The IRS has issued an important and taxpayer favorable ruling in the charitable giving area. In PLR 200821024, the taxpayer made a gift of stock to a donor advised fund. A donor advised fund is a public charity in which the gift of each donor is segregated into a separate account. The donor or his designee is permitted to serve as an advisor regarding the investment and/or distribution of the account.
The donor made a gift of shares of a closely held company of which he was a member of the board of directors. There was no binding obligation in place to sell the shares at the time of the gift. However, it was the policy of the fund to sell shares of closely held corporations, and the fund solicited names of possible buyers from its donors.
The IRS ruled that a subsequent sale of the shares by the fund would not be attributed back to the donor. This means that the donor was able to deduct the fair market value of the donated shares without having to recognize the tax gain inherent in the shares.
This issue comes up frequently in a similar context when someone is planning to sell his company but would like to transfer the shares to a charitable remainder trust prior to their sale, in order to defer his taxable gain. The dilemma is that the taxpayer does not want to transfer the shares to the trust unless he knows they are going to be sold, but if he waits until a contract or letter of intent has been signed, he risks the IRS attributing the gain back to him. This ruling confirms that the taxpayer should be in good shape if he makes the transfer before a binding obligation to sell arises.