April 4, 2023 10:09 pm

Gift of Stock Was Taxable Sale and Not a Deductible Charitable Contribution

It’s an old saying that timing is everything and that’s what some taxpayers learned in a recent case. A business owner wanted to retire and dispose of his stock in his family’s closely-held corporation. He wanted to donate the shares to a donor-advised fund before the sale of the business to a third party, but it didn’t work out that way. He failed to show that he gave away the stock before any sale took place or at least was significantly underway. As a result, he must recognize gain from the sale. Essentially, the court viewed the stock transfer as an anticipatory assignment of income—he tried to give the capital gain income built into the stock to another (the charity), but the stock sale was sufficiently fixed and underway for him to already have a fixed right to it. What’s more, because he failed to establish that a qualified appraisal—an essential element to a valid gift—was present on the date he claimed, he can’t take a charitable contribution deduction for that year (Est. of Scott M. Hoensheid, TC Memo 2023-34).

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Tax Glossary

Audit

An IRS examination of your tax return, generally limited to a three-year period after you file.

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