Tax Research Memo

TaxResearch Memo

TaxResearch Memo

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Treatment of contributions made to SDSU under the U.S. tax laws

Facts

Rogeris a loyal fan of Aztec basketball. Roger graduated from SDSU in theyear 2014. Roger decided to join the SDSU ticket program in the year2015 after giving a contribution of $ 1,000. This contribution gaveRoger the right to buy tickets. Roger utilized this right andpurchased seasonal tickets worth $ 800. It is clear in Roger’s mindthat the amount spent on tickets is not deductible, but he is notsure of how the contributions should be treated.

Issue:

Howthe contribution of $ 1,000 made by Roger to SDSU should be treated,in terms of its deductibility under the federal income tax.

Analysis

Theanalysis of Roger’s case should focus on the legal position of histransaction with a focus on three key factors, including thequalification of the recipient organization, the assessment ofwhether the transaction could be considered as deductible in the faceof the law, and the qualification in terms of cash limit.

IRC§ 170 (b) (1) (A) provides the maximum amount that individualcontributor is allowed to deduct in a given financial year. This lawstates that an individual contributor will deduct up to 50 % of one’scontribution base. The contribution base in this case refers to one’sadjusted gross income that is computed without carrying back any netloss.

Thelaw also defines the type of organizations that should be consideredas eligible donees, which means any deductible contribution shouldhave been made to an organization that is stipulated in the law. Inthe case of Bob Jones University vs. the United States, the courtheld that the federal government does not impose taxes on allcharitable, religious, public safety testing, science, library, andeducational organizations. This exemption is provided by 26 U.S.C §501 (c) (3). The court then impliedly stated that donations orcharitable contributions made to these organizations will bedeductible on the part of the donor up to the allowed amount.Deduction by the donor is permitted by § 170 (c). Under § 170 (c),the qualifying organization must be totally non-profit and the scopeof its operations must be limited to those that are stipulated by thelaw.

Apartfrom contributing to a qualified organization and making the requiredlimit of donations, the law also stipulates the rules for making theclaims. For example, the IRS rule holds that contributions made incash should be itemized using form 1040. In addition, the donor mustkeep payroll deductions, records, bank records, or any other documentthat can confirm the transaction that facilitated the contribution.

Conclusion

InRoger’s case, the contribution of $ 1,000 meets the definition ofdeductible contribution under § 170 (c) and publication 526. The twopieces of law define deductible contributions as those made toqualified institutions, where USDSU is one of them. In addition,USDSU meet all the legal definitions of a qualifying institution(including U.S.C § 501 (c) (3)) since it is a non-profitorganization that engage in allowed activities, such as education andsports. This implies that any contribution made to SUDSU in the formof charity is deductible. However, the maximum amount that Roger candeduct is not difficult to determine, since his contribution base isnot disclosed. Therefore, Roger needs to keep records that confirmthat transaction and itemize his contribution in the IRS Form 1040.Under IRC section 170 (1), 80 % of the money paid to the educationalorganization is allowable in case such amount would be deductibleunder § 170. In the case of Roger, $ 1,000 is deductible.

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