must actually make payments on a timely basis).101 Thus, the issue is one of timing, with the bond documentation reflecting a pledge. It would seem that, once made, any payments to the school would be deductible as a charitable gift (assuming all other requirements were met). After all, the court found that the company's motive underlying the transaction was not a business purpose, but was one of substantial economic disinterest.
When the charitable organization involved is a private foundation,102 the matter of a charitable pledge can be more complicated if the pledger is a disqualified person103 with respect to the foundation. The principal difficulty is with the rules concerning self-dealing.104 The making of a pledge by a disqualified person to a private foundation, in and of itself, is not an act of self-dealing.105 Likewise, the making of a pledge that, when it ripens into a contribution, requires a facility or organization to be named after the disqualified person is not an act of self-dealing, because the benefit to the disqualified person is incidental and tenuous.106 Under some circumstances, however, the satisfaction of a pledge by a disqualified person to a private foundation can be self-dealing. In one instance, for example, a private foundation paid the dues of a disqualified person to a church, thereby enabling him to maintain his membership in and otherwise participate in the religious activities of the congregation. The dues payment was ruled to constitute self-dealing, with the IRS concluding that the private foundation's payment of the dues “result[ed] in a direct economic benefit to the disqualified person because that person would have been expected to pay the membership dues had they not been paid by the foundation.”107
NOTES
2 2 See Part Three.
3 3 E.g., § 7.28 (concerning transactions in virtual currency).
4 4 See § 19.2.
5 5 Reg. § 1.170A-1(c)(1).
6 6 See § 23.1.
7 7 See § 3.4.
8 8 Reg. § 1.170A-1(c)(1).
9 9 As one court stated, “[d]onating appreciated property to a charity allows the taxpayer to avoid paying tax that would arise if the taxpayer instead sold the property and donated the cash proceeds” (Dickinson v. Commissioner, T.C. Memo. 2020-128 (2020)). Likewise, White v. Brodrick, 104 F. Supp. 213 (D. Kan. 1952); Campbell v. Prothro, 209 F.2d 331 (5th Cir. 1954); Rev. Rul. 55-531, 1955-2 C.B. 520; Rev. Rul. 55-275, 1955-1 C.B. 295; Rev. Rul. 55-138, 1955-1 C.B. 223, modified by Rev. Rul. 68-69, 1968-1 C.B. 80.
10 10 The most common example of this is the rule in connection with bargain sales (see § 7.18). Another instance is gifts of property subject to debt (see § 7.19).
11 11 See § 2.2.
12 12 See § 2.5.
13 13 See § 23.1.
16 16 Reg. § 1.170A-1(c)(1). Long-term capital gain is defined as gain from the disposition of capital assets held for more than one year (IRC § 1223(3)).As one court stated (somewhat more expansively than is actually the law): “Congress, in an effort to encourage contributions to charitable organizations, has seen fit to permit a donor to deduct the full value of any gift of appreciated property without reporting as income from an exchange the appreciation in the value of the property which is thereby transferred” (Sheppard v. United States, 361 F.2d 972, 977-78 (Ct. Cl. 1966)). A federal court of appeals stated that the “fair market value standard is as close to a generalized valuation standard as there is in the tax code” (Schwab v. Commissioner, 715 F.3d 1169, 1179 (9th Cir. 2013)). The U.S. Tax Court declared that the “concept of fair market value has always been part of the warp and woof of our income, estate, and gift tax laws, and . . . [thus] the necessity of determining fair market values . . . for . . . numerous purposes has always been a vital and unavoidable function of the tax administration and judicial process” (Nestle Holdings, Inc. v. Commissioner, 94 T.C. 803, 815 (1990)). It was held that the fair market valuation standard is applicable in the context of charitable giving by trusts (see § 7.22) (Green v. United States, 2015 WL 1482508), but that decision was reversed, with the appellate court holding that the deduction amount is confined to the donor's adjusted basis in the properties, with the lower court's holding held to be contrary to the language of the statute (IRC § 642(c)(1)) and effectively allowing a “duplicative tax benefit” (Green v. United States, 880 F.3d 579 (10th Cir. 2018)). It is a “well-established rule that a gift of appreciated property does not result in income to the donor” (Greene v. United States, 13 F.3d 577, 584 (2d Cir. 1994)).
17 17 See § 3.4(b).
18 18 Reg. § 1.170A-4(b)(1).
19 19 See § 7.3.
20 20 This type of stock, known as section 306 stock, is described in IRC § 306(a). The IRS summarized the tax treatment of a charitable gift of section 306 stock in Priv. Ltr. Rul. 8930001. See § 7.8.
21 21 IRC § 341.
22 22 IRC § 1248.
23 23 IRC § 1231(b).
