Taxpayers not entitled to deduct contributions to purported “family charity” - Setty Gundanna and Prabhavathi Katta Viralam, (2011) 136 TC No. 8 The Tax Court has concluded that married doctors weren't entitled to a charitable contribution deduction for their transfers of appreciated stock to their “account” in a Code Sec. 501(c) organization that they used to pay their son's college tuition and related expenses. Further, the taxpayers were required to include in gross income the capital gain realized when the organization sold the appreciated stocks and the investment income generated by the property in the account. Background. Under Code Sec. 170 , a taxpayer is allowed a charitable contribution deduction for a contribution or gift to or for the use of a foundation organized and operated exclusively for charitable or educational purposes. For a transfer of property to a charitable organization to qualify for a deduction: (1) the transfer must be a completed gift (that is, the donor must have relinquished dominion and control over the donated property); Pollard v. Comm., (CA 11 1986) 57 AFTR 2d 86-1175 , affirming TC Memo 1984-536 ) (2) the contribution must have been made with donative intent and without the expectation of a substantial benefit in return; (U.S. v. American Bar Endowment (S Ct 1986) 58 AFTR 2d 86-5190 ) and (3) a contribution of $250 or more must be substantiated by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of Code Sec. 170(f)(8) . Under Code Sec. 170(f)(8)(A) , no charitable contribution deduction for any contribution of $250 or more is allowed unless the taxpayer substantiates the contribution with a contemporaneous written acknowledgment of the contribution by the donee organization that meets certain specified requirements. Under Code Sec. 170(f)(8)(B) , the donee organization must state in the acknowledgment whether the donee organization provided any goods or services in consideration, in whole or part, for the contributed property or cash. If so, the acknowledgment generally must include a description and good faith estimate of the value of any goods or services provided. Reg. § 1.170A-13(f)(6) clarifies that a donee organization is treated as having provided goods or services in consideration for the taxpayer's payment if the taxpayer expects to receive goods or services in exchange for the payment at the time it is made, including where the goods or services are provided in a year other than the year when the taxpayer makes the payment. Facts. Setty Gundanna Viralam (Viralam) and his wife are both medical doctors. Viralam sold his 50% medical practice interest in '97 for $2,262,000, yielding a $2,261,750 gain. Also in '97, Viralam became a member of “xélan,” a financial planning company for doctors that provided its members with financial planning services, including pension plans, insurance products, tax reduction and asset protection strategies, and investment management. One of the financial planning strategies summarized in the xélan materials was establishment through donations to the xélan Foundation (Foundation) of an account that the materials characterized as a “donor advised fund” or “family public charity” (Foundation account), by means of which a donor's donations would be segregated for investment and future distribution as the donor might recommend. The promotional materials characterized Foundation accounts as a “tax reduction” program and stated that the Foundation “was created to benefit not only charitable causes, but also doctors and their families.” It purportedly allowed doctors to contribute pre-tax earnings to their own family charity, defer tax on account growth, and use the accounts to finance charitable projects including personal teaching, research, and college scholarship programs. Donors and their family members may work for and be compensated by their family public charities for good works performed on the charity's behalf. For the years at issue, the Foundation was recognized by IRS as a Code Sec. 501(c)(3) , having received a determination letter to that effect on March 20, 1998, and was listed as a public charity in Publication 78. In 2002, IRS issued a determination that the Foundation was not a private foundation within the meaning of Code Sec. 509 . The Foundation also offered account holders a “student loan program” whereby account funds could be disbursed as loans for college and graduate school tuition and related expenses. The loans could be repaid with interest either through repayments generally commencing 5 years after graduation or by the recipient's providing charitable services for designated periods. Viralam, who had 3 children and anticipated paying for 8 years of college for each child, established a donor-advised fund and designated himself as the fund's advisor. After establishing his Foundation account, Viralam received an opinion letter from the Foundation's law firm, similar to letters sent to other doctors who established Foundation accounts, stating that it was “more likely than not” that a contributor would be entitled to a deduction for a contribution to the Foundation. However, the letter also stated that the firm had not examined any documents pertaining to, and would not render an opinion as to the tax effect of, any of several programs of the Foundation, including those selected by Viralam. Viralam proceeded to transfer $262,433 worth of stocks into the account during '98, receiving an acknowledgment letter from the Foundation for each transfer. His aggregate basis in the transferred stocks was $131,360. The Foundation then sold all of the stocks in '98 and invested the proceeds, segregating them in Viralam's Foundation account. The sales yielded net proceeds of $224,684. The assets in the Foundation account also generated $981 in dividends and interest in '98. Viralam and his wife timely filed a joint Federal income tax return for '98 on which they reported a $2,261,750 gain from the sale of Viralam's medical practice and claimed a charitable contribution deduction of $263,933, equal to the fair market value of the stocks transferred to the Foundation in '98 ($262,433), plus related fees. They didn't include proceeds from the stock sales or amounts generated by the account assets. Viralam discussed the charitable contribution deduction with his long-term accountant before they signed the return. Various distributions of $500 to $5,000 were made in next few years. Then, in 2001, Viralam distributed $17,247 from the Foundation account to the University of Pennsylvania in connection with the Foundation's student loan program, as a loan to his son for tuition and room and board. In exchange, the son agreed to participate in the Foundation's “Educational Funding Program” and provide 2,000 hours of charitable work for the Foundation for each year of educational expenses advanced. If he did not undertake sufficient charitable work, he agreed to repay the expenses advanced, with interest, over a 15-year term beginning 5 years after graduation. Viralam continued through 2002 to make “student loan” distributions to the University of Pennsylvania. On Sept. 16, 2003, IRS issued a notice of deficiency to Viralam and his wife for '98 disallowing their claimed charitable contribution deduction for the transfers of stocks (and cash) to the Foundation and determining an accuracy-related penalty. Eleven days earlier, Viralam arranged for an entity he and his son controlled to pay the Foundation $70,300, the total of the distributions to the University of Pennsylvania on the son's behalf from the Foundation account. The Foundation waived all interest and confirmed that the payment fulfilled the son's obligation to the Foundation. Parties' arguments. IRS claimed that the taxpayers weren't entitled to a charitable deduction because: (i) they never surrendered dominion and control over the contributed property; or (ii) they failed to substantiate the deduction as required by Code Sec. 170(f)(8) . The taxpayers argued that the account was a legitimate donor-advised fund in respect to which they could only “suggest” investment strategies, and that such didn't rise to the level of retaining control. They also claimed that they didn't receive any substantial benefit for their contribution and that their deduction was properly substantiated. Conclusion. The Tax Court determined that Viralam and his wife weren't entitled to a charitable deduction because Viralam in fact retained dominion and control over the property transferred to the Foundation and held in his Foundation account. The Court based its determination largely on Viralam's use of 82% of the funds in the Foundation account as student loans to his son, and noted that the Foundation's “approval” of these distributions was merely perfunctory. The Court also found it significant that Viralam could arrange for distributions of account funds to compensate himself or family members for performance of “good works.” Viralam's argument that he fully relinquished control, based on the fact that he transferred to the Foundation legal title to the stocks, was insufficient to establish that he actually surrendered dominion and control. Rather, the overall facts of the case, including his conduct regarding the account, the fact that the Foundation waived interest on the son's loans, and his ability to pay himself or family members for good works, showed that the Foundation intended, and Viralam understood when he made the transfers, that he could retrieve the transferred property (or its proceeds) at will. The Court also rejected Viralam's claim that the Foundation account was similar to other donor-advised funds, based largely on the same factors that indicated his retention of dominion and control. Overall, the operation of the account showed that it allowed Viralam to direct the use of donated funds for personal purposes. The Court also upheld IRS's alternative argument that the deduction wasn't properly substantiated. Code Sec. 170(f)(8) requires that the donee organization state in the acknowledgment “Whether the donee organization provided any goods or services in consideration, in whole or part, for” the contributed property or cash, and if so, an estimate of such goods or services. The evidence in this case shows that Viralam anticipated at the time he transferred stocks to the Foundation that it would extend student loans to his children, but this wasn't stated in the acknowledgment. Accordingly, the Tax Court upheld IRS's inclusion in the taxpayers' income for '98 of $93,324 in long-term capital