Читать книгу The Tax Law of Charitable Giving - Bruce Hopkins R., Bruce R. Hopkins, David Middlebrook - Страница 87

There are some items of property as to which the law has constructed a formal system for the transfer of title. This is the case in connection with stocks, bonds, and other securities (which are forms of intangible personal property). A security usually is evidenced by a certificate; title to the underlying security can be transferred by an endorsement on the certificate, indicating transfer of the security from one person to another. Transfers of securities are usually effected by brokers.

Thus, a person may contribute a security to a charitable organization and thereby create a federal income tax contribution deduction when the properly endorsed certificate evidencing the security is delivered to the charitable organization. Delivery can also be accomplished by transfer of the security to an agent of the charitable donee.

When the properly endorsed certificate is mailed to a charitable organization or an agent of the organization, the deduction arises as of the date on which the certificate is mailed. When the certificate is unconditionally delivered to the corporation that issued the security or to a broker acting on behalf of the donor, for purposes of arranging for transfer of title to the security to the charitable donee, the charitable deduction comes into being on the date the transfer of the security is formally recorded by the issuing corporation.³¹ When the certificate is delivered to a broker representing the charitable donee, however, the deduction arises as of the date of delivery.³² Mere notation on the records of the transferee charitable organization of a contribution of securities is not sufficient to cause effective transfer of title.³³

Court cases illustrate the intricacies of these rules. In one instance, an individual decided to contribute some stock to several charities, wanting to make these gifts before a payment of money for some of the shares pursuant to a tender offer and before accrual of the right to dividend income from the shares. The donor sent a letter to a trust company withdrawing the stock from a trust and requesting delivery of the stock to a bank. On the same day, the donor wrote to the bank identifying the charitable donees. Further, on the same day, the donees were sent a memorandum directing them to instruct the bank as to the disposition of the stock (that is, whether the donees wanted to accept the tender offer or retain the stock). The final offer was made about one week later, with the actual transfer of the shares on the corporation's books made approximately one month following the sending of the letters and memorandum by the donor. In the interim, dividends were declared; they were sent to the charities by the bank. The donor claimed a charitable deduction for the gifts of the securities and did not report the dividends as income.

The IRS concluded that the donor had control of the stock when it was sold and therefore attributed the capital gain on the sale of the securities to the donor. The dividend income was also found to be gross income to the donor. The issues were litigated, with the donor prevailing. The court found that the donor had established a voluntary trust for the donees, using an independent party (the bank) as trustee. This, said the court, effectively removed any potential for the exercise of control by the donor “despite the failure to accomplish titular transfer on the corporate books.”³⁴ The federal income tax regulation on the point³⁵ was held to be inapplicable, inasmuch as delivery was neither to the donor's agent nor to the issuing corporation or its agent. Thus, delivery was held to be effected upon tender of the stock by the bank to the offeror, which was prior to the stock sale dates and the dividend declaration date. The consequence of all this was that the donor was held to have the charitable deduction for the gifts of the stock, and not to have any capital gain or dividend income tax liability.

By contrast, in another case capital gain in the property was ruled to be taxable to the donors of appreciated securities to charitable organizations. This was because, by the date the gifts were completed, the securities had ripened from interests in a viable corporation into a fixed right to receive money, by means of an ongoing tender offer or a pending merger agreement. Therefore, despite the gifts, the gain in the stock was taxable to the donors.³⁶

The donors owned 18 percent of a privately held corporation, and served as several of its officers and directors. These securities were obtained in 1985. On July 28, 1988, the corporation entered into a merger agreement. The transaction was planned and negotiated by one of the donors. The resulting tender offer was the subject of a letter sent to all shareholders on August 3, 1988. The stock price set for the offer embodied a 24 percent premium over the market price for a share of the corporation's stock as of July 1988.

The tender offer (and thus the merger agreement) was conditioned on the acquisition of at least 85 percent of the outstanding shares of the corporation by the expiration date of the tender offer, originally set for August 30, 1988. This minimum tender condition was waivable at the discretion of the acquiring entity. Certain of the donors were expected to continue to have extensive involvement in managing the business, including being executive committee and board members. The tender offer started on August 3, 1988, and was successfully completed on September 9, 1988. By August 31, 1988, more than 50 percent of the stock had been tendered. On September 12, 1988, acquisition of more than 95 percent of the stock was announced.

During the course of the tender offer, the donors transferred some of their stock in the corporation to three charities. Two of them were family foundations created on August 26, 1988. Various letters to the stockbroker authorizing the transfers were ostensibly executed in August 1988. The date the broker formally transferred title to the securities to the charities was September 8, 1988. Final letters of authorization were signed the next day.

The donors contended that the date of delivery of the stock directly to the charities was September 8, 1988—the date the broker prepared the documentation formally transferring title to the securities. They also contended, however, that the stockbroker was acting as agent for the charities, so that the dates of delivery of the stock were in August 1988. Both arguments were rejected by the court. The gift completion date was found to be September 9, 1988, with no transfer that was legally binding and irrevocable until then, and it was held that the stockbroker did not function as agent for the charities before that date.

The courts determined that the stock in this case had ripened from an interest in a viable corporation to a fixed right to receive cash by August 31, 1988—the date by which more than one-half of the stock had been tendered. That is, by that date, the courts held, it was practically certain that the tender offer and the merger would be successfully completed. The donors argued, unsuccessfully, that the stock did not ripen until September 12, 1988, because the tender offer and the merger could have been derailed. The likelihood of that happening was viewed by the courts as remote and hypothetical at best. Thus, because the fixed right to receive the money ripened as of August 31, 1988, and the gifts did not formally become effective until September 9, 1988, the gain was taxable to the donors.³⁷