Question

Muhammad, your client, comes to your office. He is from Pakistan and is an avid cricket player. His annual salary and bonus/incentive compensation income, earned as the president of an engineering firm in Virginia, is usually $2 million. He is in the top tax bracket. Muhammad would like to donate $1 million to the Pakistani Cricket Foundation in Islamabad (the foundation is not a U.S. registered charity) to support cricket in his homeland. He assumes he will get an income tax deduction for this.

1. Will Muhammad likely get an income tax deduction for his planned $1 million donation? Why or why not?
2. Should you try to persuade Muhammad to be more patient and make the donation in his will? Why or why not?

Answer 1

It is given that Muhammad annual income is $ 2 millions. He wants to donate $ 1 million to the Pakistani Cricket Foundation to support cricket.

1. Muhammad believes that donating the amount will help him getting a income tax deduction, but he is not eligible for the tax deduction even if he donates. This is because income tax is deducted only if one donates to a US qualified charitable organization that is a 501(c) 3 type of organizations for any federal tax purposes. The Pakistani Cricket Foundation is not a US qualified charitable organization.

2. Yes, I would persuade Muhammad to be more patient and continue to make donations on his will to some conservation organizations as well. This will help the organization to spend the fund on some useful activities and can also get some tax benefits for the taxa purposes under section 170(h) and 2013(c).