Partnership Interests Aren't Simple Gifts for Charities

By Walsh, Dennis | Journal of Accountancy, February 2011 | Go to article overview

Partnership Interests Aren't Simple Gifts for Charities


Walsh, Dennis, Journal of Accountancy


Partnership interests (including interests in limited liability entities treated as a partnership) represent a potentially valuable gift to charities and private foundations, but with greater potential complications than gifts of stock. CPAs can alert principals to the following issues.

[check] Determine whether the organization has the resources to perform due diligence, effect the transfer and either liquidate or carry the asset. As part of this determination, assess the risks associated with ownership and marketability of the interest relative to the expected benefit and whether the time frame for the transfer will meet the donor's expectations.

[check] Assess possible exposure to unrelated business income tax (UBIT). A partner otherwise exempt from income tax under IRC [section] 501(a) may be subject to additional tax reporting and potential liability for UBIT under section 511 to the extent income is attributable to certain sources including ordinary income from a trade or business activity of the partnership and income from other sources to the extent produced from debt-financed property

[check] If gross income from unrelated business activities exceeds $1,000 for a year, the organization must file IRS Form 990-T. This is essentially a Form 1120, U.S. Corporation Income Tax Return, and net income from unrelated business activities is taxed at the regular C corporation rates. There should be no threat to the charity's tax-exempt status as long as unrelated business activities remain minor in relation to exempt charitable activities.

[check] Verify whether the charity will assume any liability as a result of the transfer. Legal counsel may need to help identify actual or contingent liabilities for which the transferee charity may become subject. Also determine whether any transfer or appraisal fees will apply and who will be responsible for them. In addition, scrutinize the partnership's activities for undisclosed liability, such as environmental liability for an entity with real property holdings. …

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Partnership Interests Aren't Simple Gifts for Charities
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