Charitable gifts of closely held business interests offer a unique opportunity to accomplish your financial priorities, benefit from substantial tax savings, and provide significant support to Americans for Prosperity.
If you have owned a business for at least one year which has appreciated in value, and you are now considering selling, making a gift of all or a portion of your ownership interest could make sense for you. The benefits of a charitable gift may apply if you own interests in a partnership, an LLC, an S corporation, or a closely held C corporation.
Why consider a charitable gift of a business interest?
The sale of a closely held business can leave you with significant tax liability. A gift of all or a portion of your interest may entitle you to:
- Avoidance or deferral of capital gain taxes;
- A gift to support a favorite program or to fund a new initiative at Americans for Prosperity.
When considering a gift of a business interest, it is imperative that you do planning before entering into an agreement to sell your interest. Agreements among the holders of all the interests may impose restrictions on the transfer of business interests, as such, you should retain competent legal and tax advisors who can partner with our staff in structuring a gift that achieves your objectives and meets all legal requirements. Americans for Prosperity will perform our own due diligence for any business interest being offered, as there are liability and tax issues when Americans for Prosperity accepts a gift of this nature.
If the partnership has underlying indebtedness, each partner is considered to share in that indebtedness. In that case, IRS rules will apply and the transfer of the interest to Americans for Prosperity will be considered part gift and part sale, which will result in your incurring taxable income. If your tax basis in your partnership interest exceeds the liabilities of your partnership interest, the IRS treats the gift as if you received cash when you make your gift to Americans for Prosperity.
S Corporation Stock
A change in the tax law effective in 1998 permits charities to owns shares of S Corporation stock. Despite Americans for Prosperity being tax-exempt, Americans for Prosperity must pay taxes on its share of the income generated by the S Corporation stock, and on the total capital gain (including gain attributable to the donor’s ownership) when the shares are ultimately sold by Americans for Prosperity. A gift of S Corporation stock is possible after performance of due diligence and an assessment of the tax impact of the gift to our organization.
C Corporation Stock
Americans for Prosperity is permitted to accept a gift of C Corporation stock without the tax consequences that would be incurred from accepting shares of S Corporation stock. The goal of Americans for Prosperity will be to sell the shares and convert the shares to cash. There are several ways this can occur, including the purchase of the shares by the company ESOP, a corporate redemption of the shares, or the purchase of shares by other shareholders such as other family members or children. A gift of some of the shares followed by a redemption or purchase by other shareholders can effectively change the ownership percentages in the corporation, an issue to be considered by your professional advisors.
If the value of the business interest donated to Americans for Prosperity exceeds $5,000, you will be required to obtain a qualified appraisal meeting the IRS requirements. You are advised to consult your professional advisor so that you are following such requirements.
If you are considering selling your business, engaging in business succession planning, or estate planning, making a gift of all or a portion of your interest to Americans for Prosperity may be worth considering. The key is advance planning.
This information does not constitute legal or tax planning advice. Please consult with your legal or financial advisor. Americans for Prosperity is a §501(c)(4) entity, as determined by the Internal Revenue Service. Contributions to Americans for Prosperity are not tax-deductible. Americans for Prosperity can advocate for and against specific legislation at the state and federal levels.
How Your Gift Helps
Your gifts to Americans for Prosperity help to recruit, educate, and mobilize citizens in support of the policies and goals of a society of mutual benefit at the local, state, and federal level. It will provide Americans for Prosperity with the resources to…