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Making a chatitable donation to the victims of Haiti?

By Michael B. Nelson, Esq. - Email Editor

Date : February 2, 2010

I, like so many of us, deeply regret the loss of life that the earthquake in Haiti took on January 12th of this year. The 7.0 earthquake hit Haiti's capital, Port-Au-Prince, hardest and caused massive devastation with an estimated loss of life climbing to over 200,000.

Many countries and individuals are rushing to provide aid, and the American public is no exception to being the largest contributors of help. This help has been and will be in many forms, including cash, equivalent of cash, property, and prayers. For Americans wanting to make cash or cash equivalent contributions, the Internal Revenue Service has issued guidelines which are not consistent with non-exigent donations as well as the I.R.S. guidelines for the China earthquake victims in Sichuan Province on May 12, 2008 and the December 26, 2004, a massive 9.0 magnitude earthquake occurred under the Indian Ocean just off the coast of Indonesia killing over 227,000 people.

China Earthquake Victims:

Donations of cash or cash equivalents (such as texting and credit card donations) are deductible if paid directly to an approved charity by the I.R.S., or indirectly if the entity you are contributing to has transparency to allow the I.R.S. to see that 100 percent of the donations are being sent directly on to an I.R.S. approved charity. Naturally, the second method is not as reliable for I.R.S. approval in the event you are audited. The China earthquake donations were orchestrated within the Red Cross by sending donations via the American Red Cross, with specific instruction to forward your donation to the Chinese Red Cross.

Unlike the next two horrible events of huge loss of human life, the tax deduction made in 2008 was only deductible in the year the donation was actually made. So, if you made a donation in 2008, you could not amend your 2007 tax return, if you had already filed, or file your initial 2007 return and claim the tax deduction. You also could not decide whether you would take part or all of the tax deduction in 2007 or 2008.

Indian Ocean Victims:

Cash donations by Americans for victims of the tsunami made in the first month of the subsequent year, January 2005, were permitted to be treated as made on December 31, 2004 or 2005. The I.R.S. was even more generous by encouraging Americans to make multiple donations to treat each deduction on its own.

As an example, an American making three separate gifts of $100 each may treat two gifts as made on December 31, 2004, and one gift as made on the actual date of gift (in January 2005).

Haiti Earthquake Tragedy:

Americans who itemize deductions on their 2009 return can embrace the recent special tax relief for donations for the Haiti victims. This new law was enacted on January 11, 2010 and applies to contributions of cash such as text message, check, credit card or debit card contributions made to qualifying charities after January 11, 2010 and before March 1, 2010.

Americans are able to experience immediate benefits of the donation by early filing of the 2009 tax return via electronic filing and electing the refund deposit to be made directly into their bank account. Since refunds can be delayed in the mail for days, weeks and months, the I.R.S. is now encouraging Americans to direct the refund as a direct deposit into “a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.”

Note: You have the option of deducting your donations on either their 2009 or 2010 returns, but not both. Remember, you deduct your donation by itemizing on Schedule A, but only if you are not claiming the standard deduction or filing the short-form. Also be careful that your donation goes to I.R.S. qualified charities and even then, some charities are not listed by the I.R.S. but are still qualified; such as churches or governments. However, with that said, excercise caution when making donations to foreign organizations which are generally not recognized by the I.R.S. All donations should be noted upon that they be used exclusively for the Haiti Earthquake Victims.


Conclusion:

Federal law requires that you retain a record of any deductible donations. Recordations may be in the form of donations by text message in which a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. Cash contributions require recordation via a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution.

Feel free to email us at info@trustmakers.com or call to discuss your options.

Taking Action If you have a company, foundation or trust outside the US borders and want to know if you have correctly set it up for structural and/or tax purposes our advisors are now handling these cases. Please reply to info@trustmakers.com.

By Michael B. Nelson, Esq.
TrustMakers.com

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