate organizations in a group required to have

the same tax-exempt status? 86 3.74 Can the same organization be involved in more than one group? 86

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3.75 If a subordinate organization loses its tax-exempt status for failure to fi le annual information returns, can the central organization restore it? 87

3.76 When can the group exemption be terminated? 87 3.77 What are the advantages of the group exemption? 87 3.78 Are there any disadvantages to the group exemption? 87 3.79 How does the group exemption apply in the higher education context? 88

CHAPTER 4 Acquiring and Maintaining Public Charity Status 91

Public Charity Law in General 91 4.1 What is a public charity? 91 4.2 What is a private foundation? 92 4.3 What are the categories of public charities? 92 4.4 Are colleges and universities public charities? 93 4.5 How does a private college or university comply with the requirements for

qualifi cation as a private school? 93 4.6 Are entities affi liated with colleges and universities public charities? 94 4.7 Is a college or university foundation a public charity? 94 4.8 How does an organization acquire public charity status? 95 4.9 How does an organization maintain its public charity status? 95 4.10 Why is it so important to be classifi ed as a public charity and avoid private

foundation status? 95 4.11 What is a publicly supported charity? 96 4.12 What is a donative publicly supported charity? 96 4.13 What is the facts-and-circumstances test for a donative public charity? 97 4.14 What is a service provider publicly supported charity? 99 4.15 How does an organization maintain its status as a publicly

supported charity? 100 4.16 Does it matter which category of publicly supported charity an

organization uses? 100 4.17 What happens when an organization ceases to be a publicly

supported charity? 101

Supporting Organizations in General 101 4.18 What is a supporting organization? 101 4.19 Can a college or university qualify as the supported organization

to a supporting organization? What about its related entities? 102 4.20 How many types of supporting organizations are there? What type is

the most common? 102 4.21 What are the various tests for qualifi cation as a supporting organization? 102 4.22 What is the organizational test for supporting organizations? 102 4.23 What is the operational test for supporting organizations? 103 4.24 How does a supporting organization meet the relationship test with

its supported entity? 103

Type III Supporting Organizations 104 4.25 What is a functionally integrated Type III supporting organization? 104 4.26 What is a nonfunctionally integrated Type III supporting organization? 104 4.27 What is the notifi cation requirement? 104 4.28 What is the responsiveness test? 105 4.29 What is the integral part test? 105 4.30 What is the control test? Does this test place limitations on the composition

of the board of directors of a supporting organization? 107

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General Supporting Organization Questions 108 4.31 What are the functions of a supporting organization? 108 4.32 Does the supported organization have to be identifi ed in the organizational

document of the supporting organization? 109 4.33 How many supported organizations can a supporting organization support? 110 4.34 Can a supporting organization support or benefi t a noncharitable

organization or other person, in addition to one or more specifi ed supported organizations? 110

4.35 Can a supporting organization support another supporting organization? 111 4.36 Should a supporting organization be separately incorporated? 112 4.37 Should a supporting organization have bylaws? 112 4.38 Who elects or appoints the directors of a supporting organization? 112 4.39 Can a supporting organization maintain its own fi nancial affairs

(such as by means of a separate bank account and separate investments)? 113 4.40 What fi nancial reports and disclosure should a supporting organization

make to the supported organization? 113 4.41 What oversight of the supporting organization should the supported

organization perform? 114 4.42 Can a supporting organization support a foreign charity? 114 4.43 Are supporting organizations subject to a mandatory

distribution requirement? 115 4.44 Can a supporting organization change its supported organization? 115 4.45 Are there limitations on who can make a gift to a supporting organization? 115 4.46 Can a supporting organization make a grant or loan or pay

compensation to its substantial contributors? 116 4.47 Can a supporting organization reimburse the expenses of a substantial

contributor? 116

Donor-Advised Funds 116 4.48 What is a donor-advised fund? 116 4.49 What is a sponsoring organization of a donor-advised fund? 117 4.50 What are the restrictions on grants from a donor-advised fund? 117

CHAPTER 5 Governance 119 5.1 Who governs a college or university? 120 5.2 Can a college or university have members? 120 5.3 Can a college or university have stockholders? 120 5.4 How are the members of the governing body of a college or

university chosen? 121 5.5 What is the role of the governing board? 121 5.6 What size should a governing board be? 123 5.7 What should be the composition of the governing board? 124 5.8 Can board members be related to each other? 125 5.9 Should board members be independent from the college or university? 126 5.10 Can board members be compensated by the college or university,

either as a board member or otherwise? 128 5.11 What are the fi duciary duties and responsibilities of the governing

board members? 129 5.12 What is the duty of care? 131 5.13 What is the duty of loyalty? 131

