Summary of Federal Laws
Tax Issues Related to Charitable Gift Annuities
With the creation of a charitable gift annuity, a donor transfers cash or property to a charitable organization in exchange for a direct obligation to pay an annuity to an individual for the term of the person's life. Typically 1/2 of the money goes to purchase the annuity and 1/2 goes to the charitable organization as a gift. The present value of the annuity is determined in accord with tables provided by the IRS.
Many states regulate the issuance of gift annuities. See the resources section below for more on this. The charity may need to follow the law of the state in which the charity does business, as well as the state of residence of the donor. State law on this differs, but some laws require 50% of the amount to be escrowed into a separate account by the organization receiving the gift. Note that using the payout recommended rates published by the American Council on Gift Annuities represents a safe harbor with respect to some state regulations.
There are complicated mathematical formulas used to determine the payouts based upon the life expectancy of the donor. There is software available (PG Calc is one example) to make the calculations and also to generate the numbers for any resultant IRS Form 1099-R that must be sent to the donor on an annual basis.
Sales of property are treated as bargain sales for tax purposes. The tax is affected by how the allocation is made between the donor's tax basis in the property and the gift and sale element of the donation.
Deferred annuities allow the donor to defer the starting date for an annuity payment to some time in the future, such as retirement. Generally, the date the annuity is to start is needed so the tax deduction can be valued, but in PLR 9743054 (1997) the IRS allowed an uncertain start date.
State Gift Annuity Registration: A Primer on What it Means for your Organization (2010 White Paper by PG Calc)
American Council on Gift Annuities: Contains gift annuity rate schedules, state regulations, and info about gift annuities. Sample resources are listed below:
Sample Gift Annuity Disclosure Statement (required by Philanthropy Protection Act)
Unified Registration Statement **(for multistate filing)
Give and Let Give: Working With Charitable Gift Annuities by John R. Bass(on CASE website-May 2004-password protected so log in needed)
ASU Charitable Gift Annuities **(includes sample gift annuity rate table for one and two life based upon age)
University of Pennsylvania Gift Calculator (for various types of giving vehicles)
Maximizing the Benefits from Your Gift Annuity Program (June 2004-Planned Giving Design Center)
page created 9/11/13 by mlo
CCR updated CFR links 5/21/15