gain generated by the sales of the stocks and $981 of interest and dividends generated by the account, reasoning that “income tax consequences of property ownership generally depend upon beneficial ownership, rather than possession of mere legal title.” The Tax Court also upheld IRS's imposition of an accuracy-related penalty. It stated that they acted negligently, in that Viralam failed to make a reasonable attempt to ascertain the correctness of a deduction that a reasonable or prudent person would find “too good to be true.” The opinion letter itself was insufficient to show that they acted reasonably, given the conflict of interest and fact that the law firm specifically declined to offer an opinion on the programs in which Viralam decided to participate. IRS also showed that the taxpayers had a substantial understatement of tax within the meaning ofCode Sec. 6662(d)(1)(A) . § 170 Charitable, etc., contributions and gifts. ________________________________________ (a) Allowance of deduction. (1) General rule. There shall be allowed as a deduction any charitable contribution (as defined in subsection (c) ) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary. (2) Corporations on accrual basis. In the case of a corporation reporting its taxable income on the accrual basis, if— (A) the board of directors authorizes a charitable contribution during any taxable year, and (B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the third month following the close of such taxable year, then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary shall by regulations prescribe. (3) WG&L Treatises Future interests in tangible personal property. For purposes of this section , payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b) . For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property. (b) Percentage limitations. (1) Individuals. In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs. (A) WG&L Treatises General rule. Any charitable contribution to— (i) WG&L Treatises a church or a convention or association of churches, (ii) WG&L Treatises an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, (iii) WG&L Treatises an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made, (iv) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a) ) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions, (v) a governmental unit referred to in subsection (c)(1) , (vi) WG&L Treatises an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a) ) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public, (vii) WG&L Treatises a private foundation described in subparagraph (F) , or (viii) an organization described in section 509(a)(2) or (3) , shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer's contribution base for the taxable year. (B) WG&L Treatises Other contributions. Any charitable contribution other than a charitable contribution to which subparagraph (A)applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of— (i) WG&L Treatises 30 percent of the taxpayer's contribution base for the taxable year, or (ii) the excess of 50 percent of the taxpayer's contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (C) ). If the aggregate of such contributions exceeds the limitation of the preceding sentence, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1) ) as a charitable contribution (to which subparagraph (A) does not apply) in each of the 5 succeeding taxable years in order of time. (C) WG&L Treatises Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property. (i) WG&L Treatises In the case of charitable contributions described in subparagraph (A) of capital gain property to whichsubsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account undersubsection (a) for any taxable year shall not exceed 30 percent of the taxpayer's contribution base for such year. For purposes ofthis subsection , contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions (other than charitable contributions to which subparagraph (D) applies). (ii) WG&L Treatises If charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer's contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1) , as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time. (iii) At the election of the taxpayer (made at such time and in such manner as the Secretary prescribes by regulations),subsection (e)(1) shall apply to all contributions of capital gain property (to which subsection (e)(1)(B) does not otherwise apply) made by the taxpayer during the taxable year. If such an election is made, clauses (i) and (ii) shall not apply to contributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such taxable year with respect to contributions of capital gain property made in any prior contribution year for which an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) had applied to such contributions in the year in which made. (iv) WG&L Treatises For purposes of this paragraph , the term “capital gain property” means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as defined in section 1231(b) ) shall be treated as a capital asset. (D) WG&L Treatises Special limitation with respect to contributions of capital gain property to organizations not described insubparagraph (A) . (i) In general. In the case of charitable contributions (other than charitable contributions to which subparagraph (A) applies) of capital gain property, the total amount of such contributions of such property taken into account under subsection (a) for any taxable year shall not exceed the lesser of— (I) 20 percent of the taxpayer's contribution base for the taxable year, or (II) the excess of 30 percent of the taxpayer's contribution base for the taxable year over the amount of the contributions of capital gain property to which subparagraph (C) applies. For purposes of this subsection , contributions of capital gain property to which this subparagraph applies shall be taken into account after all other charitable contributions. (ii) WG&L Treatises Carryover. If the aggregate amount of contributions described in clause (i) exceeds the limitation of clause (i) , such excess shall be treated (in a manner consistent with the rules of subsection (d)(1) ) as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time. (E) WG&L Treatises Contributions of qualified conservation contributions. (i) New Law Analysis In general. Any qualified conservation contribution (as defined in subsection (h)(1) ) shall be allowed to the extent the aggregate of such contributions does not exceed the excess of 50 percent of the taxpayer's contribution base over the amount of all other charitable contributions allowable under this paragraph. (ii) New Law Analysis Carryover. If the aggregate amount of contributions described in clause (i) exceeds the limitation ofclause (i) , such excess shall be treated (in a manner consistent with the rules of subsection (d)(1) ) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time. (iii) New Law AnalysisWG&L Treatises Coordination with other subparagraphs. For purposes of applying this subsection andsubsection (d)(1) , contributions described in clause (i) shall not be treated as described in subparagraph (A) , (B) , (C) , or (D)and such subparagraphs shall apply without regard to such contributions. (iv) Special rule for contribution of property used in agriculture or livestock production. (I) New Law Analysis In general. If the individual is a qualified farmer or rancher for the taxable year for which the contribution is made, clause (i) shall be applied by substituting “100 percent” for “50 percent”. (II) New Law Analysis Exception. Subclause (I) shall not apply to any contribution of property made after the date of the enactment of this subparagraph which is used in agriculture or livestock production (or available for such production) unless such contribution is subject to a restriction that such property remain available for such production. This subparagraph shall be applied separately with respect to property to which subclause (I) does not apply by reason of the preceding sentence prior to its application to property to which subclause (I) does apply. (v) New Law Analysis Definition. For purposes of clause (iv) , the term “qualified farmer or rancher” means a taxpayer whose gross income from the trade or business of farming (within the meaning of section 2032A(e)(5) ) is greater than 50 percent of the taxpayer's gross income for the taxable year. (vi) New Law Analysis Termination. This subparagraph shall not apply to any contribution made in taxable years beginning after December 31, 2011. (F) WG&L Treatises Certain private foundations. The private foundations referred to in subparagraph (A)(vii) and subsection (e)(1)(B) are— (i) a private operating foundation (as defined in section 4942(j)(3) ), (ii) any other private foundation (as defined in section 509(a) ) which, not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g) , without regard to paragraph (3) thereof ), which are treated, after the application of section 4942(g)(3) , as distributions out of corpus (in accordance with section 4942(h) ) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and (iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called “donor”) or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a) , of the income attributable to the donor's contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor's contribution; but this clause shall apply only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donor's contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus. (G) Contribution base defined. For purposes of this section , the term “contribution base” means adjusted gross income (computed without regard to any net operating loss carryback to the taxable year under section 172 ). (2) Corporations. In the case of a corporation— (A) In general. The total deductions under subsection (a) for any taxable year (other than for contributions to which subparagraph (B)applies) shall not exceed 10 percent of the taxpayer's taxable income. (B) Qualified conservation contributions by certain corporate farmers and ranchers. (i) New Law Analysis In general. Any qualified conservation contribution (as defined in subsection (h)(1) )— (I) New Law Analysis which is made by a corporation which, for the taxable year during which the contribution is made, is a qualified farmer or rancher (as defined in paragraph (1)(E)(v) ) and the stock of which is not readily tradable on an established securities market at any time during such year, and (II) New Law Analysis which, in the case of