United States: Tax Exempt Charitable Organizations - Exempt Organizations´ Use of the Internet

Originally published December 2003

I want to thank my partner Philip R. West for his assistance with international tax issues and thank Galina Kolomietz, an associate at Steptoe & Johnson LLP, for her general research assistance.

Non-Profits And The Internet: Tax And Other Legal Issues

TABLE OF CONTENTS

I. INTRODUCTION

Like for-profit businesses, government and individuals, tax-exempt organizations are turning to the Internet to conduct activities that were formerly conducted through different media. The use of the Internet raises many legal issues including federal, state, local and international income tax issues, state charitable solicitation law issues, copyright law issues, and privacy law issues. The first part of this outline focuses in some detail on federal tax issues raised by activities commonly conducted over the Internet by exempt organizations. The balance of the outline contains an overview of key state and local tax issues, international tax issues, state charitable solicitation laws, copyright issues, and privacy laws.¹

There is very little guidance on the federal income tax consequences of Internet use by exempt organizations. The Internal Revenue Service (the "Service") has stated that "the use of the Internet to accomplish a particular task does not change the way the law applies to that task."2 In many instances, however, it is difficult to apply laws and precedents written in a pre- Internet era to current Internet activities. There may be no clear counterpart to Internet activity in the non-Internet world, or the analogous activity in the Internet world may raise factors that call into question whether the pre-Internet rule should apply or how it should be applied.

Recognizing that the Internet raises a number of novel tax issues for exempt organizations, the Service issued Announcement 2000-84, 2000-42 I.R.B. 385, setting forth a number of areas in which it is "considering the necessity of issuing guidance." This announcement is helpful in identifying issues for consideration, and particularly those issues that the Service views as important. To date, however, the Service’s guidance has been limited and piecemeal, and that is not likely to change in the near term. Although guidance on the application of the Unrelated Business Income Tax ("UBIT") rules to Internet activities is in the Service’s Priority Guidance Plan for FY 2003-2004, it was also in the plan for 2002-2003. Further, a year ago, Steve Miller, Director, Exempt Organizations Division, indicated that the Service is not likely to issue "massive guidance" on this issue.

The Service did address Internet issues in its Continuing Professional Education Text for Fiscal Years 1999 and 2000 (hereafter referred to as "1999 CPE Text" and "2000 CPE Text").4 These texts are used by the Service for internal training purposes and have no precedential value. Moreover, in an area like the Internet where the Service is currently grappling with the issues, the Service’s thinking may have changed after publication of these articles. Nevertheless, in the absence of more definitive guidance, the CPE texts can be quite useful as an indication of the Service's thinking.

This part of the outline is organized by the types of activities in which exempt organizations typically engage on the Internet. With respect to each activity, the applicable federal tax issues are identified and the application of the law to those activities is discussed.

Many exempt organizations seek advertising and sponsorships as a source of funds for operating their websites. The federal tax issue raised by these arrangements is whether the payments received are includable in Unrelated Business Taxable Income ("UBTI").

a. Advertising vs. Acknowledgement. UBTI generally includes income from advertising, see United States v. American College of Physicians, 475 U.S. 834 (1986), but acknowledgement of a gift or a sponsorship is not considered advertising. Because of the difficulty of drawing a line between an advertisement and an acknowledgement, Congress added section 513(i) to the Internal Revenue Code in 1997, providing a safe harbor for "qualified sponsorship payments."

b. Qualified Sponsorship Payments. Section 513(i)5 provides that a qualified sponsorship payment (a "QSP") is not included in UBTI. A QSP is a payment made to an exempt organization by a person engaged in a trade or business with respect to which there is no arrangement or expectation that such person will receive any substantial return benefit other than the use or acknowledgment of the name or logo (or product lines) of the person’s trade or business in connection with the exempt organization’s activities. Section 513(i)(2)(A). As Section 513(i) is a safe harbor, a payment that is not a QSP may be excludable from UBTI under a different theory or provision. At the heart of the definition of a QSP is whether the payor has received a "substantial return benefit."

