Posts

25 Days of Giving: IRS requirements for non-cash gifts greater than $5,000

,
lights on roof

Thanks for reading the 25 Days of Giving series where w a’re “unwrapping” important info on various aspects of charitable giving each day through Christmas. Share with friends, family, & colleagues to inspire others to also make meaningful gifts this season.

If you’re making a non-cash charitable donation of over $5,000, first off, high five! That’s going to go a long way toward helping your favorite charity or advancing a cause you feel passionate about. Because you’re a smart donor, you’re also probably planning to claim the federal income tax charitable deduction as a way of reducing your taxes. In order to do this, gifts of that size come with specific requirements from the IRS that you’ll want to be sure to meet.

Requirements for “qualified appraisal” and “qualified appraiser”

Non-cash gifts of more than $5,000 in value, with exceptions, require a qualified appraisal completed by a qualified appraiser. The terms “qualified appraisal” and “qualified appraiser” are very specific and have detailed definitions according to the IRS.

Qualified appraisal

money on table

A qualified appraisal is a document which is:

  1. made, signed, and dated by a qualified appraiser in accordance with generally accepted appraisal standards;
  2. timely;
  3. does not involve prohibited appraisal fees; and
  4. includes certain and specific information.

Let’s further examine each of these four requirements.

“Qualified appraiser:” Appraiser education and experience requirements

An appraiser is treated as having met the minimum education and experience requirements if she is licensed or certified for the type of property being appraised in the state in which the property is located. For a gift of real estate in Iowa, this means certification by the Iowa Professional Licensing Bureau, Real Estate Appraisers.

Further requirements for a qualified appraiser include that s/he:

  1. regularly performs appraisals for compensation;
  2. demonstrates verifiable education and experience in valuing the type of property subject to the appraisal;
  3. understands she may be subject to penalties for aiding and abetting the understatement of tax; and
  4. not have been prohibited from practicing before the IRS at any time during three years preceding the appraisal.

Also, a qualified appraiser must be sufficiently independent. This means a qualified appraiser cannot be any of the following:

  1. the donor;
  2. the donee;
  3. the person from whom the donor acquired the property [with limited exceptions];
  4. any person employed by, or related to, any of the above; and/or
  5. an appraiser who is otherwise qualified, but who has some incentive to overstate the value of the property.

Timing of appraisal

clock against background s

The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions).

Prohibited appraisal fees

The appraiser’s fee for a qualified appraisal cannot be based on a percentage of the value of the property, nor can the fee be based on the amount allowed as a charitable deduction.

Specific information is required in appraisal

Specific information must be included in an appraisal, including:

  1. a description of the property;
  2. the physical condition of any tangible property;
  3. the date (or expected date) of the gift;
  4. any restrictions relating to the charity’s use or disposition of the property;
  5. the name, address, and taxpayer identification number of the qualified appraiser;
  6. the appraiser’s qualifications, including background, experience, education, certification, and any membership in professional appraisal associations;
  7. a statement that the appraisal was prepared for income tax purposes;
  8. the date (or dates) on which the property was valued;
  9. the appraised fair market value on the date (or expected date) of contribution;
  10. the method of valuation used to determine fair market value;
  11. the specific basis for the valuation, such as any specific comparable sales transaction; and
  12. an admission if the appraiser is acting as a partner in a partnership, an employee of any person, or an independent contractor engaged by a person, other than the donor, with such a person’s name, address, and taxpayer identification number.

Appraiser’s dated signature and declaration

Again, a qualified appraisal must be signed and dated by the appraiser. Also, there must be a written declaration from the appraiser she is aware of the penalties for substantial or gross valuation.

Reasonable cause

Tax courts have held that a taxpayer’s reliance on the advice of a professional, such as an attorney or CPA constitutes reasonable cause and good faith if the taxpayer can prove by a preponderance of the evidence that: (1) the taxpayer reasonably believed the professional was a competent tax adviser with sufficient expertise to justify reliance; (2) the taxpayer provided necessary and accurate information to the advising professional; and (3) the taxpayer actually relied in good faith on the professional’s advice.

If this sounds like a lot, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together.

/by

25 Days of Giving: Donate More to Your Place of Worship & Pay Less in Taxes

, ,

Thanks for reading the 25 Days of Giving series; this is the “gift” for day 17! Plan on coming back to the blog every day from now through Christmas Day.

