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New Tax Proposal May Change Charitable Contributions to Colleges

It’s common for the ultra wealthy to curtail their tax liability with massive gifts to their alma matters for pet projects – things that are near and dear to the donor’s heart. For instance, private just mogul Kenn Ricci is giving $5 million to Notre Dame to support its Marching Band. Under current tax policies, such an ear-marked gift is allowed and fully deductible if made to a 501(c)(3) non-profit – which most colleges are.

However, a new proposal introduced by U.S. Representative Tom Reed of New York would require at least 25% of any gifts of this nature to be used for middle-class scholarships in order to be fully deductible. The plan takes aim at the richest schools, targeting roughly 100 collleges with endowments exceeding $1 billion. The goal is to allow families with incomes between $24,000 – $145,000 to afford the cost of educating their children at these types of colleges, and to require a more equitable use of charitable contributions.

It’s difficult not to see the likely unintended consequences of this proposal: a reduction in charitable giving for very noble endeavors like cancer research or university medical facilities. That’s not to say that these types of gifts would go away, but rather that this new impediment would become part us the calculus in deciding to make such a gift in the first place. Now, the tax benefits are a substantially motivating factor, but so are the interests of the donors. Surely some will continue to donate regardless of the tax ramifications because the cause is important to them. But some will be incentivized to push back against such a change and give to a different charitable purpose outside of the scope of this new proposal.

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

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