(i) Use or Acknowledgement. Use or acknowledgement, as defined in the Code and regulations, is not a substantial return benefit. Use or acknowledgment may include (i) logos and slogans that do not contain qualitative or comparative descriptions of the payor’s products, services, facilities or company, (ii) a list of the payor’s locations, telephone numbers or Internet address, (iii) value-neutral descriptions, including displays or visual depictions, of the payor’s product-line or services, and (iv) the payor’s brand or trade names and product or service listings. Treas. Reg. Section 1.513-4(c)(2)(iii). A promotional logo or slogan that is an established part of the sponsor’s identity does not, by itself, constitute advertising. Treas. Reg. Section 1.513-4(c)(2)(iv); see H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 476 (1997).

(ii) Advertising. In contrast, advertising for the payor is a substantial return benefit and generally will cause the payment to be taxable to the exempt organization. Advertising is any message or other programming material which is broadcast or otherwise transmitted, published, displayed or distributed, and which promotes or markets any trade or business, or any service, facility or product. Advertising includes messages containing qualitative or comparative language, price information or other indications of savings or value, an endorsement or other inducement to purchase, sell or use a sponsor’s facility, products or services. Treas. Reg. Section 1.513-4(c)(2)(v).

(iii) Contingent Payments. If a payment or the amount paid is contingent upon the level of attendance at an event, broadcast ratings, or other factors indicating the degree of public exposure to the sponsored activity, it is not a QSP and will be taxable income to the exempt organization receiving it, unless it is excludable from income under another theory or provision. Section 513(i)(2)(B)(I); Treas. Reg. Section 1.513-4(e)(2).

(iv) Disregarded Benefits. Benefits received by a sponsor are disregarded and thus the sponsor has not received a substantial return benefit if the aggregate fair market value of all the benefits provided by the exempt organization do not exceed two percent of the amount of the payment. Treas. Reg. Section 1.513-4(c)(2)(ii). If the value of the benefits does exceed two percent of the payment, then the entire fair market value of the benefits is treated as a substantial return benefit. Id. Benefits include advertising, exclusive provider arrangements, goods, facilities, services, or other privileges, and the right to use an intangible asset. Treas. Reg. Section 1.513-4(c)(2)(iii).

(v) Payment in Excess of Return Benefit. If a corporate sponsor receives a substantial return benefit, but its payment to the exempt organization exceeds the fair market value of the benefit received, then the excess of the sponsorship payment over the fair market value of the benefit received by the corporate sponsor is treated as a QSP. Treas. Reg. Section 1.513-4(d)(1).

c. Periodicals. The safe harbor for a QSP does not include any payment which entitles the payor to the use or acknowledgment of the name or logo (or product lines) of the payor’s trade or business in a periodical, which is defined for these purposes as "regularly scheduled and printed material published by or on behalf of the exempt organization and that is not related to and primarily distributed in connection with a specific event conducted by the exempt organization." Section 513(i)(2)(B)(ii)(I).

d. Trade Show Activities. The term QSP does not include any payment made in connection with any qualified convention or trade show activity as defined in Section 513(d)(3)(B).

a. Sponsor Lists; Hyperlinks to Sponsor’s Website. An important issue for exempt organizations is permissible treatment for sponsors, service providers and licensees on the organization’s website. The argument that has been advanced for permitting a link to such websites is that a link is analogous to including contact information such as the sponsor’s address and telephone number in the non-Internet world. The Service has indicated implicit agreement with this approach in the QSP regulations and a recent private letter ruling.

The QSP regulations address the use of hyperlinks to a sponsor’s website through two examples. In the first example, the exempt organization posts a list of sponsors on its website, including each sponsor's Internet address, which appears as a hyperlink from the exempt organization’s website to the sponsor’s website. The example concludes that this hyperlink constitutes an acknowledgement. Treas. Reg. Section 1.513-4(f), Example 11. In the second example, the exempt organization’s website contains a hyperlink to the sponsor’s website, where an endorsement by the exempt organization for the sponsor’s products appears. The example concludes that this hyperlink is an advertisement. Treas. Reg. Section 1.513-4(f), Example 12. The Preamble to the regulations specifies that these examples apply only for the purpose of applying the qualified sponsorship payment safe harbor rules of Section 513(i).

A recent private letter ruling, PLR 200303062 (Oct. 22, 2002), involved a Section 501(c)(5) membership organization that had contracts with a number of service providers who offered discounts to the organization’s members. The Service held that the organization would not be engaged in a trade or business if it listed the service providers and links to the service providers’ websites on its website. The organization did not charge for the listings or the links and did not intend to do so in the future. It is not clear whether a charge for listing names or licensees and providing hyperlinks would be considered advertising for the service providers and result in UBTI. In the same private letter ruling, the Service held that providing a list of licensees and hyperlinks to licensees’ websites without charge would not be considered providing services and would not cause any portion of the payments received from licensee’s to be treated other than as royalties under Section 512(b)(2).

