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Author Topic: Make loans tax deductible  (Read 17132 times)
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AccountAbility
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« Reply To This #20 on: November 21, 2007, 02:52:31 PM »

...The tax deductible question for the IRS (in the US) would be, "Does a foundation set up solely to subsidize overseas MFIs through interest free loans constitute a legitimate charitable interest?"  Since deductions are harder to come by for "foreign" entities, and not all of Kiva's MFIs are themselves non-profit, this will take some expert in this area to interpret.  But it is worth a try.
Dan

It's good that you are thinking creative ideas, Merm, but there lacks a basis yet for the tax deduction.  Simply giving money away is not a tax deduction, only if it is to a charitable enterprise which meets IRS guidelines.

Dan
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merm
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« Reply To This #21 on: November 21, 2007, 03:18:59 PM »

Simply giving money away is not a tax deduction, only if it is to a charitable enterprise which meets IRS guidelines.

Perhaps this is a good question to pose to someone familiar with Agents of Change, since their model from first appearance seems they are doing exactly what I'm suggesting - except that the funds are pooled. ( could be wrong on that assessment).

There are also numerous other micro-finance non-profits that (in my non-expert and largely uninformed view) seem to be set up for the sole purpose of providing interest-free loans. Is it the fact that the funds are "pooled" that make micro-finance ok? There may be some legal nuance I'm missing.

I certainly wouldn't argue though that donating money to something like a Kiva Foundation was "simply giving money away". I probably wouldn't be interested in setting up such a charity if this was the case. Smiley
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AccountAbility
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« Reply To This #22 on: November 22, 2007, 01:34:12 AM »

I certainly wouldn't argue though that donating money to something like a Kiva Foundation was "simply giving money away". I probably wouldn't be interested in setting up such a charity if this was the case. Smiley

Maybe I wasn't expressing myself very clearly.  What I meant was that the tax deduction does not derive from the giving but in the charitable nature of the recipient. So the issue is how an entity can qualify as a charity for IRS purposes while merely lending to out of country borrowers, however well deserving they may be.  I'm not saying it can't be done, just trying to frame the issue which has to be overcome.

Dan
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Peter S
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« Reply To This #23 on: November 22, 2007, 02:12:53 AM »

... So the issue is how an entity can qualify as a charity for IRS purposes while merely lending to out of country borrowers, however well deserving they may be.  I'm not saying it can't be done, just trying to frame the issue which has to be overcome.
Dan

I was going to say something like, isn't "lending to out of country borrowers" essentially what Kiva facilitates, and then realized the subtle difference between that and what a Kiva foundation would do, i.e. actually lending instead of facilitating.   I'm not sure the "out of country" thing is a big problem - there are plenty of qualifying charities in the USA and indeed in all parts of the developed world with a broadly "development" purpose, where the tax-break attracting "public good" they serve isn't domestic.  As for "merely lending", there is a quantifiable gift involved, the free use of money which would otherwise attract x% interest, as well as the mathematical certainty (on a very large loan portfolio) of capital loss at whatever percentage rate per year.

It would be good if this Kiva Foundation thing could fly one day.   For one thing, it could easily provide a formal channel for receiving the portfolios of Kiva lenders who have reached the natural end of their own loan term, and would like their money to keep on making a difference when their term has expired...
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Agent001
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« Reply To This #24 on: December 08, 2007, 12:04:14 PM »

Hmm, someone from Agents of Change you say...

I've only had a couple of minutes to scroll through this thread but a couple of things (which may have been stated already).

1) Kiva has the capability of creating locked non-withdrawable accounts and issuing tax receipts to US citizens for money placed in these accounts. It is technically a donation to Kiva and they "own" the money, but as we understand it, the donor/lender controls the account as they would any other account (some of our accounts will be set up this way), its just non-withdrawable. This status has to be designated when the account is set up, and looking through it now there doesn't seem to be an option so Kiva may need to do it internally....not exactly streamlined. It IS possible though, Kiva just isn't built for it in a meaningful way.

2) Agents of Change is a couple of things, one of them is Canadian, so no receipts for Americans (yet!). The other is an organization dedicated to far more than simply creating the lending fund and this is what has allowed us to pursure charitable registration and to issue tax receipts at this time. Our Kiva funds are controlled by youth, as a tool for education and learning about the impact young people can have. The funds are created through other leadership and awareness programs (found on the website - www.agentsofchange.ca).

Shawn Smith
Agents of Change
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cpbailey
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« Reply To This #25 on: December 08, 2007, 12:21:28 PM »

There is a difference between a loan and a donation to Kiva.  The donations (recommended at 10%) ARE tax deductable as law allows for any charitable donation.  Loans there is an expectation to get it back.  If you do, you are back where you were; no interest means you don't pay taxes on interest.  If you don't get the loan back, then it is a loss and is a tax consideration under bed debt or something.  (If I lost a small amount of money, I would probably not bother to figure this one out anyway!)

Agents of Change, if it were a U.S. deemed 501c3 designation, is donating the money to a non-profit which then has control over the money.  You have given it to a cause which happens to make perpetual loans thru Kiva.

Setting up an account for foundations through Kiva might work some day.

Colette
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Kay
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« Reply To This #26 on: December 08, 2007, 01:11:14 PM »

If you don't get the loan back, then it is a loss and is a tax consideration under bed debt or something.  (If I lost a small amount of money, I would probably not bother to figure this one out anyway!)

If a loan were to default, I believe you could consider it a capital loss--to offset any capital gain you might have in the same tax year (in the U.S., anyway).
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AccountAbility
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« Reply To This #27 on: December 08, 2007, 03:10:16 PM »

... As for "merely lending", there is a quantifiable gift involved, the free use of money which would otherwise attract x% interest, as well as the mathematical certainty (on a very large loan portfolio) of capital loss at whatever percentage rate per year.

While that may be perceived as an emotional donation, the IRS (in the US) has never considered "opportunity loss" a tax deductible donation.  Probably on the theory you would have to declare the income lost first as income before you could take a deduction for giving it away.  Essentially a wash.

To be truly efficient in allowing donors to direct their donated loan portfolios, Kiva has to be directly involved so that the accounts are set up appropriately.  On another thread there has been a discussion of sub-accounts to give to children etc, which would get credit infusions from outside and would not allow withdrawals.  Mechanically these would operate the same as donor directed charitable accounts, so now we have two constituencies who can request this modification from Kiva.

However, since it takes resources and a commitment of manpower to set up this charitable purpose entity, I think it will need to be someone or something other than Kiva to take the lead here.  They just have too much on their plate right now.  And it least for now they are getting about the same benefit with the way things are right now.

Dan
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