contributions made after the date of the enactment of this subparagraph, is a contribution of property which is used in agriculture or livestock production (or available for such production) and which is subject to a restriction that such property remain available for such production, shall be allowed to the extent the aggregate of such contributions does not exceed the excess of the taxpayer's taxable income over the amount of charitable contributions allowable under subparagraph (A) . (ii) New Law Analysis Carryover. If the aggregate amount of contributions described in clause (i) exceeds the limitation ofclause (i) , such excess shall be treated (in a manner consistent with the rules of subsection (d)(2) ) as a charitable contribution to which clause (i) applies in each of the 15 succeeding years in order of time. (iii) New Law Analysis Termination. This subparagraph shall not apply to any contribution made in taxable years beginning after December 31, 2011. (C) New Law Analysis Taxable income. For purposes of this paragraph, taxable income shall be computed without regard to— (i) New Law Analysis this section, (ii) New Law Analysis part VIII (except section 248 ), (iii) New Law Analysis any net operating loss carryback to the taxable year under section 172 , (iv) New Law Analysis section 199 , and (v) New Law Analysis any capital loss carryback to the taxable year under section 1212(a)(1) . (3) New Law Analysis Temporary suspension of limitations on charitable contributions. In the case of a qualified farmer or rancher (as defined in paragraph (1)(E)(v) ), any charitable contribution of food— (A) to which subsection (e)(3)(C) applies (without regard to clause (ii) thereof), and (B) New Law Analysis which is made during the period beginning on the date of the enactment of this paragraph and before January 1, 2009, shall be treated for purposes of paragraph (1)(E) or (2)(B) , whichever is applicable, as if it were a qualified conservation contribution which is made by a qualified farmer or rancher and which otherwise meets the requirements of such paragraph. (c) WG&L Treatises Charitable contribution defined. For purposes of this section , the term “charitable contribution” means a contribution or gift to or for the use of— (1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. (2) WG&L Treatises A corporation, trust, or community chest, fund, or foundation— (A) WG&L Treatises created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; (B) WG&L Treatises organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals; (C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and (D) which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B) . Rules similar to the rules ofsection 501(j) shall apply for purposes of this paragraph . (3) WG&L Treatises A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization— (A) organized in the United States or any of its possessions, and (B) no part of the net earnings of which inures to the benefit of any private shareholder or individual. (4) WG&L Treatises In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. (5) WG&L Treatises A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual. For purposes of this section , the term “charitable contribution” also means an amount treated under subsection (g) as paid for the use of an organization described in paragraph (2) , (3) , or (4) . (d) Carryovers of excess contributions. (1) Individuals. (A) In general. In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the “contribution year”) exceeds 50 percent of the taxpayer's contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A)paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts: (i) the amount by which 50 percent of the taxpayer's contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1)(A)payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1)(A) paid in any taxable year intervening between the contribution year and such succeeding taxable year. (B) Special rule for net operating loss carryovers. In applying subparagraph (A) , the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2) ) and increases the net operating loss deduction for a taxable year succeeding the contribution year. (2) New Law Analysis Corporations. (A) In general. Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred to as the “contribution year”) in excess of the amount deductible for such year under subsection (b)(2)(A) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts: (i) the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2)(A) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year. (B) Special rule for net operating loss carryovers. For purposes of subparagraph (A) , the excess of— (i) the contributions made by a corporation in a taxable year to which this section applies, over (ii) the amount deductible in such year under the limitation in subsection (b)(2)(A) , shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2) ) and increases a net operating loss carryover under section 172 to a succeeding taxable year. (e) WG&L Treatises Certain contributions of ordinary income and capital gain property. (1) New Law Analysis General rule. The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of— (A) New Law AnalysisWG&L Treatises the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3) ) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and (B) in the case of a charitable contribution— (i) New Law Analysis of tangible personal property— (I) if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function described in subsection (c) ), or (II) New Law Analysis which is applicable property (as defined in paragraph (7)(C) , but without regard to clause (ii) thereof) which is sold, exchanged, or otherwise disposed of by the donee before the last day of the taxable year in which the contribution was made and with respect to which the donee has not made a certification in accordance with paragraph (7)(D) , (ii) to or for the use of a private foundation (as defined in section 509(a) ), other than a private foundation described insubsection (b)(1)(F) , (iii) New Law Analysis of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)(C) ), trademark, trade name, trade secret, know-how, software (other than software described in section 197(e)(3)(A)(i) ), or similar property, or applications or registrations of such property, or (iv) New Law Analysis of any taxidermy property which is contributed by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). Caution: Sec. 301(a), P.L. 111-312, (reproduced in the history notes following this Code Sec.) provides that the amendments made by Sec. 542(e)(2)(B), P.L. 107-16, EGTRRA, will apply as if never enacted. Matter at the end of Code Sec. 170(e)(1), following, reflects the removal of these amendments, effective for estates of decedents dying, and transfers made, after 12/31/2009. For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1) , 1245(a) , 1250(a) , 1252(a) , or 1254(a)applies), property which is property used in the trade or business (as defined in section 1231(b) ) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer. Caution: Matter at the end of Code Sec. 170(e)(1), following, was amended by Sec. 542(e)(2)(B), P.L. 107-16, EGTRRA. As provided in Sec. 301(a), P.L. 111-312, this amendment will apply as if never enacted, effective for estates of decedents dying, and transfers made, after 12/31/2009. For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1) , 1245(a) , 1250(a) , 1252(a) , or 1254(a)applies), property which is property used in the trade or business (as defined in section 1231(b) ) shall be treated as a capital asset. For purposes of applying this paragraph in the case of a charitable contribution of stock in an S corporation, rules similar to the rules of section 751shall apply in determining whether gain on such stock would have been long-term capital gain if such stock were sold by the taxpayer. For purposes of this paragraph , the determination of whether property is a capital asset shall be made without regard to the exception contained in section 1221(a)(3)(C) for basis determined under section 1022 . (2) Allocation of basis. For purposes of paragraph (1) , in the case of a charitable contribution of less than the taxpayer's entire interest in the property contributed, the taxpayer's adjusted basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with regulations prescribed by the Secretary. (3) WG&L Treatises Special rule for certain contributions of inventory and other property. (A) WG&L Treatises Qualified contributions. For purposes of this paragraph, a qualified contribution shall mean a charitable contribution of property described in paragraph (1) or (2) of section 1221(a) , by a corporation (other than a corporation which is an S corporation) to an organization which is described in section 501(c)(3) and is exempt under section 501(a) (other than a private foundation, as defined in section 509(a) , which is not an operating foundation, as defined in section 4942(j)(3) ), but only if— (i) the use of the property by the donee is related to the purpose or function constituting the basis for its exemption undersection 501 and the property is to be used by the donee solely for the care of the ill, the needy, or infants; (ii) the property is not transferred by the donee in exchange for money, other property, or services; (iii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (i) and (ii) ; and (iv) WG&L Treatises in the case where the property is subject to regulation under the Federal Food, Drug, and Cosmetic Act, as amended, such property must fully satisfy the applicable requirements of such Act and regulations promulgated thereunder on the date of transfer and for one hundred and eighty days prior thereto. (B) Amount of reduction. The reduction under paragraph (1)(A) for any qualified contribution (as defined in subparagraph (A) ) shall be no greater than the sum of— (i) one-half of the amount computed under paragraph (1)(A) (computed without regard to this paragraph ), and (ii) the amount (if any) by which the charitable contribution deduction under this section for any qualified contribution (computed by taking into account the amount determined in clause (i) , but without regard to this clause) exceeds twice the basis of such property. (C) WG&L Treatises Special rule for contributions of food inventory. (i) New Law Analysis General rule. In the case of a charitable contribution of food from any trade or business of the taxpayer, this paragraph shall be applied— (I) New Law Analysis without regard to