Louis E. Michelson, A Professional Corporation

Donors face a very basic tax question when donating non-publicly traded securities to charity.  Which recipient generates a “better” tax deduction:   a private nonoperating charitable foundation or a public charity?   A public charity would include, for example a church or synagogue.

Assume that the security is not held as inventory in the hands of a dealer.  Generally stocks, bonds and other corporate obligations are capital assets, and if held more than one year will produce long-term capital gain.

If the recipient charity is a private nonoperating charitable foundation, the charitable deduction is reduced by any long-term capital gain which included in the property’s value.  Generally, the deduction is limited to donor’s tax basis in the security.  Internal Revenue Code Section 170(e)(1)(B)(ii) is the Section of the Internal Revenue Code that requires this reduction.

If the recipient is a public charity, a charitable deduction is generally allowable for the fair market value of the property.  There is no reduction for long-term capital gain.  The contribution does not give rise to a taxable gain on the appreciation.

Forbes has reported the tax woes of a billionaire hedge fund manager whose tax advisors were unaware of the law that provides for the reduced tax deduction for contributions of non-publicly traded securities to own’s own private nonoperating foundation.  Donor should be aware of this deduction limitation in planning their

donations.

Donors face a very basic tax question when donating non-publicly traded securities to charity.  Which recipient generates a “better” tax deduction:   a private nonoperating charitable foundation or a public charity?   A public charity would include, for example a church or synagogue.

.

Assume that the security is not held as inventory in the hands of a dealer.  Generally stocks, bonds and other corporate obligations are capital assets, and if held more than one year will produce long-term capital gain.

.

If the recipient charity is a private nonoperating charitable foundation, the charitable deduction is reduced by any long-term capital gain which included in the property’s value.  Generally, the deduction is limited to donor’s tax basis in the security.  Internal Revenue Code Section 170(e)(1)(B)(ii) is the Section of the Internal Revenue Code that requires this reduction.

.

If the recipient is a public charity, a charitable deduction is generally allowable for the fair market value of the property.  There is no reduction for long-term capital gain.  The contribution does not give rise to a taxable gain on the appreciation.

.

Forbes reported the tax woes of a billionaire hedge fund manager where reportedly he was not made aware of the reduced tax deduction for contributions of non-publicly traded securities to own’s own private nonoperating foundation.  Donors should be aware of this deduction limitation in planning their donations.