Taxation

Oh, Those Pesky Capital Gains (The Consequences of Capital Gains in Planned Gifts)

Everyone likes to avoid capital gains – or more specifically, we should say, everyone likes to avoid the taxes on realized capital gains. That’s a given. When an investor sells assets that have appreciated over time, typically there is tax on the built-up appreciation in those holdings, at least by the federal government, and frequently by the state government as well. The owner of the stock reports capital gains even if the owner of the stock uses the sale proceeds immediately to make charitable gifts. On the other hand, if the donor uses appreciated assets for outright charitable gifts, there is no taxation on the long-term appreciation in the holdings.

Are You Ready for the End?

The end we are talking about is the end of calendar year 2016.  Are you ready?  Most charities concentrate on year-end giving in the fourth quarter and for good reason.  A study conducted by the Center on Philanthropy at Indiana University focused on high-net worth donors found that 42.7 percent of those surveyed gave more during the holidays than the rest of the year. Nonetheless, in addition to soliciting and encouraging gifts at the end of the calendar year, it is also a time for planned giving departments to prepare and plan. 

Revenue Ruling 2008-41

This ruling provides taxpayers with guidelines on dividing a charitable remainder trust into two or more separate and equal CRTs without violating the provisions of section 664 of the Code. It also provides that, if the division of the CRT is made in accordance with the situations described in the ruling, (i) the division is not a sale, exchange, or other disposition producing gain or loss, the basis under section 1015 of each separate trust’s share of each asset is the same share of the basis of that asset in the hands of the trust immediately before the division of the trust, and, under section 1223, each separate trust’s holding period for an asset transferred to it by the original trust includes the holding period of the asset as held by the original trust immediately before the division, (ii) the division of the CRT does not terminate under section 507(a)(1) the CRT’s status as a trust described in, and subject to, the private foundation provisions of section 4947(a)(2), or result in the imposition of an excise tax under section 507(c), (iii) the division of the CRT does not constitute an act of self-dealing under section 4941, and (iv) the division of the CRT does not constitute a taxable expenditure under section 4945.

Revenue Ruling 2006-58

Charitable remainder trust; real estate investment trust (REIT). This ruling illustrates the application of section 860E of the Code where a charitable remainder trust is a shareholder of a real estate investment trust (REIT) or a partner of a partnership, and the REIT or the partnership has excess inclusion income.

Revenue Ruling 77-374

PG Calc summary This revenue ruling imposes the 5% probability test for charitable remainder annuity trusts. IRS Headnote Charitable transfer; trust remainder; reformed to protect corpus. No deduction is allowable under section 2055 of the Code for a charitable remainder trust that, pursuant to the provisions of section 2055(e)(3), was amended and reformed to meet the conditions of section 20.2055-2(b)(1) of the regulations requiring that only a negligible chance exist that the charitable transfer will not become effective. Full Text Rev. Rul.