Might this be a good season to consider being more generous to your place of worship? Generally, churches are considered to be public charities. This means they are typically exempt from local, state, federal, and property taxes. This also means donations can be deducted if you itemize your federal income taxes.

Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. It’s a win-win situation: make a financially wise contribution AND a difference in an organization you care about.

Tip 1: Consider All Your Assets

You need to consider ALL your assets for smart giving. Don’t just consider cash, but look at your entire basket. Here are three real-world examples:

  1. I know a farmer who doesn’t have a lot of cash on hand—we’ve all heard the phrase, “land rich, cash poor.” But, farmland itself can be a very tax-savvy gift. So are gifts of grain.
  2. I know a young person who’s self-employed. Again, not lots of cash on hand. But, this person inherited an IRA from a relative, and must make annual required minimum distributions [RMDs]. IRA RMDs can be a tax-wise gift.
  3. I also know a couple who recently retired. The couple has three life insurance policies, which made lots of sense when their kids were younger. Their kids are now grown and independently successful. A paid-up life insurance policy could be signed over to their favorite charity.

Your individual facts and circumstances are unique. Consider seeking a qualified attorney or financial advisor to look at your whole basket of assets.

25 Days of Giving: Help a Charity With Your Retirement Assets

Tip 2: Consider Long-Term Capital Gains Property

Gifts of long-term capital assets, such as publicly-traded stock and real estate, may receive a double federal tax benefit. Donors can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock or real estate.

Records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. You need to engage the right professionals to be sure all requirements are met.

Case Study for St. Patrick’s Day: Save Some Green on Gifts of Long-Term Capital Assets

Second, assuming the donor owned the asset for more than one year, when the asset is donated, the donor can avoid long-term capital gain taxes which would have been owed if the asset was sold.

Let’s look at an example to make this clearer. Sara Donor owns stock with a fair market value of $1,000. Donor wants to use the farmland to help her favorite causes. Which would be better for Sara? To sell the stock and donate the cash? Or, gift the stock directly to her church? Assume the stock was originally purchased at $200 (basis), Sara’s income tax rate is 37%, and her capital gains tax rate is 20%. 

Donating cash versus donating long-term capital gain assets, such as publicly-traded stock Donating cash proceeds after sale of stock Donating stock directly
Value of gift $1,000 $1,000
Federal income tax charitable deduction ($370) ($370)
Federal capital gains tax savings $0 ($160)
Out-of-pocket cost of gift $630 $470

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Again, a gift of long-term capital assets made during lifetime, such as stocks or real estate, can be doubly beneficial. The donor can receive a federal income tax charitable deduction equal to the fair market value of the asset. The donor can also avoid capital gains tax.

Tip 3: Consider Endow Iowa Tax Credit Program

Under the Endow Iowa Tax Credit program, gifts made during lifetime can be eligible for a 25% tax credit. There are three requirements to qualify:

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
  2. The gift must be made to an Iowa charity.
  3. The gift must be endowed (i.e., a permanent gift). Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your local community foundation. This final requirement is a restriction, but still, in exchange for a 25% state tax credit, it must be seriously considered by Iowa lawyers and donors.

25 Days of Giving: Basics of the Endow Iowa Tax Credit Program

Tip 4: Combine the First Three Tips!

Let’s look again at the case of Sarah, who is donating stock per the table above. If Sarah makes an Endow Iowa qualifying gift, the tax savings are dramatic:

Tax benefits of donating long-term capital gain asset with Endow Iowa
Value of gift $1,000
Federal income tax charitable deduction ($370)
Federal capital gains tax savings ($160)
Endow Iowa Tax Credit ($250)
Out-of-pocket cost of gift $220

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Note Sara’s significant tax savings! In this scenario, Sara receives $370 as a federal charitable deduction, avoids $160 of capital gains taxes, and gains a state tax credit for $250, for a total tax savings of $780. Put another way, Sara made a gift of $1,000 to her favorite charity, but the out of pocket cost of the gift to her was less than than a quarter of it.

giving package with green spruce

Each donor’s financial situation and tax scenario is unique; consult your own professional advisor for personal advice. I’m happy to offer you a free consult to discuss your charitable giving options. I can be reached by phone at 515-371-6077 or by email.

/by

25 Days of Giving: Help a Charity With Your Retirement Assets

,
blue and tan present

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

In December there is gift giving with wrapping paper abound, but when it comes to charitable giving the important assets (like your retirement assets) don’t need ribbons or bows. Let’s first focus on a major retirement asset giving tool, the IRA charitable rollover.

