Charitable Gift Annuity Taxation

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Charitable Gift Annuity Taxation

This quiz is part of the curriculum for the graduate course Personal Financial Planning 5325 "Introduction to Charitable Planning" from Texas Tech University. For free downloads of the audio lectures and PowerPoint slides for this course, or to learn about the online Graduate Certificate in Charitable Financial Planning at Texas Tech University, go to www. EncourageGenerosity. Com


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Questions and Answers
  • 1. 
    Which of the following tax consequences can NOT be generated by a charitable gift annuity?
    • A. 

      Additions to taxable income

    • B. 

      Deductions from taxable income

    • C. 

      Postponement of capital gains tax

    • D. 

      Gift taxes

    • E. 

      All of the above can be generated by a charitable gift annuity

  • 2. 
    Which interest rate must be used to calculate the value of the annuity part of a charitable gift annuity?
    • A. 

      The §7520 rate for the month of the charitable gift annuity creation

    • B. 

      The §7520 rate for the month of the charitable gift annuity creation or either of the two previous months, selected at the discretion of the taxpayer

    • C. 

      The §7520 rate for the month of the charitable gift annuity creation or either of the two previous months, selected at the discretion of the internal revenue service

    • D. 

      The §7520 rate for the month of the charitable gift annuity creation or either of the two previous months, selected at the discretion of the charity

    • E. 

      The applicable federal midterm rate for the month of the charitable gift annuity creation or either of the two previous months, selected at the discretion of the taxpayer

  • 3. 
    A donor purchases a charitable gift annuity in August when the Ã�§7520 rate is 3.0%.  If the rates were 2.8% for July and 3.2% for June, what rate should the donor use to calculate his best tax deduction?
    • A. 

      The June rate, because a higher interest rate means that the value of the annuity is less.

    • B. 

      The June rate, because a higher interest rate means that the value of the annuity is more.

    • C. 

      The July rate, because a higher interest rate means that the value of the annuity is less.

    • D. 

      The July rate, because a higher interest rate means that the value of the annuity is more.

    • E. 

      The August rate, because that is the month in which the gift annuity was purchased.

  • 4. 
    A donor purchased an annuity that pays her $10,000 per year.  During the first year of the annuity, $4,000 of the annuity check was capital gain, $4,000 was return of investment, and $2,000 was earnings.  What is the proper taxation of the $10,000 annuity check received in the second year following the end of the donor�s life expectancy?
    • A. 

      $4,000 is tax free, $4,000 is taxed at the appropriate capital gain tax rate, & $2,000 is taxed at the relevant personal income tax rate.

    • B. 

      All $10,000 is taxed at the relevant personal income tax rate as ordinary income

    • C. 

      All $10,000 is tax free

    • D. 

      Only $2,000 is taxed at the relevant personal income tax rate as ordinary income, the rest is tax free

    • E. 

      $4,000 is taxed at the relevant personal income tax rate, $4,000 is taxed at the appropriate capital gain tax rate, & $2,000 is tax free

  • 5. 
    What is the appropriate tax rate for the portion of an annuity check that is calculated to be return of investment?
    • A. 

      The applicable capital gains tax rate

    • B. 

      The applicable personal income tax rate

    • C. 

      The applicable ordinary income tax rate for passive investments

    • D. 

      The applicable personal gift tax rate

    • E. 

      Nothing (0%)

  • 6. 
    In a cash transaction, how are the tax consequences different for a donor who purchases a charitable gift annuity for $100,000 paying $5,000/year for life as compared with a donor who uses part of $100,000 to purchase a commercial annuity paying $5,000/year for life and gives the rest of the $100,000 directly to the charity?
    • A. 

      The tax consequences are identical

    • B. 

      There is no charitable deduction for the second transaction

    • C. 

      In the first transaction the charitable deduction is the $100,000 less the value of the annuity based upon IRS value principles, and in the second transaction the charitable deduction is for the $100,000 less the price of the commercial annuity

    • D. 

      The charitable deduction for the commercial annuity transaction will be greater than for the gift annuity transaction

    • E. 

      The charitable deduction for the commercial annuity will be calculated as a bargain sale, while the charitable deduction for the charitable gift annuity will be calculated as a direct gift

  • 7. 
    A donor with a 10 year life expectancy purchases a gift annuity for $12,000.  The immediate charitable tax deduction is $2,000.  If the donor receives an annual annuity check for $1,250, how much of the first check is considered to be annual return of investment?
  • 8. 
    A donor with a 10 year life expectancy purchases a gift annuity for $12,000.  The immediate charitable tax deduction is $2,000.  If the donor receives an annual annuity check for $1,250, how much of the 14th check is considered to be annual return of investment?
  • 9. 
    What is the total capital gain if I purchase stock for $100,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $160,000 paid to my nephew?
  • 10. 
    What is the total capital gain if I purchase stock for $10,000, it increases in value to $100,000 and I give it to a charity in exchange for a gift annuity worth $80,000 paid to my nephew?
  • 11. 
    What is the total capital gain if I purchase stock for $20,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $100,000 paid to my nephew?
  • 12. 
    I purchase stock for $100,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $160,000 paid to me for my life.  At the time of purchase my life expectancy was 40 years.  How much of each annual annuity check during my life expectancy will count as capital gain to me?
  • 13. 
    I purchase stock for $20,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $100,000 paid to me for my life.  At the time of purchase my life expectancy was 9 years.  How much of each annual annuity check during my life expectancy will count as capital gain to me?
  • 14. 
    I purchase stock for $100,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $160,000 paid to me for my life.  At the time of purchase my life expectancy was 40 years.  How much of each annual annuity check during my life expectancy will count as tax free return of investment to me?
  • 15. 
    I purchase stock for $20,000, it increases in value to $200,000 and I give it to a charity in exchange for a gift annuity worth $100,000 paid to me for my life.  At the time of purchase my life expectancy was 10 years.  How much of each annual annuity check during my life expectancy will count as tax free return of investment to me?
  • 16. 
    IRS Table S (Based on Life Table 2000CM) for interest at 2.8 Percent lists the following factors for a person age 80:  Annuity = 7.0895, Life Estate = 0.19851, Remainder = 0.80149. James, age 80, has $100,000 cash that he wants to use to establish a charitable gift annuity in October of 2010.  Using the ACGA suggested payout rate of 7.2% and the IRS §7520 rate of 2.8%, James income tax deduction for this donation would be:
  • 17. 
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