The Service’s favorable guidance deals only with the limited situation where an Internet address and hyperlink are provided for sponsors, service providers and licensees. As noted above, the Service has indicated that any endorsement will cause the link to be advertising and implicitly raised a question as to whether payment for a listing or hyperlink would cause it to be treated as advertising. This is an area where exempt organizations should continue to proceed with caution.

b. Banners. Websites also frequently contain moving graphically displayed links (as opposed to simple text links) which are generally referred to as banners. As long as banners do not include any messages containing qualitative or comparative language, price information or other indications of savings or value, endorsements or inducements, then they should not be considered advertising merely because the acknowledgment draws more attention from the user than an ordinary corporate logo or simple text in link. See Treas. Reg. Section 1.513-4(c)(2)(iii), (iv). In the non-Internet context, sponsor logos are flashed across scoreboards and television screens without converting the sponsorship arrangement into advertising. See Treas. Reg. Section 1.513-4(f), Examples 3, 4 (sports events). A different standard should not apply to websites.

Nevertheless, exempt organizations should be cautious in this area. Prior to issuance of the final corporate sponsorship regulations, the Service informally stated that "a moving banner is probably more likely to be classified as an advertisement subject to unrelated business income tax rather than a permissible statement of corporate sponsorship." 2000 CPE Text, p. 132. It is not clear whether this still represents the Service's thinking on this issue.

c. Periodicals. Application of the special rule for periodicals raises three issues in the context of the Internet. First, does the website or a portion of it constitute a periodical? Second, if all or part of the website is a periodical, revenue from sponsors cannot qualify as a QSP but that does not mean it is necessarily advertising. Whether revenue is advertising or sponsorship income, related income, or some other form of income, must be determined under general principles of tax law. Third, if the revenue is advertising, then it is includable in UBTI, which is computed under the special rules applicable to periodicals. See Treas. Reg. Section 1.512(a)-1(f). These rules, written in the context of printed paper periodicals, must then be applied in the Internet context.

(i) What Is a Periodical? For purposes of the QSP regulations, the term "periodical means regularly scheduled and printed material published by or on behalf of the exempt organization that is not related to and primarily distributed in connection with a specific event conducted by the exempt organization. For this purpose, printed material includes material that is published electronically." Treas. Reg. section 1.513-4(b). The key factor in the regulatory definition is that the "publication" is regularly scheduled. This is consistent with the common sense definition and the dictionary definition of a periodical. See Webster’s Ninth New Collegiate Dictionary, defining a periodical as "published with a fixed interval between the issues or numbers." Some organizations post their printed paper newsletters, journals and magazines on their websites and some may dispense with the printed paper version and offer only an electronic version. This material would appear to fall within the definition of periodical.

In Announcement 2000-84, the Service asked for comments on whether a website constitutes a single publication or communication and, if not, how it should be separated into distinct publications or communications. It has not issued guidance on this issue other than the definition in the QSP regulations discussed above. Prior to the issuance of the final corporate sponsorship regulations, in the 2000 CPE Text, the Service emphasized the methodology used in preparation of website materials, stating as follows:

2000 CPE Text, p. 135.

The IRS view represents a departure from Section 513(i)(2)(B)(ii)(I) and the regulations, which make no mention of process or methodology. Because the final corporate sponsorship regulations are silent on process and methodology, it is not clear whether the views in the 2000 CPE Text are still current or have been superceded by the final regulations. There is still a great deal that remains unresolved in this area. What is at stake in determining whether a website or any portion of it is a periodical is the application of the QSP safe harbor and the special rules for computing UBTI for advertising in a periodical.

(ii) Is the Income Advertising Income? If it is determined that a website or a portion of it is a periodical, the safe harbor rule of Section 513(i) does not apply and the next step is to determine whether income from the site constitutes gross advertising income. In most instances, advertising in a periodical is treated as UBTI, but the Supreme Court has left open the possibility that advertising could be related. See United States v. American College of Physicians, supra. Moreover, a corporate sponsor might underwrite a series in a periodical or a particular article and not receive any return benefit other than an acknowledgement of its contribution. While this would not be governed by Section 513(i), depending upon the facts and circumstances, it could be considered a sponsorship rather than advertising.