IRA Charitable Rollover

This federal law allows donors age 70½ and older to make direct distributions of up to $100,000 from his/her IRA each year to any qualified charity. The donation is not treated as taxable income and, moreover, counts toward the donor’s required minimum distribution for that year.

At the end of 2015, Congress made the IRA charitable rollover a permanent giving tool, unlike the year-to-year renewal basis they had operated on since the introduction of the IRA charitable rollover in 2006 (as part of the Pension Protection Act).  The result? Tax savvy IRA account holders can now plan charitable giving in a more reliable way.

The IRA Charitable Rollover, Explained

Other Options

There are two other accessible ways to direct retirement benefit plan assets to your favorite charity:

  • Gifts at death via beneficiary designations.
  • Withdrawals over age 59½ followed by outright deductible gifts that can effectively result in tax-free retirement plan gifts.

Keep in mind, too, that the IRA charitable rollover applies only to IRAs. These two options — gifts at death via beneficiary designations and withdrawals by those older than 59½ — will work with virtually all qualified retirement plans, including 401(k)s and 403(b)s. baubles on a green tree

Naming your favorite charity as beneficiary

Donors considering charitable bequests may not realize that they can make a meaningful gift simply by naming their favorite charity as the beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is easy, and does not require drafting or amending a will or trust. A donor simply has to contact his/her financial institution holding the retirement benefit plan and request a change of beneficiary form.

Note, however, that if the account holder is married, the spouse should be informed and may have to consent to the gift. The plan assets may also be left to a charitable or marital trust[s]. In the latter case, professional advisors should be consulted. (Hint: call me!).

9 Reasons You Need a Lawyer to Write your Estate Plan

Give now!

Donors could also choose to make current gifts using funds withdrawn from their qualified retirement plans. Individuals over age 59½ may generally withdraw funds from retirement plans without penalty, make a gift with these funds, and then claim an offsetting charitable deduction. In most cases, a gift made in this manner will be a “wash” for tax purposes.

Let’s take a quick example. Rebecca (age 64) wants to make a very generous donation of $10,000 to her favorite charity. She can withdraw $10,000 from her IRA or 401(k) account, and make that donation. Assuming she itemizes her tax deductions, the $10,000 donation should leave her “even Steven” with regard to taxes – the $10,000 in income is offset by the $10,000 charitable deduction, resulting in zero net income taxes.

Benefits of Smart Estate Planning: Avoiding Taxes and Fees

Advice is Priceless

The decision to want to give to you favorite causes this season is easy. Knowing exactly where to start with smart giving can be a little more complex. If you have questions about the IRA charitable rollover or any other giving strategy, don’t hesitate to reach out via email or by phone (515-371-6077). My firm’s mission is to maximize charitable giving in the state of Iowa and I want to help YOU maximize your personal charitable giving (in a way that is also tax efficient).

/by

25 Days of Giving: “Related Use” in Charitable Gifts of Tangible Personal Property

,
Hands giving ornament

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

25 days of Christmas - Holiday giving

Tangible personal property is a fancy way of saying “stuff,” such as a painting, computer, furniture, and collectibles (excluding securities, cash, and real estate).  So, if you want to donate your stuff to your favorite charity, what are the tax consequences?

Related Use

The amount of your federal income tax charitable deduction depends on the concept of “related use.” If appreciated tangible personal property is considered related to the charity’s exempt purpose, the deduction is based on fair market value (FMV) and available to the extent of 30% of your adjusted gross income (AGI).

If property is considered unrelated to the public charity’s exempt purpose, you must reduce the FMV by any amount that would have been long-term capital gain had you sold the property for its fair market value. (In short, if the FMV was greater than the basis in the property, your deduction is limited to your basis.)

To sum it up: in order for a donor of tangible personal property to be able to deduct its full FMV, the charity must use the object in a manner that is related to its (the charity’s) exempt purpose. A classic example is the gift of a piece of art, like a sculpture or painting, to an art museum.

Hypothetical

This concept of “related use” can have very profound tax consequences. For instance, assume Jill Donor owns a painting which is now worth $100,000, but Donor purchased it for only $20,000.

If Donor gives this painting to an art museum that keeps and displays the painting, Donor can deduct the painting’s full $100,000 FMV. If Donor gives the same painting to, say, a nature conservancy, which will sell the painting and use the proceeds, Donor can deduct only her $20,000 cost.

