The Case of the Taxpaying Good Samaritan: Deducting Earmarked Transfers to Charity under Federal Income Tax Law, Theory, and Policy
Johnny Rex Buckles
University of Houston Law Center
Fordham Law Review, Vol. 70, p. 1243, 2002
University of Houston Law Center No. 2005-A-16
Taxpayers have often sought to designate by name the specific individuals ('secondary beneficiaries') whom the taxpayers desire to benefit ultimately from their contributions to charitable organizations. Under current case law and the administrative rulings of the Internal Revenue Service, a taxpayer who makes such an 'earmarked' transfer to charity is in many cases denied a charitable contribution deduction for such a transfer under section 170 of the Internal Revenue Code. In this article, Professor Buckles first discusses the deductibility of non-earmarked transfers to charitable donees under current law, and then explores and analyzes the deductibility of transfers to charity which are in some manner earmarked for the benefit of a secondary beneficiary, upon the initiative of either the taxpayer or the charitable transferee. The article then surveys existing scholarship addressing the justification of the charitable contribution deduction under income tax theory, pervasive norms of tax policy, and broader policy objectives. Similarly, existing theories supporting the exemption of charitable organizations from federal income taxation are briefly discussed. These sections form the necessary background for the final major section of the paper, in which Professor Buckles critically examines the normative question of whether, and to what extent, earmarked contributions to charity should be deductible. The article discusses both the relevance of several factors that existing authorities have cited in determining the deductibility of earmarked transfers to charity, and how a deduction for such transfers fares under several norms and other guiding principles. The article concludes with Professor Buckles' proposed framework for determining when an earmarked contribution should be deductible. In general, a taxpayer should be entitled to deduct any earmarked transfer to a charitable organization which both receives delivery of the transferred money or property and accepts the contribution in its own right (rather than as an agent or as a trustee of a private trust). Two exceptions to this proposed rule exist. First, no deduction should be allowed for any earmarked transfer pursuant to which the taxpayer or a member of her household is designated by the taxpayer as the secondary beneficiary. Secondly, a taxpayer should receive no charitable contribution deduction for any transfer to a charity operating as a commercial nonprofit, if such transfer secures market-priced goods and services for consumption by the secondary beneficiary. An exception to this exception should exist if it is established that, absent the earmarked transfer, the charitable transferee nonetheless would have provided such good or service to the secondary beneficiary without charge because of the secondary beneficiary's inability to pay for the good or service.
Number of Pages in PDF File: 99
Keywords: earmarked gift, earmarked contribution, earmarked donation, earmarked transfer, Good Samaritan, charitable contribution, charitable gift, section 170, charitable contributions deduction, charitable contribution deduction
Date posted: November 18, 2005
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