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Planned Giving of The Village Family Service Center of ND

New Tax Credit Brings Great Tax Incentive for Business Gifts to Our Qualified Endowment Fund
Are you an owner of a North Dakota business?... or are you a beneficiary of a trust or estate which derives income taxable in North Dakota?... If so, you have been presented with an unprecedented tax incentive if you make gifts that help secure the future of a qualified North Dakota nonprofit organization(s) through a gift to its qualified endowment fund(s).

The 2007 North Dakota Legislature passed Senate Bill 2363, which allows a significant income tax credit for certain gifts to “permanent, irrevocable” endowment funds of qualified North Dakota charitable organizations. This legislation pertains to gifts made in a taxable year beginning after December 31, 2006. Qualified donors will likely find that well over 50% of their gifts will be “subsidized” through State and Federal tax incentives!
How the Tax Credit Works

An income tax credit is far more valuable than a deduction since a credit offsets the computed income tax. This particular tax credit is claimed on the North Dakota income tax return. The amount of the credit is 40% of the value of a gift made to a qualified (permanent, irrevocable) endowment fund of a North Dakota nonprofit organization, provided that the gift is deductible for Federal tax purposes. The tax credit allowed in any one year may not exceed the current year tax liability; unused credits may be carried forward for up to three additional tax years.

The annual limitation on this tax credit is $10,000, determined at the entity level. Therefore, eligible gifts totaling up to $25,000 per year will bring about the maximum annual credit.

Clarifying Examples

Situation #1—XYZ, Inc., a North Dakota “C” corporation, makes a $15,000 gift to The Village Foundation Tax Credit Endowment Fund during its fiscal year ending September 30, 2008. In addition to providing a tax deduction on XYZ’s Federal corporate tax return, this gift qualifies XYZ, Inc. for a $6,000 ($15,000 x 40%) tax credit on its North Dakota corporate income tax return. The $6,000 credit completely offsets the $3,500 tax computed for the year ending September 30, 2008. The unused $2,500 tax credit will be available for use over the next three succeeding tax years.

Situation #2—Partnership ABC has four equal partners. All of the partners are North Dakota residents. During its 2008 tax year, ABC makes a gift of $20,000 to The Village Foundation Tax Credit Endowment Fund. ABC also makes a gift of $5,000 to another qualified North Dakota endowment fund that year. The total North Dakota income tax credit available to the partnership is $10,000 ($25,000 x 40%). Since the partnership passes through its tax attributes to the four individual owners, each of the four partners will receive a $2,500 income tax credit for use on their 2008 North Dakota individual tax returns.

 

We Have Established a Qualified Endowment Fund

The Children’s Village Family Service Foundation has recently established The Village Foundation Tax Credit Endowment Fund. We have worked closely with professional counsel so that gifts to this recently-established endowment fund will qualify for the major tax incentives under Senate Bill 2363.

The purpose of our new endowment fund is to provide ongoing financial support in furtherance of the mission of our foundation and to help secure the financial security of The Village Family Service Center.

The operating policies of this new endowment fund do not allow encroachment of the donors’ gift contributions (principal), which will be held in perpetuity. Only the income and net appreciation from the fund’s invested assets may be used to support the mission of the Children’s Village Family Service Foundation.

Eligible Donors

Gifts from the following entities may benefit from this tax legislation:

  1. “C” corporations (pay tax at the corporate level
  2. “Pass-through” entities (tax credit usually claimed by owners)
    1. Subchapter “S” corporations
    2. Partnerships
    3. Limited liability companies
  3. Estates (if file income tax return)
  4. Trusts

The tax credit for gifts from estates and trusts will be allocated between these entities and their beneficiaries based on the portion of income which is distributed to those beneficiaries.

The North Dakota tax department has clarified that contributions from banks do not qualify since banks are taxed under a separate section of the North Dakota Century Code.

An Invitation

Gifts to this new endowment fund will enable us to look to the future with increased confidence as we continue to fulfill our vital mission. If you are an owner (or beneficiary) of one of the qualifying businesses or other entities listed, we hope that you will consider a gift to The Village Foundation Tax Credit Endowment Fund. Your gift would be highly valued and appreciated!

Gifts to the Children’s Village Family Service Foundation are tax-deductible under Federal income tax law.

Disclaimer: The above article is intended to provide information of a general nature only. It should not be construed as legal, tax and/ financial advice. Readers are urged to consult their own professional advisors for their specific situations.