Note, that even if the object is potentially related to the charity’s mission–such as a painting given to an art museum–if the charity’s intention is to sell it upon receipt, then the gift is not for a related use and the donor’s deduction will be limited accordingly.

From our hypothetical, it doesn’t necessarily have to be gifted to a museum to be considered for a related use. In Private Letter Ruling 9833011, the IRS ruled that a gift of art to a Jewish community center would be for a related use, as the artwork had both religious and cultural significance. Also, a painting gifted to, say, a hospital may be for a related use if the hospital will display it in a common area so that it helps foster a healing environment for patients.

hands holding evergreen fir

Takeaway

The big takeaway for nonprofits? Nonprofit boards and staffs should know and understand about “related use,” so they can recognize the issue if it arises.

The big takeaway for donors? Donors should obtain in writing the charity’s intent to use the property for a purpose related to its mission.

I want to help you, whether you’re a nonprofit organization or donor, wisely maximize your charitable giving. Don’t hesitate to reach out by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com).

/by

Young Couples Should be the Most Concerned with Estate Planning

Young couple holding hands

Who – what age group – needs to be most concerned with estate planning? Ask Iowans this question, and I’ll bet most would conjure up the image of a retiree, who just spent 50+ years working hard to acquire significant assets.

But imagine, say, a young, married couple. They both have good jobs, live in a nice starter home, and have one or two toddlers.

This young couple tries to put away a little bit of money for savings, and in a college fund, and for retirement. Why should they worry about estate planning?

The truth is, this young couple should be just as concerned–arguably, even more concerned–with estate planning as the retiree. Here are four reasons why:

  1. Choosing guardians for minor children. In an estate plan, you can choose the guardians of children. If you should become incapacitated, or even die, without any estate plan, an Iowa court would have no choice but to appoint a guardian for your children – but it may not be who you wanted or who you would have chosen. Better to make this choice with plenty of time to consider and make a careful, well-reasoned choice.
  2. Save on fees, court costs, and taxes. A good estate plan can save you and your estate money on fees, court costs, and taxes – perhaps even achieve substantial savings. These savings can be even more critically important for a smaller estate – more likely when you’re younger – than for larger estate, more likely as you grow older. Often, young folks actually have the greatest need to save money to pass along the most they possibly can to family and loved ones.
  3. Help favorite charities. Young people often are passionate about one or more causes. Having an estate plan means that you can put into place much needed help for your favorite charities.
  4. Life is uncertain. It may be awkward to talk about, but life isn’t guaranteed for any of us, young or old. There’s an old saying in estate planning circles that goes, “people don’t always die when they are supposed to.” Wives usually outlive their husbands, parents usually outlive their children, and so on, but not always. It is best to be prepared for anything/everything.

Whatever your age, if you are interested in estate planning, a good place to start is my free Estate Planning Questionnaire, or you can contact me!

/by

ABCs of CGAs: Basics of Charitable Gift Annuities

Dollar bill against white background

The Basics

A charitable gift annuity (CGA) is a contract in which a charity, in return for a transfer of assets, such as say, stocks or farmland, agrees to pay a fixed amount of money to one or two individuals, for their lifetime. A person who receives payments is called an “annuitant” or “beneficiary.”

For the entire term of the contract, the payments are fixed. A portion of the payments are considered to be a partial tax-free return of the donor’s gift, which are spread in equal payments over the life expectancy of the annuitant(s).

CGA cycle

Benefits of a CGA

There are at least six key benefits to a CGA:

  1. A CGA provides an immediate income tax charitable deduction to a donor for the gift portion.
  1. A CGA pays a lifetime income to one or two individuals, part of which is (most often) a return of principal and free from income tax.
  1. The income payout from the gift annuity can begin immediately or can be deferred.
  1. The charity’s obligation to pay the annuity is backed by the general assets of charity.
  1. When appreciated property is provided, and the donor is an annuitant, some of the capital gain is spread over donor’s life expectancy, and the rest is never recognized because it is attributed to the gift portion.
  1. A CGA is (relatively) simple to execute.

3 versions of CGA agreements

There are three versions of different CGA agreements depending on to whom the annuity is to be paid to:

  1. A “single life” agreement (annuity paid to only one person for his/her lifetime)
  1. A “two lives in succession” agreement (annuity paid to A, and then if B survives A, paid to B)
  1. A “joint and survivor” agreement (pay annuity paid to two persons simultaneously, and at death of first annuitant, the survivor is paid full annuity amount). This is most commonly used for married couples who file joint tax returns and/or who live in community property states.

