EFTA01199338.pdf

Checkpoint Contents Federal Library Federal Source Materials IRS Rulings & Releases Private Letter Rulings & TAMs, FSAs, SCAs, CCAs, GCMs, AODs & Other FOIA Documents Private Letter Rulings & Technical Advice Memoranda (1950 to Present) 2001 PLR/TAM 200108051 - 200108001 PLR 200108012 -- IRC Sec(s). 170, 212312001 Private Letter Rulings Private Letter Ruling 200108012, 2/23/2001, IRC Sec(s). 170 UIL No. 170.12-03 Headnote: Under Code Sec. 170; , shareholders donation of stock, that is subject to voting agreement which requires shareholder to vote as directed by another individual, is deductible. Reference(s): Code Sec. 170; Full Text: Release Date: 2/23/2001 Date: November 17, 2000 Refer Reply To: CC:IT&A:3-PLR-122379-00 LEGEND: Taxpayer = Individual = Company = "' Foundation = "" Dear "' EFTA01199338 This is in reply to your ruling request dated May 19, 2000. Your representative supplemented your request with additional information dated July 18, 2000, August 1, 2000, September 6, 2000, September 20, 2000, October 11, 2000, and October 17, 2000. FACTS Taxpayer owns shares of voting stock in Company, a closely-held corporation. The shares of Company stock held by Taxpayer are capital assets in the hands of Taxpayer, and Taxpayer has held her shares for more than one year. In 1992, Taxpayer and other Company shareholders entered into a voting agreement. The purpose of the voting agreement was to facilitate any future negotiations to sell Company. Pursuant to the voting agreement, Taxpayer transferred to Individual her voting rights with respect to corporate events affecting change of ownership or control of Company. The voting agreement required Taxpayer to agree to vote as directed by Individual. Recently, the voting agreement was amended to provide that the votes would be directed by a person who is not Individual and is not related to Taxpayer. Taxpayer proposes to contribute her stock in Company to Foundation, an organization described in sections 170(c), 170(b)(1)(A)(viii), and 501(c)(3) of the Internal Revenue Code. Foundation is a supporting organization described in section 509(a)(3), which, by definition, is not a private foundation. The contributed shares would remain subject to the amended voting agreement. ISSUE Is Taxpayers contribution of Company stock to a ;:": section 170(c) organization deductible under ;tsection 170? CONCLUSION Yes. Taxpayer's contribution of Company stock to a ;:t section 170(c) organization is deductible under section 170, subject to the percentage limitations of ;:"isection 170(b), substantiation requirements for any contribution of $250 or more, and other limitations and requirements of section 170. LAW AND ANALYSIS 1. PARTIAL INTEREST RULE [01Section 170(a)(1) allows as a deduction, subject to certain limitations and exceptions, any charitable contribution to an organization described in ;;section 170(c), payment of which is made within the taxable year. ;:tSection 170(f)(3)(A) disallows a charitable contribution deduction for the contribution of a partial interest in property. ;:Section 170(f)(3)(B)(ii) provides an exception in the case of a contribution of an undivided portion of the taxpayers entire interest in the property. ;LI Section 1.170A-7(b)(1)(i) of the Income Tax Regulations defines an undivided portion of a taxpayer's entire interest in property as "a fraction or percentage of each and every substantial interest or right owned by the donor in such property" that extends "over the entire term of the donors interest" in the property. Section 1.170A-7(a)(2)(i) of the Regulations provides, however, that a deduction will not be allowed where the property in which a partial interest exists was divided in order to create such interest and thus avoid ;L'section 170(f)(3)(A).;] Section 1.170A-7(b)(1)(i) of the Regulations further provides that a taxpayer is denied a deduction for "a charitable contribution in perpetuity of an interest in property ...where the donor transfers some specific rights and retains other substantial rights." EFTA01199339  Rev. Rul. 81-282, 1981-2 C.B. 78, holds that a contribution of voting stock to a charitable organization with the donor retaining the right to vote that stock, a substantial right, constitutes a contribution of a partial interest under ;4section 170(f)(3) for which a charitable contribution deduction is not allowed. When Taxpayer contributes her shares in Company stock to Foundation, she will not contribute all interests in the shares. Certain voting rights have already been transferred to a third party. The voting rights are substantial rights. Seel Rev. Rul. 81-282. However, because those rights had been transferred eight years ago for a business purpose, the interests were not divided in order to avoid ;A4section 170(f)(3)(A). Thus, section 1.170A-7(a)(2)(i) of the Regulations does not cause disallowance of the charitable contribution deduction in this case. 2. REDUCTIONS TO CHARITABLE CONTRIBUTION DEDUCTION F ASection 1.170A-1(c)(1) of the Regulations provides that if a charitable contribution is made in property other than money, then the amount of the contribution is the fair market value of the property at the time of the contribution, reduced as provided in;..A: section 170(e) and;.: section 1.170A-4(a) of the Regulations. ;Section 170(e)(1)(A) reduces a charitable contribution deduction by the amount of gain that would not be long-term capital gain if the property were sold. Section 170(e)(1)(B) further limits the charitable contribution deduction by the amount of gain that would be long-term capital gain for certain contributions of tangible personal property and contributions to or for the use of certain private foundations. The shares, if sold by Taxpayer, would result in long-term capital gain. Because the shares are not tangible personal property and will not be contributed to a private foundation,;I section 170(e)(1)(B) does not apply. Accordingly, the deductible amount is not reduced under section 170(e)(1). 3. PERCENTAGE LIMITATIONS ;Section 170(b) provides percentage limitations on charitable contributions. Section 170(b)(1)(C)(i) provides that, in the case of a contribution of capital gain property to an organization described in ;Jsection 170(b)(1)(A), to which section 170(e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account for determining the income tax deduction shall not exceed 30 percent of the taxpayers contribution base for the year. In the instant case, Taxpayer proposes to contribute shares of Company stock to an organization described in ;:1section 170(b)(1)(A). ;Section 170(e)(1)(B) does not apply. Accordingly, Taxpayers contribution deduction is subject to the 30 percent limitation of ;:section 170(b)(1)(C)(i). 4. SUBSTANTIATION ;Section 170(f)(8) requires a contemporaneous written acknowledgment for all contributions of $250 or more. The acknowledgment must be obtained by the taxpayer on or before the earlier of the date on which the taxpayer files a return for the taxable year in which the contribution was made or the due date (including extensions) for filing such return. 5. FORM 8283 When the amount of the deduction for noncash gifts exceeds $500, the donor must complete the relevant portions of Form 8283. According tom section 1.170A-13(c) of the Regulations, a donor who contributes property, other than certain publicly traded securities, and claims a charitable contribution deduction in excess of $5,000 must satisfy additional substantiation requirements. EFTA01199340 6. EFFECT OF THIS RULING No opinion is expressed concerning the Federal income tax consequences of these contributions under any other provision of the Internal Revenue Code. A copy of this ruling should be attached to Taxpayer's Federal income tax return for the tax years affected. This ruling is directed only to the taxpayer requesting it. ;:'Section 6110(k)(3) provides that this ruling may not be used or cited as precedent. Associate Chief Counsel (Income Tax & Accounting) By: Karin Gross Senior Technician Reviewer Branch 3 cc: *** tl 2014 Thomson Reuters/Tax & Accounting. All Rights Reserved. EFTA01199341