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[SCA-CAID:5217] The Gift Letter (fwd)

Poster: Mark Schuldenfrei <schuldy@abel.MATH.HARVARD.EDU>

Originally found on the West and Caid lists.  Posted by Carolyn Richardson, a
member of the SCA Board of Directors.

  The following letter was mailed to all the kingdoms on July 25, 1996.  Please 
  contact your Kingdom Seneschal or Kingdom Exchequer if you would like an 
  official hardcopy of it.  They will have a copy of it shortly if they don't 
  already have one.
  Please cross post this letter to any newsgroups you feel should have it.  I 
  have already asked that it be posted to all the kingdom lists and the Rialto.
    It has come to the attention of the Board of Directors that, under our 
  current practices and traditions, the Society for Creative Anachronism, Inc. is 
  in violation of Internal Revenue Code Section 274(b)(1) regarding the 
  limitations on the deductibility of gifts.  In order to correct this problem 
  and to comply with Corpora Appendix A, which states that the Society recognizes 
  the absolute precedence of law issued by civil authorities over any of its 
  internal rules, you are hereby directed to immediately cease the practice of 
  purchasing gifts, of any kind, where funds of the SCA, Inc. are being used for 
  such purchase.  This also applies to reimbursements of any individual for the 
  purchase of a gift on behalf of the branch.  Any kingdom laws or policies regar
  ding reimbursements for gifts to any person, including the Crown, are hereby 
  declared null and void.
    We are not saying that the giving of gifts must stop.  Only that these gifts 
  can not be paid for using Society funds.  IRC Section 274(b)(1) limits the 
  deduction for gifts to $25 per person, per year.  In the past, the branches 
  have been interpreting this to mean they are limited to spending $25 on a 
  gift.  This is incorrect.  The $25 limit applies to the person receiving the 
  gift and is accumulated throughout the year for purposes of applying the limit 
  on the corporations deduction.  Since the SCA, Inc. is treated as one entity by 
  the IRS, and we have only one tax identification number for all our bank 
  accounts, this limit applies across kingdom lines to any individual in the 
  SCA.  It is clear that the amount of gifts presented to the Crown at a single Co
  ronation would put us in serious violation of this law.  Multiply this by 13 
  kingdoms with at least two Coronations per year plus other events where gifts 
  are presented by or to the Crown, and we believe you can see the magnitude of 
  this problem.
    Attached to this letter is a copy of the applicable law, and a more detailed 
  explanation of how these rules work.  If you have any questions regarding this 
  matter, please call me at the number above or via email.  Do not call the 
  corporate office or your ombudsman as they will not be able to answer your 
        Carolyn Richardson
  cc: Corporate Office
   Board of Directors
  Internal Revenue Code Section 274 states, in part:
  (b) Gifts
   (1) Limitation.  No deduction shall be allowed under section 162 or section 
  212 for any expense for gifts made directly or indirectly to any individual to 
  the extent that such expense, when added to prior expenses of the taxpayer for 
  gifts made to such individual during the same taxable year, exceeds $25.  For 
  purposes of this section, the term gift means any item excludable from gross 
  income of the recipient under section 102 which is not excludable from his 
  gross income under any other provision of this chapter, but such term does not 
  include - 
  (A) an item having a cost to the taxpayer not in excess of $4.00 on which the 
  name of the taxpayer is clearly and permanently imprinted and which is one of a 
  number of identical items distributed generally by the taxpayer, or
  (B)  a sign, display rack, or other promotional material to be used on the 
  business premises of the recipient.
   (2)  Special rules.
  (A)  In the case of a gift by a partnership, the limitation contained in 
  paragraph (1) shall apply to the partnership as well as to each member thereof.
