In order to donate appreciated stock to a private foundation and receive an income tax deduction for the full fair market value of the stock, market quotations for the stock must be readily available on an established securities market. This includes the NYSE and the NASDAQ, but what about the over-the-counter markets? Do shares traded on such markets qualify? In PLR 200702031, the IRS explained the requirements. It found that the Over-the-Counter Bulletin Board (“OTCBB”), established by the SEC in 1990 pursuant to the Penny Stock Reform Act of 1990, is in fact “an established securities market.” Unfortunately, the IRS added another requirement, which it pulled out of other parts of the Treasury Regulations dealing with charitable contributions. That is, the stock must also be “regularly traded” on the established securities market. Based upon trading volume information supplied by the taxpayer, the IRS also ruled that the particular stock was “readily traded.” Unfortunately, the trading volume information was redacted when the ruling was made public, so the ruling does not provide helpful guidance to other taxpayers.
If you contemplate donating OTCBB shares to a private foundation, the safest course is to obtain your own private letter ruling from the IRS with respect to the specific stock you plan to donate. Also, keep in mind that if there are other restrictions, such as securities law restrictions, a fair market value deduction will generally not be available.