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Posted December 4th, 2017

Let’s Look at Some Key IRS Rulings, Part 2

Last time, we looked at Rev. Rul. 78-197, which sets the modern stage for all buyer-in-the-wings discussions. The ruling deals with closely held stock given to charity and focuses on the charity: Is the charity free to sell the stock, or can it be compelled to sell the stock?

Subsequent private rulings and court decisions have put a sharper point on the ruling. This has been done by extending the application of the ruling to other kinds of gift situations and other kinds of assets. Here is a sampling of those rulings and cases:

  • Donor proposes to give real estate to charity over several years by donating fractional interests in the real estate annually. Charity, on its own, agrees with Buyer that Buyer will purchase each donated fractional interest. Charity gets Donor to sign an enforceable pledge agreement to make the donations. A court, relying on Rev. Rul. 78-197, says “no problem.”
  • Donor transfers a valuable musical instrument and some marketable stock to a charitable remainder annuity trust. All parties anticipate that the trustee of the CRAT will sell the musical instrument (to an orchestra), but the trustee will be free to sell or not sell. IRS rules privately, “no problem.”
  • Donor proposes giving stock to Charity. Third party has an option to buy the stock upon giving 30 days’ notice to the owner of the stock. Donor represents to IRS that no such notice will have been given when the gift is made. IRS rules, “no problem.”

There are some important limits on the reach of Rev. Rul. 78-197. We’ll begin to look at these limits next time. Click here to read part 3.

By Jon Tidd, Esq

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