  (B)  For purposes of paragraph (1), a husband and wife shall be treated as one 
  The applicable regulation section is Reg. Sec. 1.274-3, which states in part:
  (b)  Gift defined. -- (1) In general.  Except as provided in subparagraph (2) 
  of this paragraph the term gift, for purposes of this section, means any item 
  excludable from the gross income of the recipient under section 102 which is 
  not excludable from his gross income under any other provision of chapter 1 of 
  the Code...a scholarship which is excludable from a recipients gross income 
  under section 117, and a prize or award which is excludable from a recipients 
  gross income under section 74(b), are not subject to the provisions of this 
  section. [Carolyns note - prizes we give for winners of tourneys and the like 
  are not excludable under section 74(b) or any other part of section 74.]
  (c)  Expense for a gift.  For purposes of this section, the term expense for a 
  gift means the cost of the gift to the taxpayer, other than incidental costs 
  such as for customary engraving on jewelry, or for packaging, insurance, and 
  mailing or other delivery.  A related cost will be considered incidental only 
  if it does not add substantial value to the gift.
  (e)  Gifts made indirectly to an individual-- (1) Gift to spouse or member of 
  family.  If a taxpayer makes a gift to the wife of a man who has a business 
  connection with the taxpayer, the gift generally will be considered as made 
  indirectly to the husband...
  Note:  For purposes of reading this law, taxpayer refers to the donor, in this 
  case the SCA, Inc.  If it makes it easier to understand, substitute SCA where 
  you see the word taxpayer and maybe King where you see the word recipient or 
  Tax laws in the United States do not allow a deduction for money spent on gifts 
  given to other person except under the limited deduction outlined in the law 
  above.  In order to be deductible at all, the taxpayer making the deduction 
  must be in business (which we are) and there must be a business reason behind 
  the gift.  It would be difficult for the SCA to prove a business reason for 
  gifts made between members of the SCA as currently practiced across the Known 
  World.  If no business reason exists, no deduction is allowed.
  Furthermore, even if a business reason was established the $25 limit would 
  impose a serious bookkeeping problem on us.  Keep in mind that this is a $25 
  limit per person, per year.  Husbands and wives will be treated as one person 
  in some cases.  For example, the King and Queen of  the Kingdom of Podunk are 
  mundanely married.  At their Coronation, they receive gifts from 15 groups 
  within the kingdom, each of whom spent $50 on the gifts from their SCA 
  account.  During the rest of Their reign they attend 30 events, and receive one 
  gift at each of these events worth approximately the same ($50/event).  They 
  also attend the Pennsic War where they not only give gifts to the other Crowned 
  heads, but also receive gifts valued at $100/gift from 10 other kingdoms.  Th
  erefore, the SCA has expensed during the Reign (under old practice) a total of 
  $3250.  We are limited by Section 274 to deducting on our return $25 of this - 
  the other $3225 is not deductible.  If the King and Queen were not married, we 
  could deduct $50 and $3200 would not be deductible.  Multiply this example by 
  13 kingdoms (which isnt totally unreasonable and doesnt even include stepping 
  down gifts)  and the SCA has spent $42,250 in one year on gifts, where we can 
  legally deduct a maximum of $650 (assuming none of the Royalty are married to 
  each other).
  Q1.  Does this mean that all gift presentations in the SCA must stop?
  A.  No.  However no funds of the SCA, Inc. can be used to purchase gifts, or to 
  reimburse any individual purchasing a gift on behalf of the SCA branch.  For 
  example, if the branch wishes to give a gift, you may do so by passing the hat 
  among the members of the branch.  Member X can then buy the gift.  The money 
  must not be deposited into the branch account - it should be given directly to 
  Member X, so be careful who you choose for this type of transaction.  The SCA 
  will not reimburse you if Member X runs off with the cash.  Also, the money 
  pitched in by the branch members is not a donation to the SCA.
  You may also ask the members of the branch to contribute items that are then 
  presented as gifts - many groups already do gifts this way.  This is fine as 
  long as you are not recording donation income for these items, and then 
  deducting the same value as the cost of the gift.
  It is important that gifts stay on a person-to-person basis, and not involve 
  the SCA branchs funds.