(iii) How Are the Rules for Computing Advertising Income to be Applied to a Website? If it is determined that the website or a portion of it is a periodical and that some portion of revenue received is advertising income, then the calculation of UBTI is governed by special rules for periodical advertising. In general, these rules permit the exempt organization to offset income earned from advertising by losses on the editorial side. See Treas. Reg. section 1.512(a)-1(f). These rules are intended to put periodicals published by exempt organizations on a level playing field with periodicals published by for-profit companies. Subscription prices for periodicals of for-profit companies are typically heavily subsidized by advertising revenue. Because the entire publication is taxed as one unit, the income from advertising is offset by losses on the editorial pages in the computation of taxable income by a for-profit company. If exempt organizations were not allowed to offset advertising income with readership losses, they would be taxed more heavily than comparably situated for-profit periodicals. In the 2000 CPE Text, quoted above, the Service seems concerned that exempt organizations may seek to obtain the advantage of these rules by claiming their websites are periodicals. In practice, it seems more likely that exempt organizations will want to claim their websites are not periodicals and seek to come within the safe harbor of the QSP regulations.

(i) General Tax Rules. Under Section 513(d) certain "qualified convention and trade show activities" are excluded from the definition of an unrelated trade or business. "A qualified convention and trade show activity" is any activity conducted by organizations described in Section 501(c)(3), (4), (5), or (6) that are traditionally conducted at conventions, annual meetings or trade shows including but not limited to any activity one of the purposes of which is (i) to attract persons in an industry generally or members of the public for the purpose of displaying industry products or stimulating interest in and demand for industry products or services or (ii) to educate people engaged in the industry in the development of new products and services or new rules and regulations affecting the industry. Section 513(d)(3)(A). In order to qualify for the trade show exception, the organization must regularly conduct the convention or trade show activity as one of its substantial exempt purposes.

(ii) Application of Rule to the Internet. In Announcement 2000-84, the Service asked whether there are any circumstances under which an online virtual trade show qualifies as an activity of a kind "traditionally conducted" at trade shows under Section 513(d). The safe harbor for QSPs in section 513(i) does not apply to qualified convention and trade show activities. Thus, if a virtual trade show is not a qualified convention and trade show activity under Section 513(d), then the safe harbor rules under Section 513(i) for QSPs apply. The Service requested comments in the Proposed corporate sponsorship regulations on the application of the safe harbor to virtual trade shows but did not address this issue in the final regulations.

a. Online Stores. Many exempt organizations have stores on their websites where they sell goods that are similar to the goods sold in their catalogs or bricks-and-mortar stores or shops. Whether income from these sales is taxable depends upon the same UBIT analysis that applies to sales through a catalog or store. 2000 CPE Text, p. 127.

b. UBIT Rules. An activity is subject to the UBIT if it is (1) a trade or business; (2) that is regularly carried on; and (3) that (aside from the organization’s need for funds) is not substantially related to the organization’s exempt purpose. Sections 512(a); 513(a). Most online stores will be considered a trade or business (i.e., operated to make a profit) that is regularly carried on, and taxation will turn on whether products in an organization’s online store are substantially related to the organization’s exempt purpose. An activity is substantially related to an organization’s exempt purpose if it contributes importantly to accomplishment of that organization’s exempt purpose. Treas. Reg. Section 1.513-1(d). Note that this requirement necessitates an examination of the relationship of an activity to the purposes of the organization engaging in it. An activity that is related to the exempt purposes of one organization is not necessarily related to the exempt purposes of another organization. Id. Under the principles of the fragmentation rule, each item in an organization’s store must be examined to determine if it is substantially related to the organization’s exempt purpose. Section 512(c); Rev. Rul. 73-105, 1973-1 C.B. 264.

