Category: Deductions & Credits; Charitable Contributions
Subject: Section 170(e)(5)(B)
Title: Discussion of the Meaning of Section 170(e)(5)(B)
IRC Sections: 170
Filename: 1279.html
Date Produced: 10/95

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Issue
What does Section 170(e)(5)(D) mean? It contains a provision which sunsets a rule connected with property contributions after 12/31/94.

Does this affect the ability of a taxpayer to make a post-12/31/94 contribution of publicly traded stock to a qualified charity (other than a private foundation) and enjoy a charitable deduction equal to the full fair market value of the stock? The taxpayer would recognize long-term capital gain if the stock were sold.

Answer
Section 170(e)(5)(d) does not affect the taxpayer described above.

Discussion
The ability to deduct charitable contributions, even non-cash contributions, flows in general from Section 170(a). Section 170(e) provides special rules of limitation for certain targeted types of property contributions.

Section 170(e)(1)(A) requires the deduction to be reduced for any ordinary or short-term capital gain that would have been recognized had the contributed property been sold. This provision applies to the contribution of any kind of property.

Section 170(e)(1)(B) requires the deduction to be reduced for any long-term capital gain element that would have been recognized if the property had been sold. This rule applies on top of Section 170(e)(1)(A). If this provision applies, the deduction must be reduced by all gain that would have been recognized had the property been sold. In other words, only the taxpayer's basis in the contributed property is deductible.

This latter provision, Section 170(e)(1)(B), only applies to i) contributions of tangible personal property if its use by the donee is unrelated to the donee's charitable purpose; or ii) contributions of any property to certain private foundations.

Section 170(e)(5), the provision in question here, carves out an exception to the rule of 170(e)(1)(B)(ii). The exception is available for certain stock for which market quotes are available. The plain-English translation is as follows: if the exception applies, then full fair market value is deductible.

It is the exception to the special rule (the special rule which requires the deduction to be reduced by the long-term capital gain element if the property is given to certain private foundations) that sunsets on 12/31/94.

The bottom line here is unless the taxpayer is giving the stock in question to a private foundation covered by this special rule, the sunsetting of the exception to the special rule does not matter at all.