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5.14 What is the duty of obedience? 132 5.15 Can an organization owe a fi duciary duty to another organization? 132 5.16 What is the liability exposure of board members? 132 5.17 How can individual board members limit their liability? 133 5.18 How can an organization protect its board from liability? 134 5.19 What is the Sarbanes-Oxley Act? 135 5.20 Does the Sarbanes-Oxley Act apply to colleges and universities? 135 5.21 What is the source of nonprofi t good governance principles? 135 5.22 What is the IRS’s view of good governance? 137 5.23 How often should a governing board of a college or university meet? 137 5.24 Should there be term limits for board members? 138 5.25 What committees should a board have? 139 5.26 How does an executive committee function? 139 5.27 Is a college or university required to have an audit committee? 140 5.28 What role should the board play in reviewing the college or university’s

annual information return, if it fi les one? 141 5.29 Should a college or university have a confl ict-of-interest policy? 141 5.30 Should a college or university have a code of ethics? 143 5.31 Should a college and university have a whistleblower policy and a

document retention policy? 144 5.32 Should a college or university have an investment policy? 145 5.33 Should a college and university have a fundraising policy? 146 5.34 Should a college or university have a joint venture policy? 147 5.35 Should a college and university have an executive compensation policy? 148 5.36 Should an educational institution have a tax-exempt bond

compliance policy? 149 5.37 What other policies should a college and university have? 150 5.38 Should a college or university have a mission statement? 151 5.39 Is an educational institution required to notify the IRS if it changes its

organizational documents? 152 5.40 What are the requirements for minutes of a meeting of the governing

body of an educational institution? 153 5.41 Do board meetings need to be open to the public? 153 5.42 What does it mean to meet in executive session, and when should

a board do this? 154 5.43 How are the offi cers of a college or university selected? 154 5.44 Can the chair of the board serve as president of the college or university? 155 5.45 Do college and university accreditation standards impact governance? 155 5.46 Is there a set of best governance practices that applies to colleges

and universities? 155

CHAPTER 6 Private Inurement, Private Benefi t, and Excess Benefi t Transactions 157

Introduction 158 6.1 What is private inurement? 158 6.2 When is a person an insider? 159 6.3 What types of tax-exempt organizations are subject to the private

inurement rule? 160 6.4 What is private benefi t? 160

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6.5 What is the difference, in law, between private inurement and private benefi t? 161

6.6 What happens when a private college or university (or other nonprofi t organization) engages in either practice? 161

Private Inurement 161 6.7 What are the principal types of transactions that constitute

private inurement? 161 6.8 What is the meaning of the term compensation in this context? 162 6.9 When is compensation private inurement? 162 6.10 Is payment of a bonus to an employee of a nonprofi t organization legal? 163 6.11 How should a bonus compensation program for employees be defi ned? 163 6.12 What role should the board of directors play in the annual review

and approval of bonus awards to employees? 164 6.13 How is the bonus compensation program reported to the IRS and

disclosed to the public? 165 6.14 Is percentage-based compensation allowed? 165 6.15 Are the seven factors mentioned above the only elements to take into

account in determining the reasonableness of compensation? 167 6.16 How do the intermediate sanctions rules interrelate? 167 6.17 When is a loan private inurement? 168 6.18 When is a rental arrangement private inurement? 168 6.19 Are there other forms of private inurement? 169

Private Benefi t 169 6.20 How is private benefi t determined in actual practice? 169 6.21 What is primary private benefi t? 169 6.22 What is secondary private benefi t? 170 6.23 What is the current status of the private benefi t doctrine? 170 6.24 Is it possible for a donor, when making a gift to a nonprofi t organization,

to realize a private benefi t from the gift? 171 6.25 How is incidental private benefi t determined? 172

Intermediate Sanctions 172 6.26 What does the term intermediate sanctions mean? 172 6.27 What is the effective date of the intermediate sanctions rules? 172 6.28 When were these rules enacted? 172 6.29 What is the legislative history of this legislation? 173 6.30 Have the Treasury Department and the IRS issued guidance as to these rules? 173 6.31 What categories of tax-exempt organizations are involved in these rules? 173 6.32 Are there any exceptions to these rules? 173 6.33 To what types of transactions do these rules apply? 174 6.34 How is value measured? 174 6.35 Can an economic benefi t be treated as part of the recipient’s compensation? 174 6.36 What happens if an economic benefi t cannot be regarded as part

of the recipient’s compensation? 175 6.37 What types of transactions may be considered automatic excess benefi t

transactions? 175 6.38 What does the phrase directly or indirectly mean? 176 6.39 What does control mean in this context? 176 6.40 What is an intermediary? 176 6.41 What does the phrase for the use of mean? 177 6.42 Is there any other defi nition of the term excess benefi t transaction? 177

