IRC §170(a) allows a deduction for any charitable contribution made during the taxable year. IRC §170(c) defines a charitable contribution to include a contribution or a gift to or for the use of qualified entities. A contribution is not deductible unless it constitutes a completed gift. The donor must do everything reasonably permitted by the nature of the property and the circumstances of the transaction in parting with all incidents of ownership. A donor must completely relinquish all “dominion and control” over the contributed property, and the donee may not retain any right to direct the disposition or manner of enjoyment of the property. Applicable regulations provide that no deduction is allow for a charitable contribution where the transfer is subject to a condition or power that on the date of the gift is not “so remote so as to be negligible”.
In the case of George Fakiris v. Commissioner, T.C. Memo 2016-126, a taxpayer made a bargain sale to a charity. A taxpayer who sells property for less than the property’s fair market value (i.e., a bargain sale) to a charity is generally entitled to a charitable contribution equal to the difference between the fair market value of the property and the amount realized from the sale. The applicable documents contained a restriction prohibiting the sale or transfer of the property during the first five years with a carveout to permit a conveyance to another charitable entity specifically designated. The Tax Court viewed the restriction as both a restriction on transfers for five years and a right to direct the transfer to a second charity for five years.
The Tax Court held that the gift via a bargain sale to the charity was conditional and because the possibility that the condition would not be satisfied was not negligible, no gift was made and, therefore, no charitable deduction was available.
If you expect to claim a charitable deduction for a gift of property to a charity, you must be prepared to give the property to the charity free of any significant restrictions. A gift with significant restrictions may cause the charitable deduction to be disallowed because you have retained dominion and control.