Awarding Charity

Clients sometimes receive monetary awards that they do not need and would like to direct to a favorite charity.  Prior to 1986, prizes given in recognition of religious, charitable, scientific, educational, artistic, literary and civic accomplishments, without any action on the part of the recipient and without a requirement of future services were tax free.  Now, such prizes are subject to income tax.  However, if the recipient designates a charitable organization to receive the prize, Code §74(b) permits the recipient to remove the value from gross income.  No charitable deduction is allowed.  The prize must be transferred from the awarding entity directly to the designated charity and the designation must be made before the prize is presented to the recipient [Rev. Proc. 87-54].


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