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6.43 Are any economic benefi ts disregarded for these purposes? 178 6.44 In the context of compensation, how does one determine whether

it is excessive? 178 6.45 What are the tax law standards used in determining the

reasonableness of compensation? 179 6.46 What items are included in determining the value of compensation? 179 6.47 Do the intermediate sanctions rules apply to rental transactions? 179 6.48 Do these rules apply to lending transactions? 180 6.49 Do these rules apply to sales transactions? 180 6.50 How do these rules interrelate to the making of scholarships

and similar grants? 180 6.51 Who has the burden of proof in a dispute with the IRS as

to whether a transaction involves an excess benefi t? 181 6.52 What does the phrase confl ict of interest mean? 183 6.53 What does the term disqualifi ed person mean? 184 6.54 What is the scope of this substantial infl uence rule? 184 6.55 What does the term organization manager mean? 185 6.56 What does the term member of the family mean? 186 6.57 What is the defi nition of a controlled entity? 186 6.58 Can a tax-exempt organization be a disqualifi ed person? 186 6.59 What are the sanctions? 187 6.60 What does the term correction mean? 187 6.61 What does the term participation mean? 188 6.62 What does the term knowing mean? 188 6.63 What does the term willful mean? 188 6.64 What does the term reasonable cause mean? 189 6.65 Can there be joint liability for these taxes? 189 6.66 Is there any relief from this tax regime? Any basis for being excused

from these penalties? 189 6.67 How are these taxes reported and paid? 189 6.68 Can an organization reimburse a disqualifi ed person for these taxes? 190 6.69 Can an applicable tax-exempt organization purchase insurance

for a disqualifi ed person to provide coverage for these taxes? 190 6.70 Does the payment of an intermediate sanctions tax have any direct

impact on the applicable tax-exempt organization involved? 190 6.71 Is there a limitations period, after which these taxes cannot be imposed? 191 6.72 Do the intermediate sanctions take precedence over the sanction

of revocation of tax exemption? 191 6.73 Won’t the private inurement doctrine have an impact on defi nitions

of excess benefi t transactions? 191 6.74 Won’t the private foundation rules as to self-dealing have a similar impact? 192 6.75 Won’t determinations as to what is an excess benefi t shape the law of private

inurement and self-dealing? 192 6.76 Has any litigation concerning the intermediate sanctions rules been initiated? 192

CHAPTER 7 Executive Compensation 195

Concept of the Executive 196 7.1 Who is considered an executive for executive compensation purposes? 196 7.2 Are executives insiders and disqualifi ed persons for purposes of the private

inurement and excess benefi t transactions rules? 196

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7.3 Who is considered a key employee? 197 7.4 Are key employees disqualifi ed persons and insiders? 197 7.5 Are members of a college’s or university’s governing body considered

executives? 198 7.6 Are members of a college’s or university’s governing body considered

disqualifi ed persons and insiders? 198 7.7 Are there any exceptions to the treatment of an executive

as a disqualifi ed person? 198 7.8 Why are the IRS and others scrutinizing executive compensation

for tax- exempt colleges and universities? 199

Payment of Reasonable Compensation 199 7.9 What is considered compensation for private inurement and excess benefi t

transactions purposes? 199 7.10 Does compensation include nontaxable amounts, such as health insurance,

for purposes of the excess benefi t transactions rules? 200 7.11 Does compensation include deferred and noncash compensation for

purposes of private inurement and the excess benefi t transactions rules? 200 7.12 Does compensation include amounts paid by a related entity for private

inurement and excess benefi t transactions purposes? 201 7.13 Are any amounts not included as compensation for purposes

of the private inurement and excess benefi t transactions rules? 201 7.14 What is considered reasonable compensation for purposes of the excess

benefi t transactions rules and private inurement? 202 7.15 Can a college or university executive receive nonfi xed compensation,

such as a bonus or other incentive compensation? 203 7.16 Can a college or university allow an executive to share in its revenues,

such as receiving a percentage of the gross or net income from a particular department? 203

7.17 How can a college or university be certain that it is paying reasonable compensation? 204

7.18 What is the rebuttable presumption of reasonableness? 204 7.19 What comparability data should a college and university use in

establishing executive compensation? 205 7.20 Can a compensation consultant be hired to establish adequate

comparability data? 207 7.21 Should college and university executives have employment agreements? 207 7.22 What forms of fringe benefi ts are subject to higher scrutiny by

the IRS and others? 207 7.23 Does this mean a college or university should not provide fringe

benefi ts to its executives, such as paying for country club dues? 208 7.24 Should a college or university allow its executives to travel fi rst class? 208 7.25 Can a college or university pay for the personal travel expenses

of an executive or the executive’s spouse or family? 208 7.26 Should a college or university allow an executive to make personal

use of business credit cards? 209 7.27 If a college or university provides housing to its executives,

is this income to the executive? 209 7.28 What is an accountable plan? 210 7.29 Can a college or university make a loan to an executive? 212

