Posted December 11th, 2017

Let’s Look at Some Key IRS Rulings, Part 3

Read Part 1 here.

Read Part 2 here.

So far, we’ve seen that a buyer-in-the-wings isn’t per se risky for the donor. More precisely, we’ve seen that as long as the donor hasn’t had dealings with a third party that allow the third party, on the date of gift, to compel the donee organization to sell the donated asset, everything’s OK.

But that’s not the end of the story. We’ve got to look at two federal appeals court decisions to round out the big picture.

The first is the Blake case, a Second Circuit decision. On the surface, Blake seems unrelated to the buyer-in-the-wings discussion. But upon digging, one finds that Blake stands for this principle:

If Donor gives closely held stock to Charity, and everyone anticipates Charity will sell the stock back to Donor’s corporation, and Charity provides goods or services (such as a gift annuity) to Donor in exchange for the gift, Donor is going to be considered as selling the stock when Charity sells the stock. And that will stick Donor with a taxable gain.

Blake is a narrow decision. The second case we need to consider has a much broader scope. It’s the Ferguson case, a Ninth Circuit decision.

The Fergusons gave stock to Charity. The stock was in a corporation subject to a cash takeover bid. On the date of the gift, the takeover was not a done deal legally. But the Court found the deal was done for all practical purposes. Moreover, a few days after the gift was made, the deal became done legally. The principle of the Ferguson case is this:

If stock in a corporation subject to a cash takeover bid is given to charity, the donor will face gain on the takeover if at the time the gift is made the “realities” are that the takeover is a done deal.

Stay tuned.

By Jon Tidd, Esq


Read Part 4 here. 

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