14.2 Nondeductible Contributions

Law Alert

Contributions to Donor-Advised Funds

No deduction can be claimed for a contribution to a donor-advised fund if the sponsoring organization is a war veteran’s organization, fraternal society, veteran’s organization, or a non-functionally integrated Type III supporting organization.

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The following types of contributions are not deductible:

1. Donations to or on behalf of specific individuals, even if needy or worthy. Generally, scholarships for specific students, or gifts to organizations to benefit only certain groups. However, the IRS in private rulings has allowed deductions for scholarship funds that are limited to members of a particular religion, so long as that religion is open to all on a racially nondiscriminatory basis, and to scholarship funds open only to male students.

2. Payments to political campaign committees or political action committees.

3. Payments to an organization that devotes a substantial part of its activities to lobbying, trying to influence legislation, or carrying on propaganda or whose lobbying activities exceed certain limits set by the law, causing the organization to lose its tax-exempt status. The IRS has disallowed contributions to a civic group opposing saloons, nightclubs, and gambling places, although the group also aided libraries, churches, and other public programs.

4. Gifts to organizations such as:

Fraternal groups—except when they set up special organizations exclusively devoted to charitable, educational, or other approved purposes.

Professional groups such as those organized by accountants, lawyers, and physicians—except when they are specially created for exclusive charitable, educational, or other philanthropic purposes. The IRS will disallow unrestricted gifts made to state bar associations, although such organizations may have some public purposes. Some courts have allowed deductions for donations to bar associations on the ground that their activities benefit the general public. However, an appeals court disallowed deductible donations to a bar association that rates candidates for judicial office.

Clubs for social purposes—fraternities and sororities are generally in this class. Unless an organization is exclusively operated for a charitable, religious, or other approved purpose, you may not deduct your contribution, even though your funds are used for a charitable or religious purpose.

5. Donations to civic leagues, communist or communist-front organizations, chambers of commerce, business leagues, or labor unions.

6. Contributions to a hospital or school operated for profit.

7. Purchase price of church building bond. To claim a deduction, you must donate the bond to the church. The amount of the deduction is the fair market value of the bond when you make the donation. Interest on the bond is income each year, under the original issue discount rules (4.19), where no interest will be paid until the bond matures.

8. Donations of blood to the Red Cross or other blood banks.

9. Contributions to foreign charitable organizations or directly to foreign governments. Thus, a contribution to the State of Israel was disallowed.

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Caution

Foreign Charities

You may deduct donations to domestic organizations that distribute funds to charities in foreign countries, as long as the U.S. organization controls the distribution of the funds overseas. An outright contribution to a foreign charitable organization is not deductible. Some exceptions to this ban are provided by international treaties. For example, if you have income from Canadian, Mexican, or Israeli sources, contributions to certain organizations in those countries are deductible subject to limitations. For details, see IRS Publication 526.

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Donation of services.

You may not deduct the value of your time when you provide volunteer services for charity. But you can deduct unreimbursed expenses incurred during such work (14.4).

Free use of property.

You may not deduct the rental value of property you allow a charity to use without charge. That is, if you allow a charity rent-free use of an office in your building, you may not deduct the fair rental value. You also have no deduction when you lend money to a charity without charging interest.

To raise money for a charity, supporters of the organization may donate rental time for their vacation home, to be auctioned off to the public. No deduction is allowed for donating the rental time (14.10).

Parents’ support payments of children serving as Mormon missionaries.

According to the Supreme Court, support payments made by parents directly to their children who serve as missionaries are not deductible because the church does not control the funds.