Category: Charitable Contributions; Deductions & Credits
Subject: Charitable Contributions
Title: Charitable Contributions of Appreciated Property as Sale or Exchange
IRC Sections: 1001, 170
Filename: 1304.html
Date Produced: 03/94

Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com

Taxpayer (TP) made a contribution of stock to a charity in calendar 1993. The stock was a capital asset in TP's hands, and long term capital gain would have resulted had the stock been sold rather than contributed. The stock was not encumbered by any liabilities, the charity did not assume any of TP's liabilities, and the charity paid nothing to TP in connection with the contribution. It is assumed that all applicable substantiation requirements are met. See Forms 8283 and 8323, §, and Regulation §1.170A-13(b).

Issues
1. Is gain triggered by the contribution?

2. What is TP's charitable contribution for regular tax and AMT purposes?

Answers
1. Gain is not triggered by the contribution.

2. TP deducts the full fair market value of the stock both for regular tax as well as AMT purposes.

Discussion

1. Gain is generally not triggered by a charitable contribution of property. Campbell v. Prothro, 54-1 USTC ¶9155. The general rule does not apply, however, if the charity assumes a liability with respect to the contributed property or if the charity partially compensates the donor for the property (a bargain sale).

2. For regular tax purposes, a contribution of property generally results in a charitable deduction equal to the fair market value of the property. Regulation §1.170A-1(c). However, the contribution must be reduced by any ordinary income or short term capital gain that would have been recognized had the property been sold instead of contributed. IRC §170(e)(1). Accordingly, assuming the contributed stock would have produced long term capital gain if it had been sold, the full fair market value of the stock can be claimed as a deduction.

Under prior law, it was necessary to add back for purposes of AMT the appreciation element of certain property contributions. In other words, taxpayers could only deduct the basis of contributed property for AMT purposes. This rule was repealed by §13171(a) of the Omnibus Budget Reconciliation Act of 1993.