Types of CGA agreements

In addition to the three versions there are three main types of CGA agreements that determine when the payments are issued to the annuitants: immediate, deferred, and flexible.

  1. Immediate Gift Annuity

Under an Immediate Gift Annuity, the annuitant(s) start(s) receiving payments at the start/end of the payment period immediately following the contribution. Payments can be made monthly, quarterly, semi-annually, or annually.

  1. Deferred Gift Annuity

Under a Deferred Payment Gift Annuity, the annuitant(s) start(s) receiving payments at a future time, the date chosen by the donor, which must be more than one year after the date of the contribution. As with immediate gift annuities, payments can be made monthly, quarterly, semi-annually, or annually.

  1. Flexible Annuity

Under a Flexible Gift Annuity (also known as a Deferred Payment Gift Annuity), Donor need not choose the payment starting date at the time of her contribution. The annuitant (who may or may not be the donor) can choose the payment starting date based on her retirement date or other considerations.

Charities That Issue CGAs: The Rules

NOTE: Gift annuities are an exception to the general rule that charities cannot issue commercial insurance contracts. As such, charities which issue gift annuities must comply with several rules, which may be simplified as follows:

  1. The present value of the annuity must be less than 90% of the total value of the property transferred in exchange for the annuity. In other words, the charitable interest must be at least 10%.
  1. The annuity cannot be payable over more than two lives, and the individual(s) must be alive at the time the gift annuity is set up.
  1. The gift annuity agreement cannot specify a guaranteed minimum, nor a maximum, number of annuity payments.
  1. The actual income produced by the property transferred in exchange for the gift annuity cannot affect the amount of the annuity payments.

Rose in hand

CGAs and Tax Considerations

Federal income tax charitable deduction

A charitable gift annuity is considered part gift and part sale, as the donor contributes the property in exchange for annuity payments from the charity. The donor who itemizes may take an income tax charitable deduction for the gift portion (i.e., the value of the transferred property less the present value of the annuity).

This income tax charitable deduction is subject to the same limits as an outright gift of cash or property. For example, if cash is transferred for the CGA, the limitation of the deduction is 50% of the donor’s AGI; if long-term capital gain property is transferred, the limitation is generally 30% of AGI.

Any deduction in excess of the applicable percentage limitation may be carried forward for five years.

watch on wrist

Taxation of payouts

The annuity payments by the charity under a gift annuity are treated for income tax purposes as follows:

  1. Tax-free return of principal
  2. Long-term capital gain
  3. Ordinary income

Let’s break each of these categories down.

Tax-free return of principal

A portion of each payment received by Donor, or another annuitant, is a tax-free return of principal until the cost of the annuity is fully recovered when the annuitant reaches life expectancy.

The assumed cost of the annuity does not include the gift portion of the transaction. The donor’s cost basis must be allocated between the gift and sale portions in accordance with the respective proportions of the value of the property transferred.

Long-term capital gain

If property held for more than one year is transferred for a gift annuity, a portion of each payment will be taxed as LTCG. This will reduce the income tax-free return of principal portion of the annuity payments.

Capital gain is recognized only on the sale portion of the transaction and with the basis allocation previously described. Under general tax rules, long-term capital gain is recognized in the year the property is sold. However, with a charitable gift annuity, the donor may spread the gain over life expectancy provided the donor is the sole annuitant, or the donor and another individual named as a survivor annuitant.

Ordinary income

After the capital gain and tax-free portions of the annuity payment have been determined, the balance of the payment will be taxed as ordinary income.

Gift and estate taxation

giving gift

If the donor is the sole annuitant, there are no gift or estate tax issues because both the annuity is her own and the annuity terminates at death.

If the donor names anyone other than herself as an annuitant, gift and estate tax issues may arise.

Regarding gift tax, if the donor names another person as an annuitant, the gift is the value of the annuity. An exception exists for a spouse under the gift tax marital deduction.

Another alternative to avoid gift tax: the donor could retain the right to revoke when the named annuitant has a survivor interest.

Regarding estate tax, if the donor names another person as an annuitant, the remaining value in the annuity is considered part of the donor’s estate. An exception exists for a joint annuity using only the donor’s life as the measuring life. Of course, there is also an estate tax marital deduction available if the surviving annuitant is a spouse.