c. Guidance on Merchandise Sales. Most of the guidance involving exempt organizations’ sale of merchandise has arisen in the context of museum shops. In determining whether a particular item is related, the Service has posed the question as whether the primary purpose for selling the item is to further the organization’s exempt purpose or to generate income. Items that generally may be related to an exempt organization’s purpose include reproduction of items in a museum’s collection; adaptations of items in a museum’s collection if there is literature explaining the relationship of the item to the original; books, tapes, records and films on the subject of the organization’s exempt mission; children’s educational toys and games; and, utilitarian products that have accurate depictions of wildlife, flora or fauna, or artwork. Items that generally are not related include those that are utilitarian in nature such as clothing and household items unless they are replicas of period pieces or adaptations of items in a collection with accompanying literature (e.g., scarves, neckties); contemporary items at costs equal to those charged by commercial entities (e.g., contemporary watches sold by a museum with a timekeeping collection); souvenirs, inexpensive mementoes, and logo items such as coffee mugs, t-shirts, and tote bags. See generally TAM 8326003 (Nov. 17, 1982); TAM 9720002 (Nov. 26, 1996); TAM 9550003 (Sept. 8, 1995); Rev. Rul. 73-104, 1973-1 C.B. 263. See section IV below on certain international issues, including those relating to merchandise sales.

a. Links for Order Processing. Some organizations’ websites link to another website for purposes of fulfillment. For example, an organization that sells books on its website may fulfill orders through one of the large online bookstores such as Barnes and Noble or Amazon (the "Fulfillment Website"). When a person chooses to purchase a book on the exempt organization’s website, he or she is linked to the Fulfillment Website. If the exempt organization simply receives a portion of the revenue from the sale of the book (e.g., sales price less a commission payable to the Fulfillment Website), then whether the income is taxable would depend upon whether the organization is engaged in a trade or business regularly carried on and whether the book is related to the organization’s exempt purpose, as discussed above.

b. Other Links. In some agreements, however, the exempt organization receives a payment for any other purchases its customer makes after being linked to the Fulfillment Website. Alternatively, an exempt organization may provide a link from its website to another website without regard to the sale of its own products. It may provide the link for any number of reasons. For example, the link may take users to a website that promotes the same exempt purpose as the referring exempt organization; it may be a link to a sponsor’s site; or, it may be a link provided for the purpose of earning revenue.

c. Analysis. From a business standpoint, the relationship is often somewhat similar to an exempt organization’s rental of its mailing list and licensing of its name and trademark. As with an organization renting a mailing list from an exempt organization, the referred website is seeking a way to offer its products or services to the exempt organization’s constituency and, as with a license agreement, the referred website is seeking to benefit from the use of the exempt organization’s name and trademark. While this analogy has some merit from a business standpoint, it is not a clean analogy for legal purposes. There is no mailing list and the exempt organization has not granted the organization the right to use its name but rather has granted it a place in its cyber real estate. The most likely result is that the revenue will be treated as a taxable referral fee. In some cases, the referring organization may be able to argue that the referral is substantially related to its exempt purpose. As noted above, in the case of a link to sponsor’s website, the fee will not be a QSP if it is based on the traffic referred by the exempt organization’s website or the purchases made by the exempt organization’s users.

(i) Section 6115(a) requires a charity that solicits quid pro quo gifts of $75 or more to provide a written statement, as part of the solicitation or acknowledgement of the gift (i) informing the donor that his deduction is limited to the excess of any money or value of the property given over the value of the goods or services and (ii) providing the donor with a good faith estimate of the value of the goods or services provided in exchange for the contribution.

(ii) Section 170(f)(8) provides that a donor will not be allowed a deduction for a gift of $250 or more unless he has a contemporaneous written acknowledgement from the charity.

(iii) Solicitations over the Internet raise the question whether the requirements of section 6115(a) and 170(f)(8) for written statements are met by website confirmations or e-mail confirmations that can be printed. In Publication 1771, the Service resolved this issue, stating that electronic receipts are acceptable for purposes of Section 6115 and 170(f)(8). This seems clearly to be the right answer. Electronic communication of written materials is increasingly accepted by government and business. For example, when the Service solicits public comments, it provides that written comments may be sent electronically via the Internet. Further, the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001-7031, specifically allows for electronic communication in signed documents for transactions within interstate or foreign commerce. While it is not entirely clear whether this law applies to exempt organizations’ receipts for charitable donations, it illustrates that electronic communications are acceptable for important business transactions.

b. Timing of Online Contributions. Online contributions are made by credit card. The date of a gift made by credit card is the date that the charge is made, not the date the donor pays the credit card bill. Rev. Rul. 78-38, 1978-1 CB 67. The date the charge is made may be the date that the donor makes the gift online but that is not necessarily the case. If the donor’s gift is processed manually by the donee, the date of the charge will be the date when the donee processes it. At year end, many organizations state on their websites when donations must be made to be credited in the current year.