  Q2.  Our kingdom law  states the kingdom will reimburse the Crown $250 per 
  reign for gifts.  We havent paid this money to our current Crown - should we? 
  A.  No.  Such a law puts us in danger of violating IRS law, and the Board has 
  declared these laws null and void as of July 20, 1996.  Any request for such 
  reimbursement from the Crown to the Kingdom Exchequer must be rejected by the 
  Q3.  How will this effect the travel funds?  Are branches prohibited from 
  giving money to the  travel funds?
  A.  This does not effect the travel funds as they are used for reimbursement of 
  legitimate expenses of performing ones duties.  If a branch wishes to transfer 
  funds to the kingdom travel funds they may do so in any amount they wish.  This 
  is considered a transfer of funds, not a gift to an individual even if only one 
  person ends up using the money.  The reimbursement of the Crown (or anyone) for 
  travel upon presentation of valid receipts, of course, is a reimbursement of 
  travel incurred while carrying out the duties of their office.  Similarly, 
  reimbursements to any individual for telephone calls, postage, etc. are not 
  impacted by this rule.
  Q4.  What about gifts of Regalia?
  A.  Regalia is not affected.  Regalia is defined as property of the kingdom 
  used as a decoration or in ceremonies.  Usually, regalia has some emblem of the 
  kingdom on it, not anyones personal arms.  Descending royalty do not keep 
  regalia when they step down, it goes to the next set of royalty for their use 
  while they are sitting the throne.  A gift of Regalia from a branch is a 
  transfer of assets from one branch to another (for example, from a brony to the 
  kingdom).  Under current policy, we only report on the tax forms regalia with a 
  documentable value of $500 or more, but we still must keep track of all regalia 
  regardless of value.  Regalia with a value under $500 should be expensed when 
  Q5.  What about Royalty Discretionary Funds? [Note - these may be called 
  something else in your kingdom - it is essentially money donated to the Crown 
  from the branches or the Kingdom which is then used to reimburse the Crown for 
  expenses of various types such as telephone bills or other items not 
  specifically provided for by kingdom law or policy]
  A.  Royal Discretionary Funds are not affected but the Royals may not use such 
  funds to reimburse themselves for gifts purchased.  The same limitation applies 
  since these funds are kept in the Kingdom account, generally, and paid out on 
  presentation of receipts.
  Q6.  Our branch is not in the United States - are we subject to this rule?
  A.  Yes.  While the Board recognizes that the international groups are not 
  subject to US tax law, we want to keep everyone on an equal footing for this 
  rule.  It would not be fair to a shire in Washington state to have to pass the 
  hat for funds for a gift to the incoming Crown, where a shire in Alberta can 
  spend group funds on a similar gift (or a fancier one).  Therefore we are 
  making this an SCA-wide rule.  This also makes it easier for the Seneschal and 
  Exchequer to enforce.
  International groups are encouraged, however, to find out what your local law 
  is on this matter.  Please check with your own government as to whether gifts 
  are deductible at all, or in part, under your local tax laws.  This is 
  particularly important for international groups that are separately reporting 
  to their own governments.
  Q7.  We just paid for a gift to be given at the next Coronation.  Should we 
  return it or what?
  A.  No, you do not need to return it.  Just dont do it again in the future.  
  Gifts that have already been bought or reimbursed are over and done with - do 
  not go hunting down the person who bought it and was reimbursed, looking for 
  your money back.  While it is clear that we have violated this rule in the 
  past, we can not make it retroactive.
  Q8.  Would separately incorporating the kingdoms get rid of this problem?
  A.  No, it would just spread it out among 13 tax exempt organizations instead 
  of one.  Current within the SCA would result in separately incorporated 
  kingdoms violating the rule within their own kingdom, if traditions continue as 
  they have been practiced in the past.  Keep in mind that the $25 amount is an 
  allowance made in tax law.  If Section 274 didnt exist, gifts would not be 
  deductible in any amount.  It does not mean that if the section didnt exist you 
  could deduct all you want.
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