gIftsofBusInessInterestsasPartofyourCLIent ’ staxPLan real property , probate & Trust law Section Chairs : LaurenA . Taylor – FogartyMuellerHarris & MelodieKhosrovani-Shutts & Bowen , LLP
agiftofclosely-held businessinterestscould beagame-winningplay , especiallywhena businesssaleorothertax eventiscontemplated .
Growing up in West Virginia , I played marbles as a mandatory PE activity in grade school . Students participated in organized marble competitions ranging from school-wide to statewide . ( I think I became the PE “ gunner ” when I won the county championship two years in a row .)
Like a game of marbles , there are various “ moves ” you recommend when working with tax and estate planning clients to accomplish their personal and philanthropic goals . A gift of closely held business interests ( whether organized as a C or S corporation , limited liability company , or limited partnership ) to an IRC Section 501 ( c )( 3 ) public charity could be a game-winning play , especially when a business sale or other tax event is contemplated .
Pick a Shooter : Which Asset ?
Tax implications for your client and the willingness of the charity to accept the gift depend on whether the business entity is a C corporation , S corporation , limited liability company , or limited partnership . For example , if the business is an S Corporation , the charity will likely have unrelated business income tax ( UBIT ) issues to consider . If the business has debt and is taxed as a pass-through entity , your client may have to recognize capital gains .
Aim Carefully : Review the Governing Documents and Financials
As a player sets up to shoot the smaller marbles ( called “ ducks ”) out of the ring , the player carefully reviews the marble setup and aims with precision . Likewise , when structuring a gift of a business interest , discernment is important . The first step is reviewing the governing documents ( i . e ., Articles of Incorporation , Operating Agree ment , Partnership Agreement , Bylaws , etc .) and financial information .
Are there any restrictions on transfers of the interest that will prevent your client from assigning ownership ? Does the interest hold debt ? Are there hold requirements that will delay the charity ’ s ability to sell or redeem its interest as soon as possible after the gift is completed ? Any of these issues could knock the business interest out of the “ ring ” as a desirable asset to gift .
Keep Your Shooter in the Circle : Obtain a Qualified Appraisal
Creating backspin on the shooter to knock out a marble while simultaneously keeping the shooter in the ring will afford you another turn to shoot . However , it ’ s tricky . The same balancing act is required for the qualified appraisal your client must obtain to deduct the value of their charitable gift . The appraiser arrives at a defensible fair market value of the business entity as a whole and must also apply the proper discounts to determine the value of the client ’ s charitable gift . Failure to do either could risk loss of the charitable deduction , among other penalties .
Collect the Most Marbles to Win : Maximum Tax Savings and Funds for Charity
Making a charitable gift of a business interest may not be “ Playing for Keeps ,” but with the right asset and plan , your client can both support a charitable cause and reduce their tax bill . n
Author : Nicolette Rea – Community Foundation Tampa Bay
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