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Reporting of Compensation, Excess Benefi t Transactions, and Correction of Excess Compensation 214

7.30 For which individuals must a college or university disclose compensation on the annual information return? 214

7.31 What executive compensation has to be reported by a private college or university on its annual information return? 215

7.32 Are there special reporting requirements for nonfi xed and revenue- based compensation? 215

7.33 What else must be reported regarding compensation on an annual information return? Do fringe benefi ts have to be reported? 215

7.34 What is the effect of a college or university not treating a payment or benefi t as compensation if such amount should have been treated as compensation? 217

7.35 How does a college or university disclose the payment of excessive compensation? 217

7.36 How is excessive compensation corrected for purposes of the excess benefi t transactions rules? 218

7.37 Can a college or university pay the excise tax on the excessive compensation to the IRS on behalf of its executive? 218

Executive Compensation and the Governing Board 219 7.38 What should be the role of a governing body in setting

executive compensation? 219 7.39 Should a college or university governing board have

a compensation committee? 219 7.40 Should a college or university adopt an executive compensation policy? 220 7.41 What is the governing body’s role in assessing the performance of its

chief executive? 220 7.42 If an executive of a college or university is receiving compensation that

he or she believes to be unreasonable, should the executive voluntarily reduce the compensation or wait to see whether the IRS raises the issue? 221

7.43 If the IRS raises questions about an executive’s compensation, should the executive voluntarily reduce his or her compensation in order to minimize the risk of imposition of the sanctions? 222

7.44 If the governing board of a college or university approves an employment contract with an executive and later determines that the compensation provided in the contract is excessive, what steps, if any, should the board take prior to the expiration of the contract? 222

CHAPTER 8 Legislative Activities 225

Basic Federal Tax Rules 226 8.1 What is lobbying? 226 8.2 What is legislation? 226 8.3 Is lobbying a necessary or appropriate activity for a college or university? 227 8.4 What are the federal tax rules concerning lobbying applicable

to private colleges and universities? 227 8.5 What is an action organization? 228 8.6 How do colleges, universities, and other public charities

measure substantiality? 228 8.7 Is there more than one form of lobbying? 229

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8.8 What are the various ways by which lobbying can be accomplished? 229 8.9 Are there laws concerning lobbying by colleges and universities,

other than the federal tax rules? 230 8.10 Are there exceptions to the prohibition on lobbying under

the substantial part test? 230 8.11 Can lobbying be considered a political campaign activity? 231 8.12 What happens when a college, university, or other type of public charity

engages in substantial lobbying? 231 8.13 Who are organization managers? 231 8.14 Can a charitable organization that loses its tax exemption because of

excessive lobbying convert to another type of tax- exempt organization? 232 8.15 What planning can a private college or university engage in under

the substantial part test to avoid adverse tax consequences because of lobbying? 232

Expenditure Test 233 8.16 What is the expenditure test? 233 8.17 How does a college or university elect use of the expenditure test? 233 8.18 Are there exceptions to the term lobbying under this test? 234 8.19 What happens when a charitable organization engages in excessive

lobbying under the expenditure test? 234 8.20 Can the tax- exempt private college or university convert to another

type of tax- exempt organization? 234 8.21 What types of lobbying programs conducted by a public charity

are most suitable for the expenditure test? 235 8.22 When should a public charity elect the expenditure test? 235 8.23 Under what circumstances would an organization elect to revoke its

election to be under the expenditure test? 236 8.24 What planning can a charitable organization under the expenditure

test engage in to avoid adverse tax consequences because of lobbying? 236

Social Welfare Organizations 237 8.25 Are there any restrictions on lobbying by tax- exempt

social welfare organizations? 237 8.26 Why don’t all lobbying charities convert to exempt social welfare

organizations? 237 8.27 How can a public charity utilize a tax- exempt lobbying subsidiary? 238

Trade, Business, and Professional Associations 238 8.28 Are there any restrictions on lobbying by tax- exempt trade

and other associations? 238 8.29 How does the member know how to calculate the dues deduction? 239 8.30 What happens if the association makes an error in the calculation

of the dues deduction ratio? 239 8.31 Are there any exceptions to these rules? 239 8.32 Is the concept of lobbying the same as it is for public charities? 240

Reporting Requirements 240 8.33 What are the federal tax law reporting requirements regarding

legislative activities for colleges and universities? 240 8.34 What are the reporting requirements under the substantial part test? 241 8.35 What are the reporting requirements under the expenditure test? 241

