In a latest non-public letter ruling, (PLR 201848005, launched Nov. 30, 2018), donors deliberate to contribute company inventory usually traded on a nationwide securities trade to their non-public basis (PF). They represented to the Inside Income Service that: the inventory was exempt from Securities and Alternate Fee Rule 144 and different SEC guidelines that will have an effect on marketability; they usually wouldn’t take any motion that will be topic to insider-trading guidelines.
Normal Guidelines
Earlier than we get to the IRS’ resolution on the PLR, lets’ evaluate some normal guidelines for presents to PFs (aside from non-public working foundations (POFs)).
Earnings tax advantages for presents to PFs are typically much less favorable than these for presents to public charities. Lengthy-term appreciated securities, actual property, and tangible private property are deductible at value foundation solely below Inside Income Code Part 170(e)(1)(B)(ii). Presents of long-term appreciated securities, actual property and related-use tangible private property to public charities are deductible at truthful market worth (FMV).
Particular rule for pass-through foundations. A deduction for full FMV is allowed when the PF (inside two and a half months following the yr of receipt) offers an quantity equal to all presents described within the previous paragraph to church buildings, faculties, hospitals, public charities or POFs. IRC Part 170(b)(1)(D); Part 170(e)(1)(B)(ii); Treasury Rules Part 1.170A-9(h)(2)(iv). Be aware. Except tangible private property is for a “associated: use, the deduction is restricted to value foundation.
Particular rule for sure presents of publicly traded securities (certified appreciated inventory). A full FMV deduction is allowed for presents of long-term qualifying publicly traded inventory. What’s certified appreciated inventory? Listed securities, after all. The IRS’ definition additionally contains mutual fund shares if quotations are revealed every day in available newspapers. Treas. Regs. Section1.170A-13(c)(7)(xi)(A)(three). It additionally contains securities traded on a nationwide or regional over-the-counter market. Treas. Regs. Section1.170A-13(c)(7)(xi)(A)(2); PLR 9623018 (March 5, 1996). Presents of inventory topic to SEC Rule 144 restrictions, together with quantity and resale limitations, might not qualify for FMV deductibility. PLR 9746050 (Aug. 15, 1997). The contributed inventory can’t be greater than 10 % of the company’s excellent inventory taking into consideration the present reward and earlier presents by the donor and members of the family.
Carryovers for presents qualifying for FMV deductibility. Extra presents to PFs could also be carried over till exhausted below the relevant deductibility ceiling for as much as 5 years. IRC Part170(b)(1)(B).
Peculiar earnings property presents. As with public charities, presents of ordinary-income and short-term property to PFs yield a deduction for value foundation or FMV, whichever is decrease. Part170(e)(1)(A).
Ceilings on deductibility for presents to PFs. Money and peculiar earnings property are deductible as much as 30 % of adjusted gross earnings (AGI).
Presents of long-term appreciated property to PFs— together with these deductible at FMV below the marketable-securities rule. Deductible as much as 20 % of AGI. Part 170(b)(1)(D).
Carryover. A 5-year carryover is allowed for all extra presents to PFs. Part 170(b)(1)(B). Be aware. PLR 8824039 (March 21, 1988) (involving a charitable lead belief) advised that the IRS doesn’t enable a 5-year carryover when an extra reward is “for using” a PF.
Again to the PLR
Right here’s the IRS’ evaluation:
Underneath Part 170(e)(5)(B), the contributed shares are inventory for which, as of the contribution date, market quotations are available on a longtime securities market.
The donors represented that the contributed shares always have been held for a couple of yr. In addition they represented that, as of the contribution date, the FMV of the contributed shares exceeded the adjusted foundation.
The donors gained’t have contributed in combination greater than 10 % by worth of the company inventory to the PF when aggregated with prior presents of the company to any non-public nonoperating basis.
Primarily based on the knowledge submitted and representations made by the donors, the IRS dominated that, offered the necessities of Part 170 are in any other case glad, the shares of inventory contributed to PF represent “certified appreciated inventory” throughout the which means of Part170(e)(B).
IRS’ Caveats
The PLR is predicated on the details and representations submitted by the donors and accompanied by a penalty of perjury assertion executed by an acceptable occasion. It hasn’t verified any of the supplies submitted in assist of the request for rulings. Verification of the knowledge, representations and different knowledge could also be required as a part of the examination course of.
Besides as expressly offered herein, the IRS neither expresses or implies an opinion regarding the tax penalties of any side of any transaction or merchandise mentioned or referenced on this letter:
whether or not the contributed shares constitutes a “charitable contribution” throughout the which means of Part 170(c).
the project of earnings doctrine. (The inventory was held by the donors’ revocable trusts.)
the surplus enterprise holdings throughout the which means of IRC Part 4943(c).
non-public inurement throughout the which means of IRC Part 501(c)(three).
any points below Chapter 42 of the Code, affecting PFs.
© Conrad Teitell 2019. This isn't meant as authorized, tax, monetary or different recommendation. So verify together with your adviser on how the foundations apply to you.