6 Considerations for Gifts of Closely Held Business Interests
Table of Contents
by Meghan Warrick, CPA, CGMA
Chief Financial Officer & Executive Vice President
Central Florida Foundation
When you think about charitable giving, you likely think about checks you’ve written or stocks you’ve donated; however, charitable giving can be accomplished in many other ways. Central Florida Foundation (CFF) is uniquely positioned to accept gifts of more complex assets, such as closely held business interests.
Many donors in Central Florida hold closely held business interests, meaning a business owned by a small number of people. Publicly traded stocks and mutual funds aren’t closely held business interests; they are marketable securities – and, yes, we can accept those as well.
Benefits of Donating Closely Held Business Interests
By gifting interests in closely held securities, partnership and LLCs that you’ve owned for more than a year, you are able to support the social issues you care about while:
- Maximizing your income tax deduction – fair market value of the gift, up to 30% of your adjusted gross income
- Reducing or eliminating capital gains tax by gifting in lieu of sale which creates more charitable capital from your gift
- Reducing potential tax liability by removing these assets from your estate
- Leverage a single gift to achieve a range of charitable goals through your new or existing fund at CFF.
These types of gifts require specific due diligence and tax analysis both by the donor and their advisors, as well as CFF.
Disclaimer: This article is not intended to provide legal or tax advice. Please consult your tax or legal advisor when considering a donation of closely held securities.
6 Considerations for Gifting Closely Held Business Interests
- Restrictions – Closely held securities may have restrictions on the transfer or sale of these assets. It is important to identify restrictions and approvals that may be required to complete a gift.
- Anticipated Sales – If there is an existing contract for sale, the IRS would likely consider any donation made after the contract as prearranged and the donor would likely be subject to capital gains tax. If the transaction is still in negotiation and not subject to a contract at the time of the gift, then the gift could minimize or avoid capital gains tax.
- Contingent Liabilities – Closely held securities may have a variety of contingent liabilities. CFF will work with donors to ensure that any contingent liabilities can be satisfied by cash distributions from the business interests or funded by the donor providing additional liquid contributions.
- Taxable Income – Certain types of income can be taxed as unrelated business taxable income (UBIT). Through the donor’s due diligence, any potential taxable income should be evaluated. CFF will work with the donor, similar to the contingent liabilities, to ensure adequate liquid assets are available to cover these potential tax liabilities.
- Disposition Timing – CFF will work with the donor and their advisors to determine a disposition timeline. CFF will exercise its best effort to dispose of the contributed interest within five years of the date of the gift, as required by law.
- Appraisal Requirements – An appraisal will likely be required for gifts of closely held business interests to document the value of your gift. The appraisal must be completed by a third party, a qualified appraiser, as defined by the IRS. Appraisals take time and can be expensive. We want to make sure that these requirements are factored into your decision and timeline.
What kind of impact can I make by donating closely held business interests?
At CFF, we believe it’s not how much you give but how you give it. Working with us, our region’s community foundation, you position yourself as a strategic philanthropist proactively contributing to positive change in the community. With access to our team of giving experts, you have a team of philanthropic advisors who will help you develop your philanthropic strategy, brief you on nonprofits that fit your values and areas of interest, and guide you along the way as you refine your giving over time.
You can learn more about working with us here.
How to Start the Conversation
CFF staff is available to start the conversation with you and your advisors to discuss gifts of closely held business interests. Together, we can help you accomplish your financial and charitable goals.
Nicole Donelson, CAP®, VP of Philanthropic Strategies and Partnerships
