Business Interests: Gifts of Closely Held Stock

Gifts of Closely Held Stock

If you own shares in a closely held business, you might want to give some of those shares to Columbia. Why? As a donor, you receive a charitable income tax deduction for the appraised value of the shares, even if there is no market for the shares and the original cost basis of your shares is zero. This can be a significant tax benefit. If you need additional income, it may be possible to donate your shares to a Charitable Gift Annuity or a FLIP Unitrust, so that you can receive a charitable income tax deduction AND income. If your company is not paying dividends, this can be a nifty way to convert non-income producing shares into income producing assets without paying capital gains tax.

How do you donate closely held stock? Just give a stock certificate for the appropriate number of shares to Columbia. As with gifts of marketable securities, you may need to provide a Stock Power in a separate envelope (see Gifts of Securities for instructions). Since there is often no market for resale of these shares, Columbia often presents the shares to your company for repurchase or “redemption”. The company can use its retained earnings to redeem the stock. If the company has excess retained earnings, such a stock redemption could even help it avoid accumulated earnings tax.

Issues to Consider

You will need to:

• secure a qualified appraisal of your business and its stock;
• check to make sure there are no restrictions on the transfer of your stock;
• make sure you do not have a prior written agreement with your company or third party regarding the re-purchase of your stock; and
• make sure the shares are not subject to a mortgage or other debt, even if you are not personally liable, because the debt relief you receive could be taxable. Caution: S-Corp stock may have special considerations attached to them. Be sure to consult your attorney.

N.B.: Consult legal and tax advisors before making any decisions based on this information.

For More Information

E-mail us, complete the Personal Illustration form, or call us at 800-338-3294.