Rauenhorst, Ferguson, and Assignment of Income to Charity

Types : Bylined Articles

I. Introduction

Under the venerable doctrine of Lucas v. Earl, a taxpayer who completes a gift of appreciated property after a tax realization event, such as an agreement to sell the property, is taxed on the appreciation, whereas a gift completed before realization is not taxed. The doctrine is of particular concern to charitable gift planners, because a major inducement to charitable giving is the ability to deduct the fair market value of appreciated property given to charity without being taxed on the unrealized gain. Unfortunately, the two leading cases on charitable assignment of income, Ferguson and Rauenhorst, have rationales that appear to be directly contradictory, leaving charitable gift planners with a quandary. The theoretical confusion is remarkable, given that all the charitable giving cases I have reviewed for purposes of this report (including many not cited) intuitively reached the clearly correct result.

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