The outpouring of concern and cash following the devastating tsunamis in Asia have, inevitably, spawned a smaller wave of questions regarding charitable giving and taxes.

First, the good news. A bill zoomed through Congress last month giving special tax treatment for contributions made to tsunami relief during January, 2005. Taxpayers may deduct those contributions on their 2004 income tax returns, thereby getting the tax benefit of making those contributions a year sooner. The earlier recognition is not mandatory. You can wait and claim the deduction for 2005 as you normally would. That is the wiser course if your income will increase enough in 2005 to put you into a higher tax bracket, or if you do not itemize deductions in 2004 but expect to in 2005.

This sort of acceleration has commonly been offered to taxpayers suffering casualty losses from domestic disasters (floods, hurricanes, tornadoes and so on), but is unprecedented for charitable contributions so far as I know. The Internal Revenue Service has neither offered specific guidelines nor said they intend to, so it is anybody's guess as to what will be sufficient evidence that a particular contribution was made for tsunami relief.

The Mystery Donor

A client of mine asked me if he could make an anonymous contribution for the relief effort. A really, really anonymous one. He did not specify how much he had in mind, but clearly he was not talking about the odd change you drop in the canister next to the cash register at the 7-Eleven. His stated concern was that, if he gives to one charity, he will be bombarded with requests for money from other charities in the same field. Thinking of the way arts organizations carefully build relationships with individual givers, I thought this odd.

A little research proved me wrong. It turns out that there are many people out there who will give $25 or so to almost any organization that asks, but can be worked up to a higher level of giving. Organizations that depend on broad, mass mailings to small donors apparently often swap lists of small donors with others in the same field, so that each winds up with more money than they would get by trying to get more from their own supporters. Cynically, one might suggest that giving bigger contributions reduces the likelihood of your name being passed around.

My client had, I think, another reason for wanting to give anonymously. He has never claimed a tax deduction for charitable contributions, even though I know he has regularly made them. One of the few things I learned in my paltry religious education came from the 12th-century Jewish sage, Moses Maimonides, who set out eight degrees of charity. The next-to-highest degree of charity is that which is totally anonymous, for it neither glorifies the giver nor shames the recipient.

Sadly, that is not really possible in today's world. American taxpayers must have a receipt from the charity for contributions of $250 or more in order to claim a tax deduction for the contribution, and that receipt must meet certain requirements including a statement to the effect that no goods or services were provided in exchange for the contribution. A cancelled check—even to the American Red Cross Tsunami Relief Fund—is not sufficient.

Worse, many organizations would be afraid to accept a truly anonymous contribution of any substance, fearful that they would somehow wind up being accused of money laundering or supporting terrorism. (If you are on the board of a non-profit theatre, consider putting "who won't we accept contributions from" on the agenda for your next board retreat.)

Keeping Secrets

In theory, my client's concern is a bit overblown because charities are subject to the Gramm-Leach-Bliley Act. You may not know the act by name, but you know it by its effect. Remember those pieces of paper that flutter out of your bank statement or credit card bill once a year telling you about the sender's privacy policies? The policies you never read? Those are required by the act. Its reach is broad, and includes any entity which has personally identifiable financial information about someone. That includes me as an income tax return preparer, and every donation-receiving nonprofit organization in the United States.

Those policies must set forth under what circumstances information will be shared outside the organization, and with whom. Any group with a policy that can't be paraphrased as "we don't share information unless compelled by law" must provide the opportunity for the person whose information is involved—the donor, in this case—to opt out of any disclosure.

In theory, then, my client could make a contribution and ask in writing that it be treated as entirely anonymous, and that would be perfectly respected.

In practice, I'm not so sure. Many organizations accepting contributions over the Internet make the "opt-out" boxes awfully hard to find. Then again, others proudly announce that they never share information.

Also, may I see a show of hands among my readers: how many of you are involved in small, nonprofit theatres that actually have written policies on this? And how many of you have gossiped about contributions that were supposed to be anonymous, but really were from x? You should all feel like criminals because, technically, you are.

Please Give, Anyway

Ultimately, if you don't trust a particular charity to respect your request for anonymity, you probably shouldn't trust them to use the gift properly. Find one you can trust, and give to them.

The Red Cross and Unicef will soon move on to another emergency, because crises are their missions. But experts say the areas affected by the tsunami will need a decade to rebuild infrastructure—clean water, health care, roads, schools, communication—that was poor to begin with. Other organizations (such as Oxfam America, Doctors without Borders and Save the Children Federation) were engaged in infrastructure projects there long before the tsunami, and will be long after. They support Maimonides' highest order of charity: that which makes a poor person self-sufficient.

Free for the Asking

My "Checklist of Potentially Deductible Items" for those in the arts can help you make sense of your professional and business deductions. Just write, phone or e-mail me, and I'll send you one.

Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.

Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also has been known to produce theatre.

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