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CHAPTER 9 Political Campaign Activities 243

Basic Federal Tax Law Rules 244 9.1 What are political campaign activities? 244 9.2 What are political activities? 244 9.3 What are the federal tax rules applicable to political campaign activities

of tax- exempt private colleges and universities? 244 9.4 What is an action organization? 244 9.5 What do the terms participation and intervention mean? 245 9.6 Can a college or university as part of its mission educate the public about

candidates and issues in the setting of a political campaign? 246 9.7 Does the law differentiate between the political positions of organizations

and those of individuals associated with them? 247 9.8 When is an individual a candidate? 248 9.9 When does a campaign begin? 248 9.10 What is a public offi ce? 248 9.11 Is there a substantiality test for colleges or universities concerning political

campaign activities? 249 9.12 What happens when a college or university engages in a political

campaign activity? 249 9.13 What is a political expenditure? 250 9.14 Does the IRS have any additional enforcement tools in this context? 250 9.15 Do these rules apply to public colleges and universities? 251 9.16 What is a political organization? 251 9.17 Can a college or university utilize a political action committee

without adversely affecting its tax exemption? 252 9.18 Can political action committees be affi liated with tax- exempt

organizations other than public charities? 252 9.19 Is the tax imposed on political organizations confi ned

to those organizations? 252 9.20 What are the rules concerning political campaign activities

by social welfare organizations? 252 9.21 What are the rules concerning political campaign activities

by trade and business associations? 253 9.22 Can lobbying by colleges and universities be considered political

campaign activity? 253 9.23 To what extent can exempt organizations other than public charities

utilize political action committees? 254 9.24 What do the terms hard money and soft money signify? 254

IRS Enforcement Efforts 254 9.25 Does the IRS enforce this body of law? 254 9.26 What caused the IRS to change its enforcement approach? 255 9.27 What is the Political Activities Compliance Initiative? 255

Federal Election Laws 255 9.28 How do the federal election laws interrelate with the federal tax laws? 255 9.29 How did passage of the Bipartisan Campaign Reform Act affect this

interrelationship? 255 9.30 How is this statutory law faring in the courts? 256 9.31 Is the ban on direct corporate contributions to candidates still law? 257

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Reporting Requirements 257 9.32 What are the federal tax reporting requirements for colleges and

universities regarding political campaign activities? 257

CHAPTER 10 Endowment Funds 259

Endowment Fund Basics 260 10.1 What is the defi nition in law of the term endowment fund? 260 10.2 Does the IRS follow that defi nition? 261 10.3 Does the IRS utilize other defi nitions in the endowment context? 261 10.4 What percent of colleges and universities have true endowment funds

with positive values? 261 10.5 What percent of institutions have term endowment funds

with positive values? 262 10.6 What percent of institutions have quasi endowment funds

with positive values? 262 10.7 How are endowment funds reported on the annual information

return (Form 990)? 262 10.8 Should a college or university endowment fund be part of the institution

or be held in a separate entity? 262

Demographics 263 10.9 How many colleges and universities have endowment funds? 263 10.10 What is the fair market value of college and university endowments? 263 10.11 What is the average fair market value of college and university true

endowment funds? 264 10.12 What is the average fair market value of college and university

term endowment funds? 264 10.13 What is the average fair market value of college and university

quasi endowment funds? 264 10.14 What is the amount of college and university endowment assets per

full- time-equivalent student? 265 10.15 Are college and university endowment funds growing in value? 265

Endowment Fund Management 266 10.16 How many colleges and universities have endowment funds that

are managed or maintained by another organization on their behalf? 266 10.17 How many colleges and universities have endowment funds and have

endowment funds that are managed or maintained by another organization on their behalf? 266

10.18 To what extent do colleges and universities utilize fund manager types to manage their endowment funds? 266

10.19 What percent of public colleges and universities have their endowments managed by a state agency? 266

10.20 Do colleges and universities use staff to manage their endowments? 267 10.21 What percent of colleges and universities have an investment policy for

endowment funds? 267 10.22 Do colleges and universities use investment committees to oversee

endowment fund assets? 267 10.23 How many members serve on investment committees? 267 10.24 How many colleges and universities engage an outside consultant

for investment guidance? 267

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10.25 To what extent do investment committees approve the selection of external parties used to manage the investment of endowment funds? 268

10.26 To what extent do investment committees approve the investment guidance recommendations made by outside consultants? 268

10.27 To what extent do investment committees engage outside consultants for investment advice, approve the selection of external parties, and approve the investment guidance recommendations? 268

10.28 How do colleges and universities compensate internal investment fund managers? 268

10.29 How do colleges and universities compensate external investment fund managers? 269

10.30 To what extent are compensation arrangements for internal investment managers reviewed and approved by a committee of the board or the full board? 269