a. Disclosure of Nondeductibility. Section 6113 requires that certain organizations that are not eligible to receive tax deductible contributions must state in a fundraising solicitation that contributions or gifts are not deductible as charitable contributions. For these purposes, a fundraising solicitation is any solicitation of contributions or gifts which is made in written or printed form, by television or radio, or by telephone.

b. Application of Rule to Internet. In the 2000 CPE Text, the Service refers to Notice 88-120, 1988-2 CB 454, which provides guidance on meeting the requirements of Section 6113 and, states:

2000 CPE Text, p. 125.

Section 6710 imposes penalties on organizations that fail to comply with the disclosure requirements of Section 6113. If the penalty is not excused due to reasonable cause or increased due to intentional disregard of the rules, it is $1,000 on each day that a failure occurs. The Service indicates that the penalty would apply to e-mail solicitations in the same manner that it applies to direct mail solicitations-- it would apply on the day the mail is sent. It recognizes that website solicitations present a more difficult issue because it is not clear when the website should be considered "distributed." If it is considered distributed each time it is accessed, the penalties would be out of proportion to what is intended.

a. Definition. Although specific arrangements vary from site to site, the term charity mall is generally used to refer to websites that provide links to merchants’ sites and either the merchant or the charity mall makes a gift to charity of a portion of the sales proceeds. If the gift is made by the charity mall, it would typically be funded by commissions or referral fees paid by merchants to the charity mall website. Examples of charity malls include iGive.com, which was founded in 1997; Greatergood.com; "shop for change" at www.workingforchange.com/shop; and schoolpop.com.

b. Tax Treatment of Charity. From the charity’s standpoint, there generally would be no tax consequences as it does not normally take any action to be listed other than allowing the use of its name and perhaps its logo. If the charity pays a fee to be included, that fee should be treated as a fundraising expense.

c. Tax Treatment of Consumer. From the consumers’ perspective, the question is whether he is entitled to a charitable deduction. If the consumer does not retain any right to direct the use of any portion of the proceeds, as is usually the case, he would not be entitled to a deduction. United States v. American Bar Endowment, 477 U.S. 105 (1986). If the consumer can elect to receive a rebate or to make a deduction to charity, then the contribution would be deductible. The charity mall in such a case is acting as the consumers’ agent. See Rev. Rul. 85-184, 1985-2 C.B. 8.

(i) Traditional Auction. In the traditional charity auction, patrons gather to bid on items that have been donated to the charity for the purpose of raising funds through the sale of the items at auction. Because the property will not be used by the charity in its trade or business, the donor’s charitable deduction is limited to his basis in the property. Section 170(e)(1)(B)(i). The purchaser gets a charitable deduction to the extent that the price paid exceeds the purchase price. See Rev. Rul. 67-246, 27-2 C.B. 104. The proceeds to the charity are usually excluded from UBTI, either under the exception for sale of donated goods or the exception for businesses operated by volunteers, or both. Section 513(a)(2), (3). In addition, the auction will not fall within the definition of an unrelated trade or business if it is not regularly carried on. Section 512(e).

(ii) Online Auction. When a charity conducts an auction online, the exception for donated goods would still apply, assuming that all goods are donated. The volunteer exception may be unavailable if the charity pays for the creation of the site but this would not affect the outcome if the donated goods exception was applicable. Some charity auctions may operate continuously, in which case they would be regularly carried on but, again, this would not affect the result if the donated goods exception was available.

b. Auctions Conducted by Third Parties. Auctions conducted by third parties on behalf of charities may raise different issues. In some instances, the third party website merely provides a site for individuals who auction items and donate the proceeds to charity. In these cases, the proceeds donated to the charity should be treated as a charitable gift to the charity and the donor should be entitled to a charitable deduction. Section 170(a). Depending upon the nature of the property sold, the donor may have gain or loss on the sale. The purchaser will not receive a charitable deduction. In order to insure that the donor has adequate documentation to claim its deduction for gifts over $250, the charity should be sure to issue a confirmation.

^{1 want to thank my partner Philip R. West for his assistance with international tax issues and thank Galina Kolomietz, an associate at Steptoe & Johnson LLP, for her general research assistance.}

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