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Author: dwsewing Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Gifting Private Company Stock Date: 9/4/2000 5:57 PM
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I am changing empolyers. I own some stock in the company and want to donate it to my church to avoid capatial gain tax. The problem is the company stock can only be owned by employees of the company. I must sell the stock back to the company on my last day. Is it possible for Me to donate the stock to the church and the church turn around and imediatly sell it back to the company. The CFO of the company is open to the idea but wants me to verify it with some accounting types.

The price of the stock is set at the fiscial year end by an outside accounting firm. There is no problem establishing the cost basis or sale price.

Will this work with the IRS?

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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39547 of 121061
Subject: Re: Gifting Private Company Stock Date: 9/5/2000 7:11 AM
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I am changing empolyers. I own some stock in the company and want to donate it to my church to avoid capatial gain tax. The problem is the company stock can only be owned by employees of the company. I must sell the stock back to the company on my last day. Is it possible for Me to donate the stock to the church and the church turn around and imediatly sell it back to the company. The CFO of the company is open to the idea but wants me to verify it with some accounting types.

The price of the stock is set at the fiscial year end by an outside accounting firm. There is no problem establishing the cost basis or sale price.

Will this work with the IRS?
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I assume you have owned the stock for greater than one year then...

As long as there are no valuation issues that could be challenged by the IRS then I see no reason this would not be a viable strategy..... to be on the safe side you certainly would want to keep a copy of the valuation of the company for future reference.


pete

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Author: jkrou Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39552 of 121061
Subject: Re: Gifting Private Company Stock Date: 9/5/2000 11:47 AM
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Since you are talking private company stock, you will have to see what the regulations are regarding sales to outsiders. If it is allowed, then you can do so with their blessing otherwise you will have to talk to the board in making an amendment for your sale.

Jenn

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Author: HatchetJack One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39561 of 121061
Subject: Re: Gifting Private Company Stock Date: 9/5/2000 4:41 PM
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I am changing empolyers. I own some stock in the company and want to donate it to my church to avoid capatial gain tax. The problem is the company stock can only be owned by employees of the company. I must sell the stock back to the company on my last day. Is it possible for Me to donate the stock to the church and the church turn around and imediatly sell it back to the company. The CFO of the company is open to the idea but wants me to verify it with some accounting types.

The price of the stock is set at the fiscial year end by an outside accounting firm. There is no problem establishing the cost basis or sale price.

Will this work with the IRS?


____________________

I am sure that you realize such a transaction if successful would not only avoid the capital gain tax but would also lighten your checkbook by the after-tax proceeds. That's fine if you intended to gift the full value of the stock in any event by whatever means.

But I think you could have an even worse result. If the stock certificates are restricted and therefore the simultaneous transaction precludes the charity's holding unfettered title to the stock, this would be deemed a step transaction. The entire proceeds would go to the charity and you would be deemed to have sold the stock and gifted the cash. You would be liable for the tax. That's ugly. This would be true even if the CFO papered the transaction your way. That's because the charity did not receive the stock unconditionally. I haven't researched this question but believe that you would want to seek a substantive legal opinion or a CPA's written opinion with authority supporting a positive conclusion.


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Author: criser Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39568 of 121061
Subject: Re: Gifting Private Company Stock Date: 9/5/2000 5:27 PM
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But I think you could have an even worse result. If the stock certificates are restricted and therefore the simultaneous transaction precludes the charity's holding unfettered title to the stock, this would be deemed a step transaction. The entire proceeds would go to the charity and you would be deemed to have sold the stock and gifted the cash. You would be liable for the tax. That's ugly. This would be true even if the CFO papered the transaction your way. That's because the charity did not receive the stock unconditionally. I haven't researched this question but believe that you would want to seek a substantive legal opinion or a CPA's written opinion with authority supporting a positive conclusion.

I agree that this is a big risk. This is a textbook case for application of the step transaction doctrine - a situation where two or more steps are collapsed into one that produces the substantive result (as opposed to the result in form).

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