10.31 To what extent are compensation arrangements for external investment managers reviewed and approved by a committee of the board or the full board? 269

Endowment Fund Investments 270 10.32 What portion of college and university endowment assets is invested

in alternative investments? 270 10.33 What portion of college and university endowment assets is invested

in fi xed- income funds? 270 10.34 What percentage of college and university endowment assets is invested in

equity funds? 271 10.35 What percentage of college and university endowment assets are invested

in other investments? 271 10.36 What percent of institutions make foreign investments of endowment

funds through an investment entity? 272 10.37 If a college or university makes foreign investments of endowment

funds through an investment entity, what type of entity does it use? 272 10.38 What is the primary investment objective for colleges and universities? 273 10.39 Do the board or committee members place restrictions on

the purchase or sale of certain securities because of donor restrictions or other special requests? 273

Endowment Fund Distributions 273 10.40 What percent of colleges and universities reported an investment

committee– or board- adopted target spending rate for all endowments? 273 10.41 What is this target spending rate? 274 10.42 What percent of institutions meet their adopted target spending rate? 274 10.43 For what purposes do colleges and universities make distributions

from their endowment funds? 274 10.44 What are endowment distribution policies? 275 10.45 Do colleges and universities monitor endowment distributions

to ensure they were used for the intended purpose? 275 10.46 How do colleges and universities monitor endowment fund distributions? 275 10.47 What are the policies of colleges and universities when disbursements from

endowment funds were not used during the fi scal year of the disbursement? 276

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Endowment Fund Criticisms 276 10.48 What is the principal criticism of college and university endowments? 276 10.49 What is under consideration in the way of an endowment fund payout

requirement? 277 10.50 What is the private foundation payout requirement? 278 10.51 Does the federal tax law provide for any other type of payout requirement? 279 10.52 If a payout requirement were imposed on college and university

endowment funds, which of the two models would likely apply? 280 10.53 Are there other criticisms of college and university endowments? 280 10.54 What is arbitrage? 280 10.55 Is arbitrage illegal? 280 10.56 What is tax arbitrage? 281 10.57 Is tax arbitrage lawful? 281 10.58 What about indirect tax arbitrage? 281 10.59 What is the criticism concerning indirect tax arbitrage? 281 10.60 Should this CBO report be taken seriously? 282

CHAPTER 11 Scholarships, Fellowships, and Other Student Assistance 283

Scholarship and Fellowship Law 284 11.1 What is the state of the federal tax law concerning scholarships

and fellowships? 284 11.2 What is the legal defi nition of a scholarship? 284 11.3 Are there grants that are not considered scholarships for purposes

of the federal tax law? 285 11.4 What is the legal defi nition of a fellowship? 285 11.5 Are these payments taxable as income to the recipient? 286 11.6 What is a qualifi ed scholarship? 286 11.7 What does the phrase qualifi ed tuition and related expenses mean? 286 11.8 What are incidental expenses? 287 11.9 What is a qualifi ed educational institution? 287 11.10 What does the phrase candidate for a degree mean? 287 11.11 So, if a scholarship or fellowship is not qualifi ed, the grant is gross

income to the recipient? 288 11.12 Does that mean that the recipient must pay income tax on the

nonqualifi ed amount? 288 11.13 What about a requirement for the provision of services? 288 11.14 When does a scholarship or fellowship grant represent a payment for services? 289 11.15 What is the history of the payment-for-services rules? 290 11.16 What facts and circumstances indicate that a payment’s purpose is to

enable the recipient to pursue studies or research primarily for the benefi t of the grantor? 291

11.17 What facts and circumstances indicate that an amount represents compensation for past, present, or future services? 292

11.18 What facts and circumstances indicate that a payment’s primary purpose is to enable the recipient to pursue studies or research that are not primarily for the benefi t of the grantor? 292

11.19 What facts and circumstances indicate that the amount provided by the grantor does not represent compensation for past, present, or future services? 292

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11.20 Please provide an example of a type of grant to individuals that is not subject to the FICA taxes 292

11.21 Please provide an example of a type of grant to individuals that is subject to the FICA taxes 293

11.22 What about athletic scholarships? 294 11.23 What about payments to medical residents? 294 11.24 What if only a portion of a scholarship or fellowship grant represents

payment for services? 295 11.25 Can the remaining portion of the scholarship or fellowship grant

constitute a qualifi ed scholarship? 296 11.26 How are the amounts for payment of services characterized for federal

tax purposes? 296 11.27 Does a requirement of periodic reporting by a scholarship recipient

change this analysis? 296 11.28 Are there any exceptions to this provision-of-services rule? 297 11.29 What are the FICA taxes? 297 11.30 What is the defi nition of the term wages? 297 11.31 What is the defi nition of the term employment? 297 11.32 What is the defi nition of the term employee? 297 11.33 Is a provider of a qualifi ed scholarship, including a college or

university, required under the federal tax law to provide a return to the recipient and the IRS? 298

