Gifts of Closely-Held Stock: Policies and Procedures
As a general rule, gifts of securities are sold as soon as possible, usually on the same day as the gift. The fund which the donor established is then credited with the proceeds from the sale, after commissions and expenses, if any. In the case of gifts of stock of closely-held corporations that are not readily marketable at the time of the gift, it should reasonably appear that the stock will be sold or converted into income-producing property within a specific time frame, not to exceed three to five years. Treasury Regulations require that the Foundation assure that its funds produce a reasonable rate of return. This can be particularly important for property held in designated funds, because while this requirement is applied based on the aggregate performance of most funds, it is made on a fund-by-fund basis for designated funds. See Treas. Reg. Section 1.170A- 9(e)(11)(v)(F) and 1.170A-9(e)(13)(x).
Responsibilities of the Donor
The donor will be responsible for obtaining a qualified appraisal complying with IRS regulations for the purposes of establishing the value of the gift for federal income tax purposes, including the preparation of Form 8283 ("Noncash Charitable Contributions") See Treas. Reg 1.170A-13(a).
It is the donor's responsibility to prepare the appropriate instruments which are necessary to transfer the stock to the Foundation. All proposed transfer instruments must be reviewed by the Foundation's legal counsel prior to acceptance by the Foundation.
Funds holding closely-held stock will be charged the same administrative fees as all other funds at the Foundation. There should be adequate assurance that the affected fund will have adequate cash to pay administrative fees, either from the investment itself or from further contributions from the donor. All paid dividends will be used to offset all or a portion of the fee charged to the account in the same year ending with the anniversary date of the gift. Dividends will be credited to the donor's fund only to the extent that they are offsetting fees.
The Foundation's legal counsel shall review any shareholder, buy- sell, or other agreements that impose any restrictions or limitations upon the sale or transfer of the stock.
Procedure for Accepting Closely-Held Stock
After the requirements of this Procedure have been satisfied, the Executive Director will have the authority to accept or refuse a gift of closely-held stock. The Executive Director may refuse any offered gift of closely-held stock that is judged not to be in the best interests of the Foundation.
Prior to or upon transfer of the stock to the Foundation, the donor and the Foundation will sign an agreement (approved by legal counsel) stating the terms of the gift, which shall specify that there are no restrictions on the Foundation's right to use or convey the property.
In negotiating the sale of closely-held stocks, a fair market value (price per share) will be established at the time of sale. No warranty is given by the Foundation that the valuation will be acceptable to the IRS. In some cases, the Foundation may obtain an independent appraisal of the value of the stock prior to agreeing to a proposed sale of the stock.
In addition, the donor will be advised that if the property listed on IRS Form 8283 is sold, liquidated, or otherwise disposed of within two years of receipt, the Foundation is required to file a separate report within 125 days with the IRS on IRS Form 8282 ("Donee Information Return") and disclose facts about the disposition. See Treas. Reg. 1.6050L-1.
What the Foundation Will Not Do
Except in extraordinary circumstances, the Foundation will not pay for legal assistance, appraisals or other services on behalf of the donor. The Foundation will not establish or corroborate the value of any property for the purpose of substantiating the donor's income tax charitable deduction.
In many cases, upon the subsequent sale of closely-held stock, there will be a stock purchase agreement setting forth the proposed terms and conditions of sale. The Foundation cannot join in or participate in the issuance of warranties and representations and in indemnification agreements.