Pension Protection Act: Applicability for NPOs

The Pension Protection Act (PPA) was signed into law by the president George W. Bush on August 17, 2006. Besides protecting the pensioners, the pension protection act also creates a number of rules that apply to non profit organizations as well as to donors who make gifts and contributions to tax-exempt organizations.donation

Cash Contributions

Previously, anyone who made a contribution to the church could take deduction for the contributions on his or her tax return. If the amount was less than $250, the tax payer was allowed by the previous law to use his own written records like a log or diary of the contributions.

PPA changed this completely and under this new Act, no deduction is allowed for contributions made no matter how small the amount may be unless a bank record is maintained by the donor or the donor obtains a written communication from the donee organization showing the name of the charity and the date and amount of the contribution.

Clothing and Household Items

The pension protection act does not allow any deduction for a charitable contribution of clothing or household items unless they are in good used condition. Also no deduction is allowed for a single article of clothing or a household item whose value is more than $500 unless a qualified appraisal is attached to the taxpayer’s return.

Appreciated Personal Property

If a donor bought a painting at sale for $25 whose value now is $25,000, then the fair market value may be deducted by the owner if the painting is contributed to an art museum that will display it.

On the other hand, the deduction is limited to the painting’s tax basis: $25 if the painting is contributed by the donor to a museum who sells it within three years of the contribution.

Fractional Interests

A fractional interest is one where a donor gives away the right to possess or use an object for a given period of time.

Suppose a donor owns some valuable art collection which the donor allows the local museum to display the art collection during some part of the year, the donor is giving them a fractional interest in it. Previously this type of contribution was allowed but under the pension protection act, the following two conditions should be compulsorily met:

  •  All of the interests in the property should be owned either by the donor or by the donor and the donee organization immediately before the contribution.
  •  The remaining interest in the property must be contributed by the donor to the same donee organization within 10 years of the initial donation or, if earlier before the death of the donor.

 

Facade easements

A facade easement is an easement by a property owner who, for a price, agrees not to change the outer appearance of his or her historic home. Facade easements can be contributed, and a charitable deduction can be taken for the contribution. The facade easement deduction to easements is limited by the pension protection act that:

  •   The complete exterior of the building should be preserved.
  •   Any exterior change that is contradictory with the structure’s historic character should not be allowed.
  •   Any deduction in excess of $10,000 must be accompanied by a $500 user fee to the IRS.