11.34 Is a provider of a scholarship that is not a qualifi ed scholarship required under the federal tax law to provide a return to the recipient and the IRS? 299

11.35 Is a provider of a scholarship that has an element of wages in it required under the federal tax law to provide a return to the recipient and the IRS? 299

11.36 Are scholarship amounts subject to tax withholding by the college or university involved? 299

11.37 Can a scholarship or fellowship grant be excluded from gross income on the ground it is a gift? 299

11.38 Can a scholarship or fellowship grant be excluded from gross income on the ground it is a prize or award? 300

11.39 Who is eligible to receive a scholarship or fellowship? 300 11.40 What is a qualifi ed tuition reduction? 300 11.41 Are there any special rules pertaining to these tuition reductions? 300 11.42 Who is a highly compensated employee? 301 11.43 What is the federal income tax consequence of receipt of a

qualifi ed tuition reduction? 301 11.44 What are the rules concerning private foundation scholarship or fellowship

grants? 301 11.45 The scope of scholarships from private foundations seems to be greater

than is the case for scholarships and fellowships generally 302 11.46 What about private foundation payments to individuals that entail

compensation for services? 302 11.47 Are public charities and other tax-exempt organizations required

to follow the private foundation individual grant-making procedural rules? 302 11.48 Please elaborate on this selection process 303 11.49 What is a charitable class? 303 11.50 What does the phrase objective and nondiscriminatory mean? 304

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11.51 What criteria has the IRS approved in the private foundation grant context? 305 11.52 What about reports from grantees? 305 11.53 What are the monitoring requirements? 305 11.54 Can the making of a scholarship or fellowship grant result in

private inurement? 306 11.55 Can the making of a scholarship or fellowship grant result in

an excess benefi t transaction? 307 11.56 Are scholarship recipients subject to any record-keeping rules? 308

Other Student Assistance Programs 308 11.57 Can recipients of employer-provided scholarships also exclude

such scholarships from income? 308 11.58 What tax credits are available to offset the costs of higher education? 309 11.59 Can a taxpayer claim all three tax credits? 309 11.60 Who is eligible for the American Opportunity Credit? 309 11.61 How much is the American Opportunity Credit? 309 11.62 What expenses qualify for the American Opportunity Credit? 310 11.63 What students are eligible for the American Opportunity Credit? 310 11.64 Is the American Opportunity Credit refundable? 310 11.65 Who is eligible for the Hope Scholarship Credit? 310 11.66 How much is the Hope Scholarship Credit? 311 11.67 What expenses qualify for the Hope Scholarship Credit? 311 11.68 What students are eligible for the Hope Scholarship Credit? 311 11.69 How is the Hope Scholarship Credit claimed? 311 11.70 How much is the Lifetime Learning Credit? 311 11.71 Is there a limit as to how many years a taxpayer can claim

the Lifetime Learning Credit? 312 11.72 Who can claim the Lifetime Learning Credit? 312 11.73 What expenses qualify for the Lifetime Learning Credit? 312 11.74 Who is an eligible student for the Lifetime Learning Credit? 312 11.75 What is a qualifi ed tuition program? 312 11.76 What are the types of qualifi ed tuition programs? 313 11.77 What are the qualifi ed education expenses? 313 11.78 Who can be a designated benefi ciary? 313 11.79 Can the designated benefi ciary be changed? 313 11.80 What is an eligible educational institution? 313 11.81 How much can be contributed to these plans? 314 11.82 Are distributions from a qualifi ed tuition program taxable? 314 11.83 Can an American Opportunity, Hope, or Lifetime Learning

Credit be taken in the same year a benefi ciary receives a distribution from a qualifi ed tuition program? 314

11.84 Can assets in a qualifi ed tuition program be rolled over to another? 314 11.85 What is a Coverdell Education Savings Account? 314 11.86 Who can be a designated benefi ciary of an ESA? 315 11.87 Who can contribute to an ESA? 315 11.88 Is there a limit on the number of ESAs that may be established? 315 11.89 Are these distributions tax-free? 315 11.90 What are eligible educational institutions in this context? 315 11.91 What is an eligible postsecondary school? 315 11.92 What is an eligible elementary or secondary school? 316 11.93 What are qualifi ed higher education expenses? 316 11.94 What are qualifi ed elementary and secondary education expenses? 316

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11.95 What is the additional tax on excess contributions? 316 11.96 Can assets be rolled over to an ESA? 317