whether the contribution is made by a C corporation, and (II) New Law Analysis only to food that is apparently wholesome food. (ii) New Law Analysis Limitation. In the case of a taxpayer other than a C corporation, the aggregate amount of such contributions for any taxable year which may be taken into account under this section shall not exceed 10 percent of the taxpayer's aggregate net income for such taxable year from all trades or businesses from which such contributions were made for such year, computed without regard to this section . (iii) New Law Analysis Apparently wholesome food. For purposes of this subparagraph , the term “apparently wholesome food” has the meaning given to such term by section 22(b)(2) of the Bill Emerson Good Samaritan Food Donation Act (42 U.S.C. 1791(b)(2)), as in effect on the date of the enactment of this subparagraph . (iv) New Law Analysis Termination. This subparagraph shall not apply to contributions made after December 31, 2011. (D) Special rule for contributions of book inventory to public schools. (i) New Law AnalysisWG&L Treatises Contributions of book inventory. In determining whether a qualified book contribution is a qualified contribution, subparagraph (A) shall be applied without regard to whether the donee is an organization described in the matter preceding clause (i) of subparagraph (A) . (ii) New Law Analysis Qualified book contribution. For purposes of this paragraph , the term “qualified book contribution” means a charitable contribution of books to a public school which is an educational organization described in subsection (b)(1)(A)(ii) and which provides elementary education or secondary education (kindergarten through grade 12). (iii) New Law Analysis Certification by donee. Subparagraph (A) shall not apply to any contribution of books unless (in addition to the certifications required by subparagraph (A) (as modified by this subparagraph )), the donee certifies in writing that— (I) New Law Analysis the books are suitable, in terms of currency, content, and quantity, for use in the donee's educational programs, and (II) New Law Analysis the donee will use the books in its educational programs. (iv) New Law Analysis Termination. This subparagraph shall not apply to contributions made after December 31, 2011. (E) This paragraph shall not apply to so much of the amount of the gain described in paragraph (1)(A) which would be long-term capital gain but for the application of sections 617 , 1245 , 1250 , or 1252 . (4) Special rule for contributions of scientific property used for research. (A) WG&L Treatises Limit on reduction. In the case of a qualified research contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B) . (B) WG&L Treatises Qualified research contributions. For purposes of this paragraph, the term “qualified research contribution” means a charitable contribution by a corporation of tangible personal property described in paragraph (1) of section 1221(a) , but only if— (i) the contribution is to an organization described in subparagraph (A) or subparagraph (B) of section 41(e)(6) , (ii) New Law Analysis the property is constructed or assembled by the taxpayer, (iii) New Law Analysis the contribution is made not later than 2 years after the date the construction or assembly of the property is substantially completed, (iv) the original use of the property is by the donee, (v) the property is scientific equipment or apparatus substantially all of the use of which by the donee is for research or experimentation (within the meaning of section 174 ), or for research training, in the United States in physical or biological sciences, (vi) the property is not transferred by the donee in exchange for money, other property, or services, and (vii) the taxpayer receives from the donee a written statement representing that its use and disposition of the property will be in accordance with the provisions of clauses (v) and (vi) . (C) Construction of property by taxpayer. For purposes of this paragraph , property shall be treated as constructed by the taxpayer only if the cost of the parts used in the construction of such property (other than parts manufactured by the taxpayer or a related person) do not exceed 50 percent of the taxpayer's basis in such property. (D) WG&L Treatises Corporation. For purposes of this paragraph , the term “corporation” shall not include— (i) an S corporation, (ii) a personal holding company (as defined in section 542 ), and (iii) a service organization (as defined in section 414(m)(3) ). (5) WG&L Treatises Special rule for contributions of stock for which market quotations are readily available. (A) WG&L Treatises In general. Subparagraph (B)(ii) of paragraph (1) shall not apply to any contribution of qualified appreciated stock. (B) WG&L Treatises Qualified appreciated stock. Except as provided in subparagraph (C) , for purposes of this paragraph, the term “qualified appreciated stock” means any stock of a corporation— (i) for which (as of the date of the contribution) market quotations are readily available on an established securities market, and (ii) which is capital gain property (as defined in subsection (b)(1)(C)(iv) ). (C) WG&L Treatises Donor may not contribute more than 10 percent of stock of corporation. (i) In general. In the case of any donor, the term “qualified appreciated stock” shall not include any stock of a corporation contributed by the donor in a contribution to which paragraph (1)(B)(ii) applies (determined without regard to this paragraph ) to the extent that the amount of the stock so contributed (when increased by the aggregate amount of all prior such contributions by the donor of stock in such corporation) exceeds 10 percent (in value) of all of the outstanding stock of such corporation. (ii) Special rule. For purposes of clause (i) , an individual shall be treated as making all contributions made by any member of his family (as defined in section 267(c)(4) ). (6) WG&L Treatises Special rule for contributions of computer technology and equipment for educational purposes. (A) New Law Analysis Limit on reduction. In the case of a qualified computer contribution, the reduction under paragraph (1)(A) shall be no greater than the amount determined under paragraph (3)(B) . (B) New Law Analysis Qualified computer contribution. For purposes of this paragraph, the term “qualified computer contribution” means a charitable contribution by a corporation of any computer technology or equipment, but only if — (i) the contribution is to— (I) New Law Analysis an educational organization described in subsection (b)(1)(A)(ii) , (II) New Law Analysis an entity described in section 501(c)(3) and exempt from tax under section 501(a) other than an entity described in subclause (I) ) that is organized primarily for purposes of supporting elementary and secondary education, or (III) New Law Analysis a public library (within the meaning of section 213(1)(A) of the Library Services and Technology Act (20 U.S.C. 9122(1)(A)), as in effect on the date of the enactment [12/21/2000] of the Community Renewal Tax Relief Act of 2000), established and maintained by an entity described in subsection (c)(1) , (ii) New Law Analysis the contribution is made not later than 3 years after the date the taxpayer acquired the property (or in the case of property constructed or assembled by the taxpayer, the date the construction or assembling of the property is substantially completed), (iii) New Law Analysis the original use of the property is by the donor or the donee, (iv) New Law Analysis substantially all of the use of the property by the donee is for use within the United States for educational purposes that are related to the purpose or function of the donee, (v) New Law Analysis the property is not transferred by the donee in exchange for money, other property, or services, except for shipping, installation and transfer costs, (vi) New Law Analysis the property will fit productively into the donee's education plan, (vii) New Law Analysis the donee's use and disposition of the property will be in accordance with the provisions of clauses (iv)and (v) , and (viii) New Law Analysis the property meets such standards, if any, as the Secretary may prescribe by regulation to assure that the property meets minimum functionality and suitability standards for educational purposes. (C) Contribution to private foundation. A contribution by a corporation of any computer technology or equipment to a private foundation (as defined in section 509 ) shall be treated as a qualified computer contribution for purposes of this paragraph if— (i) New Law Analysis the contribution to the private foundation satisfies the requirements of clauses (ii) and (v) of subparagraph (B) , and (ii) within 30 days after such contribution, the private foundation— (I) New Law Analysis contributes the property to a donee described in clause (i) of subparagraph (B) that satisfies the requirements of clauses (iv) through (vii) of subparagraph (B) , and (II) New Law Analysis notifies the donor of such contribution. (D) New Law Analysis Donations of property reacquired by manufacturer. In the case of property which is reacquired by the person who constructed or assembled the property— (i) New Law Analysis subparagraph (B)(ii) shall be applied to a contribution of such property by such person by taking into account the date that the original construction or assembly of the property was substantially completed, and (ii) New Law Analysis subparagraph (B)(iii) shall not apply to such contribution. (E) Special rule relating to construction of property. For the purposes of this paragraph , the rules of paragraph (4)(C) shall apply. (F) New Law Analysis Definitions. For the purposes of this paragraph — (i) WG&L Treatises Computer technology or equipment. The term “computer technology or equipment” means computer software (as defined by section 197(e)(3)(B) ), computer or peripheral equipment (as defined by section 168(i)(2)(B) ), and fiber optic cable related to computer use. (ii) Corporation. The term “corporation” has the meaning given to such term by paragraph (4)(D) . (G) New Law Analysis Termination. This paragraph shall not apply to any contribution made during any taxable year beginning after December 31, 2011. (7) Recapture of deduction on certain dispositions of exempt use property. (A) New Law Analysis In general. In the case of an applicable disposition of applicable property, there shall be included in the income of the donor of such property for the taxable year of such donor in which