Academic journal article Journal of Accountancy

Contribution of Appreciated Stock

Academic journal article Journal of Accountancy

Contribution of Appreciated Stock

Article excerpt

Owners of closely held corporations frequently contribute corporate stock to public charities or private foundations. The tax benefits from the contribution will vary greatly depending on whether the taxpayer can claim a deduction for the stock's full value or whether the deduction is limited to the stock's basis. Recently the Tax Court considered this issue.

In December 1994 John Todd contributed 6,350 shares of Union Colony Bancorp to a private foundation he had formed. He claimed a charitable contribution of $553,847. His basis in the stock was $33,338. Todd had based the stock value on the price in a sale of other shares around the same time he made the contribution.

Union Colony did not trade on an established market. Instead Gill & Associates, a member of the National Association of Securities Dealers, maintained a matching service for those who wanted to buy or sell shares of the company. Gill quoted a price to prospective customers upon request based on the corporation's book value, which Gill believed was the equivalent of fair market value.

The IRS reduced Todd's deduction to the stock's basis. It argued that fair market value is available only if a stock is traded on an established market. And even if it was, the taxpayer failed to provide the required appraisal.

Result. For the IRS. The Tax Court first addressed the question of whether there were market quotations for the contributed stock on an established market. It concluded there were not. The fact an investment banking house maintained a matching service and was willing to quote book value did not constitute an established market. …

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