Low-interest rates = higher tax-free income

The applicable federal rate (AFR) selection decision is more nuanced for gift annuities than for other split-interest gift tools.

A donor who wants to maximize their deduction will select the highest rate available, but this reduces the overall value of the annuity and increases the amount of the charitable gift.

Conversely, a donor who wants to maximize the income tax-free portion of the annuity payments will select the lowest available rate.

Choosing start date of deferred CGA

Under an immediate charitable gift annuity, annuity payments begin no later than one year after the initial contribution.

calendar on desk

A deferred gift annuity allows the donor to delay the start date of annuity payments. This delay will both increase the annuity amount when payments begin and result in a larger income tax charitable deduction which is available in the year of the contribution (subject, as always, to AGI limits).

A deferred gift annuity can, therefore, produce current tax savings during high-earning years while creating a supplemental retirement income. Generally, Donor sets a date for the deferred gift annuity to begin. However, the IRS approved a deferred gift annuity which did not specify a fixed starting date for the annuity payments [Ltr. Rul. 9743054].

Testamentary Gift Annuity

If carefully planned, it is possible to arrange a charitable gift annuity through a will. It is, of course, crucial that both the bequest amount and annuity payout are made clear by the terms of the will.

coffee mug and computer

A donor considering a testamentary gift annuity should directly address three important questions:

  1. What if the designated annuitant(s) predecease the testator? Donor may want to specify a contingent annuitant or provide for an outright bequest to Charity.
  2. What if the charity no longer exists at death? Or, what if the charity is either unable or unwilling to accept the gift? The donor may want to name a contingent charitable beneficiary.
  3. What about the payout rate? The donor should leave the charity some degree of flexibility in the payout rate, to assure the 10% minimum charitable interest requirement can be met in the future.

You may have many more questions regarding charitable gift annuities and your personal situation. Feel free to contact me any time to discuss how to maximize your gift. I offer a one-hour free consultation, without any obligation. I can be reached any time at my email, gordon@gordonfischerlawfirm.com, or on my cell, 515-371-6077.

/by

Expert Employers: Absenteeism & the Americans with Disabilities Act (ADA)

,
man stretching at desk

For decades, employers enjoyed very wide latitude in disciplining and firing employees for attendance problems, even if the absenteeism was the result of illness or injury. That latitude has been significantly altered since the passage of the Americans with Disabilities Act (ADA) in 1990. Let’s explore how some of the policy implications of the civil rights law play out in the workplace. Don’t forget the ADA applies to nonprofit employers too, and non-compliance is not an option!

ADA Coverage

The ADA protects only “qualified individuals with a disability.” Disabilities as defined under the ADA can mean either physical or mental impairment that substantially limit one or more major life activities. It can also mean an individual who has a record of such an impairment or is regarded as having such an impairment.

 

group of people in line

A qualified individual must be able to perform essential functions of the job, with or without reasonable accommodation. What’s a reasonable accommodation? It may include the following (but is certainly not limited to):

  • Making existing employee facilities readily accessible for use by persons with disabilities
  • Modifications to work schedule
  • Job restructuring
  • Appropriate reassignment to a vacant position
  • Acquiring/modifying equipment or devices
  • Adjusting/modifying examinations, training materials, or policies
  • Providing qualified readers or interpreters

Tension Between ADA and Absenteeism

It can be difficult when an employee is absent for a health reason, and co-workers must pick up the slack, or the work simply goes unfinished. But, the employer risks violating the ADA if the company terminates or disciplines such an employee without first considering whether the employee is a “qualified individual with a disability.” If the answer is yes, the employee does fall under the ADA umbrella, then the employer must consider whether they can reasonably accommodate the employee. An employer is required to make a reasonable accommodation to the known disability of a qualified employee, if it would not impose an “undue hardship” on the employer’s operation. Yet another term that sounds ambiguous at its face, undue hardship is defined as an action requiring significant expense or difficulty with regard to things like the structure of its operation, employer’s size, financial resources, and nature of the industry.

Employers are NOT required to make an accommodation if it would mean lowering quality or production standards. (They’re also not required to provide personal items for use, like hearing aids.)

Of course, not all persons with a disability will need the same kinds of accommodation. Some examples relating to absenteeism include:

  • Abe was diagnosed with cancer and will be absent as he undergoes chemotherapy.
  • Betty has a chronic medical impairment in the form of diabetes and will need to attend related medical appointments in regular intervals.
  • Charlie deals with major depressive disorder, and a recent exacerbation of symptoms means he’ll need time to recuperate.
  • Diana will also need time to recover from surgery for her chronic back condition.