the applicable disposition occurs an amount equal to the excess (if any) of— (i) New Law Analysis the amount of the deduction allowed to the donor under this section with respect to such property, over (ii) New Law Analysis the donor's basis in such property at the time such property was contributed. (B) New Law Analysis Applicable disposition. For purposes of this paragraph, the term “applicable disposition” means any sale, exchange, or other disposition by the donee of applicable property— (i) New Law Analysis after the last day of the taxable year of the donor in which such property was contributed, and (ii) New Law Analysis before the last day of the 3-year period beginning on the date of the contribution of such property, unless the donee makes a certification in accordance with subparagraph (D) . (C) New Law AnalysisWG&L Treatises Applicable property. For purposes of this paragraph, the term “applicable property” means charitable deduction property (as defined in section 6050L(a)(2)(A) )— (i) New Law Analysis which is tangible personal property the use of which is identified by the donee as related to the purpose or function constituting the basis of the donee's exemption under section 501 , and (ii) New Law Analysis for which a deduction in excess of the donor's basis is allowed. (D) New Law Analysis Certification. A certification meets the requirements of this subparagraph if it is a written statement which is signed under penalty of perjury by an officer of the donee organization and— (i) which— (I) New Law Analysis certifies that the use of the property by the donee was substantial and related to the purpose or function constituting the basis for the donee's exemption under section 501 , and (II) New Law Analysis describes how the property was used and how such use furthered such purpose or function, or (ii) which— (I) New Law Analysis states the intended use of the property by the donee at the time of the contribution, and (II) New Law Analysis certifies that such intended use has become impossible or infeasible to implement. (f) Disallowance of deduction in certain cases and special rules. (1) In general. No deduction shall be allowed under this section for a contribution to or for the use of an organization or trust described in section 508(d) or4948(c)(4) subject to the conditions specified in such sections. (2) WG&L Treatises Contributions of property placed in trust. (A) Remainder interest. In the case of property transferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described insection 664 ), or a pooled income fund (described in section 642(c)(5) ). (B) WG&L Treatises Income interests, etc. No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671 . If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671 , at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received underthis section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph. (C) Denial of deduction in case of payments by certain trusts. In any case in which a deduction is allowed under this section for the value of an interest in property described in subparagraph (B) , transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest. (D) Exception. This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a) . (3) WG&L Treatises Denial of deduction in case of certain contributions of partial interests in property. (A) WG&L Treatises In general. In the case of a contribution (not made by a transfer in trust) of an interest in property which consists of less than the taxpayer's entire interest in such property, a deduction shall be allowed under this section only to the extent that the value of the interest contributed would be allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use property shall be treated as a contribution of less than the taxpayer's entire interest in such property. (B) WG&L Treatises Exceptions. Subparagraph (A) shall not apply to— (i) WG&L Treatises a contribution of a remainder interest in a personal residence or farm, (ii) WG&L Treatises a contribution of an undivided portion of the taxpayer's entire interest in property, and (iii) a qualified conservation contribution. (4) Valuation of remainder interest in real property. For purposes of this section , in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary may prescribe a different rate. (5) Reduction for certain interest. If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution— (A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and (B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution. The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer's method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term “bond” means any bond, debenture, note, or certificate or other evidence of indebtedness. (6) Deductions for out-of-pocket expenditures. No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described insubsection (c) (other than an organization described in section 501(h)(5) (relating to churches, etc.)) if the expenditure is made for the purpose of influencing legislation (within the meaning of section 501(c)(3) ). (7) WG&L Treatises Reformations to comply with paragraph (2) . (A) In general. A deduction shall be allowed under subsection (a) in respect of any qualified reformation (within the meaning of section 2055(e)(3)(B) ). (B) Rules similar to section 2055(e)(3) to apply. For purposes of this paragraph , rules similar to the rules of section 2055(e)(3) shall apply. (8) Substantiation requirement for certain contributions. (A) WG&L Treatises General rule. No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B) . (B) Content of acknowledgment. An acknowledgment meets the requirements of this subparagraph if it includes the following information: (i) The amount of cash and a description (but not value) of any property other than cash contributed. (ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i) . (iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. For purposes of this subparagraph , the term “intangible religious benefit” means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context. (C) Contemporaneous. For purposes of subparagraph (A) , an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of— (i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or (ii) the due date (including extensions) for filing such return. (D) Substantiation not required for contributions reported by the donee organization. Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution. (E) Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph , including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases. (9) Denial of deduction where contribution for lobbying activities. No deduction shall be allowed under this section for a contribution to an organization which conducts activities to which section 162(e)(1)applies on matters of direct financial interest to the donor's trade or business, if a principal purpose of the contribution was to avoid Federal income tax by securing a deduction for such activities under this section which would be disallowed by reason of section 162(e) if the donor had conducted such activities directly. No deduction shall be allowed under section 162(a) for any amount for which a deduction is disallowed under the preceding sentence. (10) Split-dollar life insurance, annuity, and endowment contracts. (A) New Law Analysis In general. Nothing in this section or in section 545(b)(2) , 642(c) , 2055 , 2106(a)(2) , or 2522 shall be construed to allow a deduction, and no deduction shall be allowed, for any transfer to or for the use of an organization described insubsection (c) if in connection with such transfer— (i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or (ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor. (B) Personal benefit contract. For purposes of subparagraph (A) , the term “personal benefit contract” means, with respect to the transferor, any life insurance, annuity, or endowment contract if any direct or indirect beneficiary under such contract is the transferor, any member of the transferor's family, or any other person (other than an organization described in subsection (c) ) designated by the transferor. (C) Application to charitable remainder trusts. In the case of a transfer to a trust referred to in subparagraph (E) , references insubparagraphs (A) and (F) to an organization described in subsection (c) shall be treated as a reference to such trust. (D) Exception for certain annuity contracts. If, in connection with a transfer to or for the use of an organization described insubsection (c) , such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501(m) ) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if— (i) such organization possesses all of the incidents of ownership under such contract, (ii) such organization is entitled to all the payments under such contract, and (iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer). (E) Exception for certain contracts held by charitable remainder trusts. A person shall not be treated for purposes of subparagraph (B)as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664(d) ) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664(d) if— (i) such trust possesses all of the incidents of ownership under such contract, and (ii) such trust is entitled to all the payments under such contract. (F) Excise tax on premiums paid. (i) In general. There is hereby imposed on any organization described in subsection (c) an excise tax equal to the premiums paid by such organization on any life insurance, annuity, or endowment contract if the payment of premiums on such contract is in connection with a transfer for which a deduction is not allowable under subparagraph (A) , determined without regard to when such transfer is made. (ii) Payments by other persons. For purposes of clause (i) , payments made by any other person pursuant to an understanding or expectation referred to in subparagraph (A) shall be treated as made by the organization. (iii) Reporting. Any organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes— (I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and (II) such other information as the Secretary may require. The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require. (iv) Certain rules to apply. The tax imposed by this subparagraph shall be treated as imposed by chapter 42 for purposes of this title other than subchapter B of chapter 42. (G) Special rule where state requires specification of charitable gift annuitant in contract. In the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if— (i) such