Vetting Charitable Gifts of Business Interests

February 3, 2015
The Legal Intelligencer

Types : Bylined Articles

A significant transition in a closely held business, such as a sale or going public, often causes the owners to consider making a charitable gift. Such gifts are usually substantial, but great opportunity comes with great risk, and maybe a dozen or so bankers’ boxes of relevant documents with a tight deadline. The charity’s board very much wants the gift but is vaguely aware that in some circumstances gifts should be declined. You, the poor volunteer attorney on the board, are asked to make the tough call. Here is some curbside advice on whether to cross that road, and how to look for red lights, caution signs and crossing guards.

Road May Be Wider Than You Think

The gift is typically described as a nearly immediate flip. The donor will assert that the impending transaction will produce cash to the charity in the near future. Maybe so, but due to the “assignment of income” tax rule described below, the very certainty that the deal will proceed as planned is itself a problem. Furthermore, business transitions are complex; issues or contingencies frequently arise that either push off the date of closing indefinitely, or magnify the economic consequences of holding an interest for even a short period. Some of the risks described below arise during that holding period.

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