Practice Pointers

To control attendance problems without violating the ADA, you should:

  • Evaluate each situation (that is, whether the employee is qualified, disabled, or whether you can provide a reasonable accommodation) on a case-by-case basis while acting as consistently as possible with past practice and in accordance with your attendance policy;
  • Have a written attendance policy that emphasizes the necessity of good attendance, but also provides you with flexibility that you might need to accommodate a qualified individual with a disability;
  • Maintain accurate records of all absences, including a separate and confidential file for any medical certifications or medical information relating to an employee’s absences;
  • Be aware of the interplay between business/nonprofit policies and state and federal laws; and
  • Call your attorney when you have questions about your duties under the ADA. The saying, “An ounce of prevention is worth a pound of cure,” is smart to keep in mind!

Smart Employers Seek Advice

Again, nonprofit employers, remember the ADA applies to you too! The ADA can be a complex law, and it can get even trickier when trying to accommodate appropriately for absenteeism, while balancing business/nonprofit operations. Know you don’t have to navigate it alone. Questions? In need of counsel? Don’t hesitate to contact me.

/by

(Legal) Word of the Day: Quid Pro Quo

, ,
pen on desk

You’ve probably heard it before on your favorite law show or movie court case, but do you know what “quid pro quo” actually means?

Quid pro quo (“something for something” in Latin) means an exchange of goods or services, where one transfer is contingent upon the other.

Quid pro quo can have different meanings in different areas of the law. For instance, we typically hear this phrase in relation to employment law. So, in the arena of philanthropy and nonprofits, what does quid pro quo mean?

A charitable donation is deductible to the extent the donation exceeds the value of any goods or services received in exchange. So what happens when you donate to your favorite charity and receive something tangible in return? This is the issue of “quid pro quo” in charitable gift law.

giving gift

Quid Pro Quo Example

If a donor gives a charity $100 and receives an opera ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60. The donor is entitled to a charitable deduction for $60, but not the entire $100.

Both the donor and donee have a responsibility here. The donor, of course, can only deduct the cost of the donation less the value of the goods/services received. The charitable organization must provide their donors clear, written documentation of the value of donations.

In fact, in these quid pro quo situations, under IRS rules, the nonprofit must provide a written disclosure statement. This required written disclosure statement must both:

• Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity.

• Provide the donor with a good faith estimate of the value of the goods or services that the donor received.

Free Consultation

Thinking about making a donation or looking for guidance regarding gift acceptance at your nonprofit, no quid pro quo is required! I offer a free one-hour consultation, with absolutely no obligation. I can always be reached by email at Gordon@gordonfischerlawfirm.com, and by phone at 515-371-6077.

/by

Donations to Foreign Charities not Deductible for Income Tax

,
Dandelion blowing in wind

If a charitable contribution is made to a foreign organization, the donor generally cannot deduct the contribution for income tax purposes. Exceptions may apply in very limited situations; specifically, the U.S. has tax treaties with Canada, Israel, and Mexico. Generally, though, if the donee is a foreign charitable organization an income tax deduction is unavailable. Interestingly enough, both the estate and gift tax charitable deductions are available for gifts to foreign charitable organizations.

So, assume Jill Donor wants to help Charity X, which is organized and operated in Paris, France. If Donor made the gift during lifetime then no income tax deduction would be allowed because gifts to foreign charities normally are not deductible for federal income tax purposes. Note, however, that the lifetime gift removes the asset from Jill’s estate, so the gift would have the same effect as a charitable bequest from Donor’s will.

 

Woman looking out from balcony in Paris

It is important to know where the charity is organized and operated. If the organization is operated organized in a foreign nation – such as our example charity organized and operated in Paris, France – donations to such organizations are not eligible for the federal income tax deduction. This is true regardless if donations to a similar organization in the U.S.–such as a similar organization organized and operated in Paris, Texas–would be eligible.

A donor in doubt about a deduction can seek information from the charity, of course. And, a donor can search for the charity using the IRS’ “Select Check” online search tool.

Of course, if concerned about deductibility, a potential donor should also seek advice from a professional advisor. I’m happy to help, so don’t hesitate to reach out via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077) if you’re considering making a donation to a foreign-based charity.

/by