CHAPTER 12 Charitable Giving Rules 319

Charitable Giving Rules Basics 320 12.1 Are all tax- exempt organizations eligible to receive tax- deductible

contributions? 320 12.2 It thus appears that contributions to tax- exempt colleges and universities

are deductible 321 12.3 What charitable deductions are available in the higher education context? 321 12.4 What constitutes a gift? 321 12.5 What constitutes a charitable gift? 322 12.6 How does this relate to charitable pledges? 322 12.7 Does a charitable gift have to be formally accepted? 323 12.8 What is a gift acceptance policy? 323 12.9 What is a nonstandard contribution? 324 12.10 Is a charitable deduction available for a gift of services? 324 12.11 Is a charitable deduction available for a gift of the use of property? 324 12.12 What is the step transaction doctrine? 325 12.13 What is a bargain sale? 325 12.14 What are the grantor trust rules? 326

Percentage Limitations 327 12.15 What are the federal tax rules for deductibility of contributions of money? 327 12.16 What is the defi nition of an individual’s contribution base? 327 12.17 What are the federal tax rules that may limit the deductibility

of contributions of money? 327 12.18 What are the federal tax rules that may limit the deductibility

of contributions of property? 328

Conditional, Unrestricted, and Restricted Gifts 329 12.19 What are the deduction rules for conditional gifts? 329 12.20 What is the defi nition of a condition that is so remote as to be negligible? 330 12.21 What is the nature of an unrestricted charitable gift? 330 12.22 What is the nature of a donor- restricted charitable gift? 330 12.23 What is the nature of a board- restricted charitable gift? 330 12.24 What are the legal consequences of failing to comply

with a donor restriction? 331

Unique Forms of Donors 331 12.25 What are the rules concerning charitable gifts by S corporations? 331 12.26 What are the rules concerning charitable gifts by partnerships? 331 12.27 What are the rules concerning charitable gifts by limited liability companies? 331 12.28 What are the rules concerning charitable gifts by regulated

investment companies? 332 12.29 What are the rules concerning charitable gifts by corporations

holding residual interests in real estate mortgage investment conduits? 332

Special Gift Situations 332 12.30 What are the rules for corporations that make charitable contributions

of property from their inventory? 332 12.31 Can a corporation take an enhanced deduction for a charitable

contribution of computer equipment? 333

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12.32 Can a corporation take an enhanced deduction for a charitable contribution of book inventory? 333

12.33 Is a charitable deduction available for contributions for conservation purposes? 333

12.34 What happens if the donee puts contributed property to an unrelated use? 334 12.35 What is an unrelated use in this context? 335 12.36 What happens if the full deduction for a gift of tangible personal

property is improperly claimed? 336 12.37 What are the charitable deduction rules for contributions

of intellectual property? 336 12.38 To what types of intellectual property do these rules apply? 337 12.39 How are any subsequent charitable deductions determined? 337 12.40 How will the donor know when to take a particular charitable

deduction for an intellectual property gift, and how much it will be? 338 12.41 What are the deduction rules for contributions of vehicles? 338 12.42 To what types of vehicles do these rules apply? 339 12.43 Are there any exceptions to this rule limiting the charitable contribution

deduction for gifts of vehicles? 339 12.44 What happens if these vehicle gift rules are violated? 340 12.45 If a college or university maintains a vehicle gift program,

is it considered to be operating an unrelated business of acquiring and disposing of automobiles? 340

12.46 What are the deduction rules for gifts of fractional interests in art? 340 12.47 Is a charitable deduction available for a gift of property created

by the donor? 341 12.48 What are the deduction rules for gifts of taxidermy? 342 12.49 What are the deduction rules for gifts of clothing and household items? 342 12.50 What are the federal tax law rules concerning charitable gifts

from individual retirement arrangements? 342 12.51 Is there a charitable deduction for a gift to an educational institution

where the donor obtains the right to purchase tickets to an athletic event? 343

Charity Auctions 343 12.52 How does the federal tax law apply to charity auctions? 343 12.53 Is a charity auction a business for purposes of the unrelated business rules? 343 12.54 Is there a charitable contribution deduction for an item donated

to a charity auction? 343 12.55 Is there a charitable contribution deduction for an item acquired

at a charity auction? 344 12.56 Do the charitable gift substantiation rules apply in the context

of charity auctions? 344 12.57 Do the quid pro quo contribution rules apply in the context

of charity auctions? 345 12.58 Do state sales taxes rules apply in the context of charity auctions? 345 12.59 Is the charitable organization required to report the results of its auction? 345

Planned Giving 345 12.60 What is planned giving? 345 12.61 What are income interests and remainder interests? 346 12.62 How are these interests created? 347 12.63 What are the tax advantages resulting from a charitable gift

of a remainder interest? 347

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