Obtaining an appraisal for a gift to charity might seem like a nuisance, but clients who fail to follow the requirements could find their deductions denied or severely reduced. In general, an independent appraisal is needed for any noncash gift in excess of $5,000 ($10,000 in the case of closely held stock) [Code Sec. 170(f)(11)(C)]. No appraisal is needed for gifts of publicly traded securities, defined as securities for which market quotations are readily available on an established securities market [Code Sec. 6050L(a)(2)(B)], or for most vehicle donations, which are subject to separate rules [Code Sec. 170(f)(12)(A)(i)].

The appraiser cannot be the donor, a party to the transaction, the charity or anyone related to or employed by the donor or charity [Reg. Sec. 1.170A-13(c)(5)(iv)]. The appraiser’s fee cannot be based on a percentage of the appraised value [Reg. Sec. 1.170A-13(c)(6)].

Prior to the Tax Cuts and Jobs Act of 2017, donors were entitled to deduct the cost of the appraisal as a miscellaneous itemized deduction, subject to a 2%-of-AGI threshold.

Donors are often advised to make their charitable gifts using shares of long-term appreciated stock, rather than cash. The donor receives a deduction for the full fair market value of the shares on the date of the gift, plus avoids the capital gains tax that would be due if the shares were sold. But what happens when cash dividends are announced? It depends on the timing of the gift.

For example, a company announces on December 1 that a cash dividend will be paid to all shareholders of record on December 5. The payable date of the dividend is December 19.

• If the gift is completed between December 1 and December 5, the market price will already be increased because the shares are considered “pregnant” with a dividend. Charity will receive the dividend [Reg. Sec. 1.61-9(c)].
• If the gift is completed after December 5, the donor will receive the dividend check, although he or she no longer owns the shares on December 19. The selling price of the shares on the date of the gift will reflect that the shares are selling without the dividend.

Private, or family, foundations are charitable organizations set up by individuals or firms that are managed or strongly influenced by the donors who established them or by members of their families.

Asset size may range from around $250,000 to hundreds of millions of dollars. There are several advantages ascribed to private foundations:

Control—A private foundation offers donors the ability to custom-design a program of giving. Family foundations can provide continuity of giving after death and multigenerational involvement. Donors also can continue to control the management and investment of assets contributed to their foundations and provide a role for children and grandchildren within the foundation.

Personal fulfillment—Maintaining a family foundation can commemorate and memorialize a family’s commitment to the community, important causes and institutions.

Continuity—Establishing a foundation enables individuals to carry on giving programs in perpetuity, or at least for several generations.

The charitable deduction for a private foundation created during the donor’s lifetime is limited to 30% of the donor’s adjusted gross income for gifts of cash or ordinary income property and 20% for gifts of capital gain property. Private foundations established by will are not subject to any estate or gift tax charitable deduction limits, so the full fair market value of appreciated property is deductible.

Clients without the funds to establish a private or family foundation might find donor advised funds attractive, although gifts to donor advised funds become the property of the organization sponsoring the fund. Donors and family members are allowed to request that gifts be made from the advised fund to a public charity, but the ultimate decision is made by the fund sponsor.

Clients who own closely held corporations have the option of making gifts from their personal assets or having their businesses make the gifts. Gifts from the company can save corporate income taxes and create good will that helps business. An owner can get the best of both worlds by giving charity stock in the company, taking the deduction as an individual and having the corporation “pay” for the gift by redeeming the stock from the charity.

Corporate gifts

• C corporations can claim income tax deductions for up to 10% of taxable income, with a five-year carryover [Code Sec. 170(d)(2)(A)]. S corporations are not allowed charitable deductions. Instead, deductions are passed through to the shareholders according to their respective ownership interests [Code Sec. 1366(d)(1)].
• Corporations can be grantors and/or beneficiaries of charitable remainder trusts.

Shareholder gifts

• A majority shareholder of a closely held corporation typically has a low basis in the shares. Selling the stock triggers capital gains tax. However, a charitable contribution of the shares does not cause the realization of capital gain and the donor can claim the fair market value of the shares on the date of the gift as a charitable deduction. All parties expect that the corporation will redeem the shares and retire the stock. The donor will not be considered to have received a dividend, even though he or she receives a substantial benefit from the corporation, so long as charity is not required to turn back the shares of stock to the corporation (Rev. Rul. 78-197).
• Instead of an outright gift, donors can transfer stock to a charitable remainder trust, avoid capital gains tax, deduct the remainder interest and receive payments for life. Any self-dealing concern can be avoided if fair market value is paid for the stock and the corporation offers to redeem all other shares at the same price offered to the trustee [Reg. Sec. 4941(d)-3(d)(1)].
• Gifts of stock in a person’s corporation might be especially attractive prior to a sale or liquidation of a company. Donors can increase deductions and avoid capital gains taxes when they contribute stock to charity.