State law requirement was in effect on February 8, 1999, (ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and (iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into. (H) Member of family. For purposes of this paragraph, an individual's family consists of the individual's grandparents, the grandparents of such individual's spouse, the lineal descendants of such grandparents, and any spouse of such a lineal descendant. (I) Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations to prevent the avoidance of such purposes. (11) Qualified appraisal and other documentation for certain contributions. (A) In general. (i) New Law Analysis Denial of deduction. In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B) , (C) , and (D) , as the case may be, with respect to such contribution. (ii) Exceptions. (I) New Law Analysis Readily valued property. Subparagraphs (C) and (D) shall not apply to cash, property described insubsection (e)(1)(B)(iii) or section 1221(a)(1) , publicly traded securities (as defined in section 6050L(a)(2)(B) ), and any qualified vehicle described in paragraph (12)(A)(ii) for which an acknowledgement under paragraph (12)(B)(iii) is provided. (II) New Law Analysis Reasonable cause. Clause (i) shall not apply if it is shown that the failure to meet such requirements is due to reasonable cause and not to willful neglect. (B) New Law Analysis Property description for contributions of more than $500. In the case of contributions of property for which a deduction of more than $500 is claimed, the requirements of this subparagraph are met if the individual, partnership or corporation includes with the return for the taxable year in which the contribution is made a description of such property and such other information as the Secretary may require. The requirements of this subparagraph shall not apply to a C corporation which is not a personal service corporation or a closely held C corporation. (C) New Law Analysis Qualified appraisal for contributions of more than $5,000. In the case of contributions of property for which a deduction of more than $5,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified appraisal of such property and attaches to the return for the taxable year in which such contribution is made such information regarding such property and such appraisal as the Secretary may require. (D) New Law Analysis Substantiation for contributions of more than $500,000. In the case of contributions of property for which a deduction of more than $500,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation attaches to the return for the taxable year a qualified appraisal of such property. (E) New Law Analysis Qualified appraisal and appraiser. For purposes of this paragraph— (i) Qualified appraisal. The term “qualified appraisal” means, with respect to any property, an appraisal of such property which— (I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and (II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I) . (ii) New Law Analysis Qualified appraiser. Except as provided in clause (iii) , the term “qualified appraiser” means an individual who— (I) New Law Analysis has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary, (II) New Law Analysis regularly performs appraisals for which the individual receives compensation, and (III) New Law Analysis meets such other requirements as may be prescribed by the Secretary in regulations or other guidance. (iii) New Law Analysis Specific appraisals. An individual shall not be treated as a qualified appraiser with respect to any specific appraisal unless— (I) New Law Analysis the individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and (II) New Law Analysis the individual has not been prohibited from practicing before the Internal Revenue Service by the Secretary under section 330(c) of title 31, United States Code , at any time during the 3-year period ending on the date of the appraisal. (F) New Law Analysis Aggregation of similar items of property. For purposes of determining thresholds under this paragraph , property and all similar items of property donated to 1 or more donees shall be treated as 1 property. (G) New Law Analysis Special rule for pass-thru entities. In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level. (H) New Law Analysis Regulations. The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph , including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases. (12) Contributions of used motor vehicles, boats, and airplanes. (A) New Law AnalysisWG&L Treatises In general. In the case of a contribution of a qualified vehicle the claimed value of which exceeds $500— (i) New Law Analysis paragraph (8) shall not apply and no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B) and includes the acknowledgement with the taxpayer's return of tax which includes the deduction, and (ii) New Law Analysis if the organization sells the vehicle without any significant intervening use or material improvement of such vehicle by the organization, the amount of the deduction allowed under subsection (a) shall not exceed the gross proceeds received from such sale. (B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information: (i) New Law Analysis The name and taxpayer identification number of the donor. (ii) New Law Analysis The vehicle identification number or similar number. (iii) In the case of a qualified vehicle to which subparagraph (A)(ii) applies— (I) New Law Analysis a certification that the vehicle was sold in an arm's length transaction between unrelated parties, (II) New Law Analysis the gross proceeds from the sale, and (III) New Law Analysis a statement that the deductible amount may not exceed the amount of such gross proceeds. (iv) New Law Analysis In the case of a qualified vehicle to which subparagraph (A)(ii) does not apply— (I) New Law Analysis a certification of the intended use or material improvement of the vehicle and the intended duration of such use, and (II) New Law Analysis a certification that the vehicle would not be transferred in exchange for money, other property, or services before completion of such use or improvement. (v) New Law Analysis Whether the donee organization provided any goods or services in consideration, in whole or in part, for the qualified vehicle. (vi) New Law Analysis A description and good faith estimate of the value of any goods or services referred to in clause (v) or, if such goods or services consist solely of intangible religious benefits (as defined in paragraph (8)(B) ), a statement to that effect. (C) Contemporaneous. For purposes of subparagraph (A) , an acknowledgement shall be considered to be contemporaneous if the donee organization provides it within 30 days of— (i) New Law Analysis the sale of the qualified vehicle, or (ii) New Law Analysis in the case of an acknowledgement including a certification described in subparagraph (B)(iv) , the contribution of the qualified vehicle. (D) New Law Analysis Information to Secretary. A donee organization required to provide an acknowledgement under this paragraphshall provide to the Secretary the information contained in the acknowledgement. Such information shall be provided at such time and in such manner as the Secretary may prescribe. (E) New Law Analysis Qualified vehicle. For purposes of this paragraph , the term “qualified vehicle” means any— (i) New Law Analysis motor vehicle manufactured primarily for use on public streets, roads, and highways, (ii) New Law Analysis boat, or (iii) New Law Analysis airplane. Such term shall not include any property which is described in section 1221(a)(1) . (F) New Law Analysis Regulations or other guidance. The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this paragraph . The Secretary may prescribe regulations or other guidance which exempts sales by the donee organization which are in direct furtherance of such organization's charitable purpose from the requirements ofsubparagraphs (A)(ii) and (B)(iv)(II) . (13) Contributions of certain interests in buildings located in registered historic districts. (A) New Law Analysis In general. No deduction shall be allowed with respect to any contribution described in subparagraph (B) unless the taxpayer includes with the return for the taxable year of the contribution a $500 filing fee. (B) New Law Analysis Contribution described. A contribution is described in this subparagraph if such contribution is a qualified conservation contribution (as defined in subsection (h) ) which is a restriction with respect to the exterior of a building described insubsection (h)(4)(C)(ii) and for which a deduction is claimed in excess of $10,000. (C) New Law Analysis Dedication of fee. Any fee collected under this paragraph shall be used for the enforcement of the provisions of subsection (h) . (14) New Law Analysis Reduction for amounts attributable to rehabilitation credit. In the case of any qualified conservation contribution (as defined in subsection (h) ), the amount of the deduction allowed under this section shall be reduced by an amount which bears the same ratio to the fair market value of the contribution as— (A) New Law Analysis the sum of the credits allowed to the taxpayer under section 47 for the 5 preceding taxable years with respect to any building which is a part of such contribution, bears to (B) New Law Analysis the fair market value of the building on the date of the contribution. (15) Special rule for taxidermy property. (A) New Law Analysis Basis. For purposes of this section and notwithstanding section 1012 , in the case of a charitable contribution of taxidermy property which is made by the person who prepared, stuffed, or mounted the property or by any person who paid or incurred the cost of such preparation, stuffing, or mounting, only the cost of the preparing, stuffing, or mounting shall be included in the basis of such property. (B) Taxidermy property. For purposes of this section, the term “taxidermy property” means any work of art which— (i) New Law Analysis is the reproduction or preservation of an animal, in whole or in part, (ii) New Law Analysis is prepared, stuffed, or mounted for purposes of recreating one or more characteristics of such animal, and (iii) New Law Analysis contains a part of the body of the dead animal. (16) Contributions of clothing and household items. (A) New Law Analysis In general. In the case of an individual, partnership, or corporation, no deduction shall be allowed undersubsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better. (B) New Law Analysis Items of minimal value. Notwithstanding subparagraph (A) , the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value. (C) New Law Analysis Exception for certain property. Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with the taxpayer's return a qualified appraisal with respect to the property. (D) New Law Analysis Household items. For purposes of this paragraph— (i) New Law Analysis In general. The term “household items” includes furniture, furnishings, electronics, appliances, linens, and other similar items. (ii) New Law Analysis Excluded items. Such term does not include— (I) New Law Analysis food, (II) New Law Analysis paintings, antiques, and other objects of art, (III) New Law Analysis jewelry and gems, and (IV) New Law Analysis collections. (E) New Law Analysis Special rule for pass-thru entities. In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level. (17) New Law Analysis Recordkeeping. No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution. (18) Contributions to donor advised funds. A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2) ) shall only be allowed if— (A) New Law Analysis the sponsoring organization (as defined in section 4966(d)(1) ) with respect to such donor advised fund is not— (i) New Law Analysis described in paragraph (3) , (4) , or (5) of subsection (c) , or (ii) New Law Analysis a type III supporting organization (as defined in section 4943(f)(5)(A) ) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B) ), and (B) New Law AnalysisWG&L Treatises the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of paragraph (8)(C) ) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed. (g) WG&L Treatises Amounts paid to maintain certain students as members of taxpayer's household. (1) New Law Analysis In general. Subject to the limitations provided by paragraph (2) , amounts paid by the taxpayer to maintain an individual (other than a dependent, as defined in section 152 (determined without regard to subsections (b)(1) , (b)(2) , and (d)(1)(B) thereof), or a relative of the taxpayer) as a member of his household during the period that such individual is— (A) a member of the taxpayer's household under a written agreement between the taxpayer and an organization described inparagraph (2) , (3) , or (4) of subsection (c) to implement a program of the organization to provide educational opportunities for pupils or students in private homes, and (B) a full-time pupil or student in the twelfth or any lower grade at an educational organization described in section 170(b)(1)(A)(ii)located in the United States, shall be treated as amounts paid for the use of the organization. (2) Limitations. (A) Amount. Paragraph (1) shall apply to amounts paid within the taxable year only to the extent that such amounts do not exceed $50 multiplied by the number of full calendar months during the taxable year which fall within the period described in paragraph (1) . For purposes of the preceding sentence, if 15 or more days of a calendar month fall within such period such month shall be considered as a full calendar month. (B) Compensation or reimbursement. Paragraph (1) shall not apply to any amount paid by the taxpayer within the taxable year if the taxpayer receives any money or other property as compensation or reimbursement for maintaining the individual in his household during the period described in paragraph (1) . (3) New Law Analysis Relative defined. For purposes of paragraph (1) , the term “relative of the taxpayer” means an individual who, with respect to the taxpayer, bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2) . (4) No other amount allowed as deduction. No deduction shall be allowed under subsection (a) for any amount paid by a taxpayer to maintain an individual as a member of his household under a program described in paragraph (1)(A) except as provided in this subsection . (h) WG&L Treatises Qualified conservation contribution. (1) WG&L Treatises In general. For purposes of subsection (f)(3)(B)(iii) , the term “qualified conservation contribution” means a contribution— (A) of a qualified real property interest, (B) to a qualified organization, (C) exclusively for conservation purposes. (2) WG&L Treatises Qualified real property interest. For purposes of this subsection , the term “qualified real property interest” means any of the following interests in real property: (A) the entire interest of the donor other than a qualified mineral interest, (B) a remainder interest, and (C) WG&L Treatises a restriction (granted in perpetuity) on the use which may be made of the real property. (3) WG&L Treatises Qualified organization. For purposes of paragraph (1) , the term “qualified organization” means an organization which— (A) is described in clause (v) or (vi) of subsection (b)(1)(A) , or (B) is described in section 501(c)(3) and— (i) meets the requirements of section 509(a)(2) , or (ii) meets the requirements of section 509(a)(3) and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph . (4) Conservation purpose defined. (A) WG&L Treatises In general. For purposes of this subsection , the term “conservation purpose” means— (i) the preservation of land areas for outdoor recreation by, or the education of, the general public, (ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem, (iii) the preservation of open space (including farmland and forest land) where such preservation is— (I) for the scenic enjoyment of the general public, or (II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or (iv) the preservation of an historically important land area or a certified historic structure. (B) New Law Analysis Special rules with respect to buildings in registered historic districts. In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii) , such contribution shall not be considered to be exclusively for conservation purposes unless— (i) such interest— (I) New Law Analysis includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and (II) New Law Analysis prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior, (ii) New Law Analysis the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee— (I) New Law Analysis is a qualified organization (as defined in paragraph (3) ) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and (II) New Law Analysis has the resources to manage and enforce the restriction and a commitment to do so, and (iii) New Law Analysis in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer's return for the taxable year of the contribution— (I) New Law Analysis a qualified appraisal (within the meaning of subsection (f)(11)(E) ) of the qualified property interest, (II) New Law Analysis photographs of the entire exterior of the building, and (III) New Law Analysis a description of all restrictions on the development of the building. (C) New Law Analysis Certified historic structure. For purposes of subparagraph (A)(iv) , the term “certified historic structure” means— (i) New Law Analysis any building, structure, or land area which is listed in the National Register, or (ii) New Law Analysis any building which is located in a registered historic district (as defined in section 47(c)(3)(B) ) and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district. A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the transferor's return under this chapter for the taxable year in which the transfer is made. (5) WG&L Treatises Exclusively for conservation purposes. For purposes of this subsection — (A) Conservation purpose must be protected. A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity. (B) No surface mining permitted. (i) In general. Except as provided in clause (ii) , in the case of a contribution of any interest where there is a retention of a qualified mineral interest, subparagraph (A) shall not be treated as met if at any time there may be extraction or removal of minerals by any surface mining method. (ii) New Law AnalysisWG&L Treatises Special rule. With respect to any contribution of property in which the ownership of the surface estate and mineral interests has been and remains separated, subparagraph (A) shall be treated as met if the probability of surface mining occurring on such property is so remote as to be negligible. (6) WG&L Treatises Qualified mineral interest. For purposes of this subsection , the term “qualified mineral interest” means— (A) subsurface oil, gas, or other minerals, and (B) the right to access to such minerals. (i) New Law AnalysisWG&L Treatises Standard mileage rate for use of passenger automobile. For purposes of computing the deduction under this section for use of a passenger automobile, the standard mileage rate shall be 14 cents per mile. (j) Denial of deduction for certain travel expenses. No deduction shall be allowed under this section for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel. (k) Disallowance of deductions in certain cases. For disallowance of deductions for contributions to or for the use of communist controlled organizations, see section 11(a) of the Internal Security Act of 1950 ( 50 U.S.C. 790 ). (l) Treatment of certain amounts paid to or for the benefit of institutions of higher education. (1) In general. For purposes of this section , 80 percent of any amount described in paragraph (2) shall be treated as a charitable contribution. (2) Amount described. For purposes of paragraph (1) , an amount is described in this paragraph if— (A) the amount is paid by the taxpayer to or for the benefit of an educational organization— (i) which is described in subsection (b)(1)(A)(ii) , and (ii) which is an institution of higher education (as defined in section 3304(f) ), and (B) such amount would be allowable as a deduction under this section but for the fact that the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution. If any portion of a payment is for the purchase of such tickets, such portion and the remaining portion (if any) of such payment shall be treated as separate amounts for purposes of this subsection . (m) WG&L Treatises Certain donee income from intellectual property treated as an additional charitable contribution. (1) New Law AnalysisWG&L Treatises Treatment as additional contribution. In the case of a taxpayer who makes a qualified intellectual property contribution, the deduction allowed under subsection (a) for each taxable year of the taxpayer ending on or after the date of such contribution shall be increased (subject to the limitations under subsection (b) ) by the applicable percentage of qualified donee income with respect to such contribution which is properly allocable to such year under this subsection . (2) New Law Analysis Reduction in additional deductions to extent of initial deduction. With respect to any qualified intellectual property contribution, the deduction allowed under subsection (a) shall be increased under paragraph (1) only to the extent that the aggregate amount of such increases with respect to such contribution exceed the amount allowed as a deduction under subsection (a) with respect to such contribution determined without regard to this subsection . (3) New Law AnalysisWG&L Treatises Qualified donee income. For purposes of this subsection , the term “qualified donee income” means any net income received by or accrued to the donee which is properly allocable to the qualified intellectual property. (4) New Law Analysis Allocation of qualified donee income to taxable years of donor. For purposes of this subsection , qualified donee income shall be treated as properly allocable to a taxable year of the donor if such income is received by or accrued to the donee for the taxable year of the donee which ends within or with such taxable year of the donor. (5) New Law Analysis 10-year limitation. Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the 10-year period beginning on the date of the contribution of such property. (6) New Law Analysis Benefit limited to life of intellectual property. Income shall not be treated as properly allocable to qualified intellectual property for purposes of this subsection if such income is received by or accrued to the donee after the expiration of the legal life of such property. (7) New Law Analysis Applicable percentage. For purposes of this subsection , the term “applicable percentage” means the percentage determined under the following table which corresponds to a taxable year of the donor ending on or after the date of the qualified intellectual property contribution: Taxable Year of Donor Ending on or After Applicable Date of Contribution: Percentage: 1st ............................. 100 2nd ............................. 100 3rd .............................. 90 4th .............................. 80 5th .............................. 70 6th .............................. 60 7th .............................. 50 8th .............................. 40 9th .............................. 30 10th ............................. 20 11th ............................. 10 12th ........................ .... 10. (8) New Law AnalysisWG&L Treatises Qualified intellectual property contribution. For purposes of this subsection , the term “qualified intellectual property contribution” means any charitable contribution of qualified intellectual property— (A) New Law Analysis the amount of which taken into account under this section is reduced by reason of subsection (e)(1) , and (B) New Law Analysis with respect to which the donor informs the donee at the time of such contribution that the donor intends to treat such contribution as a qualified intellectual property contribution for purposes of this subsection and section 6050L . (9) New Law AnalysisWG&L Treatises Qualified intellectual property. For purposes of this subsection , the term “qualified intellectual property” means property described in subsection (e)(1)(B)(iii) (other than property contributed to or for the use of an organization described in subsection (e)(1)(B)(ii) ). (10) Other special rules. (A) New Law Analysis Application of limitations on charitable contributions. Any increase under this subsection of the deduction provided under subsection (a) shall be treated for purposes of subsection (b) as a deduction which is attributable to a charitable contribution to the donee to which such increase relates. (B) New Law Analysis Net income determined by donee. The net income taken into account under paragraph (3) shall not exceed the amount of such income reported under section 6050L(b)(1) . (C) New Law Analysis Deduction limited to 12 taxable years. Except as may be provided under subparagraph (D)(i) , this subsectionshall not apply with respect to any qualified intellectual property contribution for any taxable year of the donor after the 12th taxable year of the donor which ends on or after the date of such contribution. (D) New Law Analysis Regulations. The Secretary may issue regulations or other guidance to carry out the purposes of this subsection , including regulations or guidance— (i) New Law Analysis modifying the application of this subsection in the case of a donor or donee with a short taxable year, and (ii) New Law Analysis providing for the determination of an amount to be treated as net income of the donee which is properly allocable to qualified intellectual property in the case of a donee who uses such property to further a purpose or function constituting the basis of the donee's exemption under section 501 (or, in the case of a governmental unit, any purpose described insection 170(c) ) and does not possess a right to receive any payment from a third party with respect to such property. (n) Expenses paid by certain whaling captains in support of native Alaskan subsistence whaling. (1) New Law AnalysisWG&L Treatises In general. In the case of an individual who is recognized by the Alaska Eskimo Whaling Commission as a whaling captain charged with the responsibility of maintaining and carrying out sanctioned whaling activities and who engages in such activities during the taxable year, the amount described inparagraph (2) (to the extent such amount does not exceed $10,000 for the taxable year) shall be treated for purposes of this section as a charitable contribution. (2) Amount described. (A) New Law Analysis In general. The amount described in this paragraph is the aggregate of the reasonable and necessary whaling expenses paid by the taxpayer during the taxable year in carrying out sanctioned whaling activities. (B) New Law Analysis Whaling expenses. For purposes of subparagraph (A) , the term “whaling expenses” includes expenses for— (i) New Law Analysis the acquisition and maintenance of whaling boats, weapons, and gear used in sanctioned whaling activities, (ii) New Law Analysis the supplying of food for the crew and other provisions for carrying out such activities, and (iii) New Law AnalysisWG&L Treatises storage and distribution of the catch from such activities. (3) New Law Analysis Sanctioned whaling activities. For purposes of this subsection , the term “sanctioned whaling activities” means subsistence bowhead whale hunting activities conducted pursuant to the management plan of the Alaska Eskimo Whaling Commission. (4) New Law Analysis Substantiation of expenses. The Secretary shall issue guidance requiring that the taxpayer substantiate the whaling expenses for which a deduction is claimed under this subsection , including by maintaining appropriate written records with respect to the time, place, date, amount, and nature of the expense, as well as the taxpayer's eligibility for such deduction, and that (to the extent provided by the Secretary) such substantiation be provided as part of the taxpayer's return of tax. (o) Special rules for fractional gifts. (1) Denial of deduction in certain cases. (A) New Law Analysis In general. No deduction shall be allowed for a contribution of an undivided portion of a taxpayer's entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by— (i) New Law Analysis the taxpayer, or (ii) New Law Analysis the taxpayer and the donee. (B) New Law Analysis Exceptions. The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons. (2) New Law Analysis Valuation of subsequent gifts. In the case of any additional contribution, the fair market value of such contribution shall be determined by using the lesser of— (A) New Law Analysis the fair market value of the property at the time of the initial fractional contribution, or (B) New Law Analysis the fair market value of the property at the time of the additional contribution. (3) Recapture of deduction in certain cases; addition to tax. (A) New Law Analysis Recapture. The Secretary shall provide for the recapture of the amount of any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property— (i) New Law Analysis in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c) ) on or before the earlier of— (I) New Law Analysis the date that is 10 years after the date of the initial fractional contribution, or (II) New Law Analysis the date of the death of the donor, and (ii) New Law Analysis in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i) — (I) New Law Analysis had substantial physical possession of the property, and (II) New Law Analysis used the property in a use which is related to a purpose or function constituting the basis for the organizations' exemption under section 501 . (B) New Law Analysis Addition to tax. The tax imposed under this chapter for any taxable year for which there is a recapture undersubparagraph (A) shall be increased by 10 percent of the amount so recaptured. (4) Definitions. For purposes of this subsection— (A) New Law Analysis Additional contribution. The term “additional contribution” means any charitable contribution by the taxpayer of any interest in property with respect to which the taxpayer has previously made an initial fractional contribution. (B) New Law Analysis Initial fractional contribution. The term “initial fractional contribution” means, with respect to any taxpayer, the first charitable contribution of an undivided portion of the taxpayer's entire interest in any tangible personal property. (p) Other cross references. (1) For treatment of certain organizations providing child care, see section 501(k) . (2) For charitable contributions of estates and trusts, see section 642(c) . (3) For nondeductibility of contributions by common trust funds, see section 584 . (4) For charitable contributions of partners, see section 702 . (5) For charitable contributions of nonresident aliens, see section 873 . (6) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for the use of the United States, seesection 6973 of title 10, United States Code . (7) For treatment of gifts accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency, as gifts to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956. (8) For treatment of gifts of money accepted by the Attorney General for credit to the “Commissary Funds, Federal Prisons” as gifts to or for the use of the United States, see section 4043 of title 18, United States Code . (9) For charitable contributions to or for the use of Indian Tribal governments (or their subdivisions), see section 7871 .