Our Calculations - Whitepaper

Before releasing our calculations, we thoroughly test our software to ensure accurate results. In addition to testing the resulting "charitable deduction," we also test the base formulas from which the IRS generates their lookup tables (see Publications 1457 and 1458). To do this, we created an automated testing framework that runs millions of tests. The result is that our base formulas agree with all but 3 numbers in the IRS tables. In those 3 cases, we discovered that the IRS had rounded incorrectly and published the wrong numbers. We have notified the Service of these errors, but do not know what action they will take.

After confirming that our base formulas are correct, we tested the actual calculations such as the CRUT and CRAT. To verify our results, we compared our numbers against those produced by several other leading software calculation programs. We discovered that even among these commonly-used calculators, there are discrepancies. For instance, using the software from Company A, a CRUT with a gift of $100,000 produces a charitable deduction of $11,078. However, a CRUT with the same parameters calculated using the software from Company B would dictate a charitable deduction of $11,063. In all cases, the disagreements are within a 0.01% margin of error. The charitable deductions produced from our calculations also fall within this margin of error, but we believe ours to be more accurate.

Why is there disagreement? First, oftentimes the difference is due to rounding. Some software companies round numbers during calculations, some do not round until the end. We follow the IRS specifications as closely as possible. Where this is not possible, we err on the conservative side.

Second, at times the other software programs fail to account for the frequency or number of payouts (e.g., with Term and Life Factors), or fail to adjust properly when there is a deferral of the payout for one or more years.

Third, some software programs fail to properly apply Reg. Sec. 25.7520-3(b)(2)(v) Ex. 5 to a CLAT or CRAT computation.

We have addressed these and other discrepancies with our actuary, who is an expert in this area. We are comfortable that his (and thus our) computations are as accurate as possible, given a paucity of IRS guidance in this area.

As amounts become larger, mistakes can become costly. We encourage you to work with an actuary to ensure your calculations are correct, especially when you are working with values in the millions. We would encourage you to contact us at support@charitableplanning.com if you have questions or need a calculation that is not available on our site.