Technical - Charitable Contribution Deduction - Part 2 - Income Tax Issues (& Gold)

Charity Advisor Resource Newsletter - Volume 2.1 (2010)

BY JONATHAN D. ACKERMAN, ESQUIRE

The Technical Article in CAR Newsletter 1.3 contains a general description of the charitable income tax deduction issues relating to a gift of gold. This article will address some of the specific rulings associated with a gift of gold.

Gold continues its record highs in value, but also remains an historically volatile asset. (see Hot Topics in CAR Newsletter 1.3.) For those who felt that a discussion of gold as a gift asset was ill-timed or too unusual to apply, I have had discussions with different professionals who have worked on six figure gifts of gold in various forms. Thus, it may be just the right time to discuss with your donors and clients that gold is the perfect asset to give outright to charity or to a planned giving vehicle.

Some IRS Pronouncements:

1. Gold - (a) Revenue Ruling 69-63 holds that a collection of rare coins held not primarily as a medium of exchange but as collector's items are tangible personal property - the ruling also holds that cash is not tangible personal property and that a gift of a future interest in tangible personal property is not currently deductible; (b) PLR 9225036 - South African Krugerrands were held not to be tangible personal property, as such coins are more akin to money rather than have value as collectibles - the IRS recognized that these coins are one of the most recognized types of gold bullion coins and they have no numismatic value; (c) PLR 8718006 - an investment by a private foundation in gold mining stocks do not constitute a jeopardy investment; and (d) the sale of an interest in an ETF that directly invests in a physical metal (such as gold) is treated as the sale of a collectible, such that any gain from the sale of the interest is subject to the maximum capital gain of twenty-eight percent, and investors in the ETF are deemed to own undivided beneficial interests in the assets held by the ETF (when treated as a trust under Treas. Reg. Section 301.7701-4) Chief Counsel Memorandum dated 5/2/2008).

2. Qualified Appreciated Stock - (a) PLR 9511041 - Shares of open-end mutual fund stock which the mutual fund must redeem at net asset value upon an investor's demand are qualified appreciated stock where the net asset value of the shares is quoted on a daily basis in a newspaper of general circulation throughout the U.S; (b) PLR 200322018 - American Depositary Shares (ADSs) and American Depository Receipts (ADRs) that are traded on an established securities market are qualified appreciated stock; (c) PLR 9825031 - Foreign stock the market quotations for which are readily available on an established securities outside the U.S. is qualified appreciated stock; (d) PLR 9247018 - Stock subject to SEC Rule 144 from being sold to or exchanged with a third party until a certain date wasn't qualified appreciated stock - although the stock was listed on the NY Stock Exchange, market quotations weren't considered readily available because of the resale restrictions, but where the common stock that taxpayer contributed met exceptions to the Rule 144 restrictions, the stock (which was traded on NASDAQ) was qualified appreciated stock, PLR 9734034 (also see Todd v Commissioner, 118 TC 334 (2002), where unlisted bank stock did not constitute qualified appreciated stock); (e) PLR 199915053 - Class B Stock for which price quotations weren't available on an established securities market at the time the stock was contributed to a private foundation, even though the Class B stock was convertible into Class A stock, which was listed on NASDAQ; and (f) PLR 200702031 - Stock traded on the Over-the-Counter Bulletin Board was held to qualify as stock for which market quotes are readily available on an established securities market (also see Treas. Reg. Section 170A-13(c)(7)(xi)(A) for a definition of when market quotations are readily available on an established securities market with respect to a security).

3. Tangible Personal Property - the IRS has defined tangible personal property in IRS Publication 526 page 10, as any property, other than land or buildings, than can be seen or touched. (This Publication is a very useful resource relating generally to the tax rules associated with charitable contributions.) Cash, currency, securities and other intangible property do not constitute TPP.

As you will note, a gift of gold may be more complex than one would initially think - there are many potential pitfalls for the donor and the charity. In addition, the character and method of investing in gold and gold-related assets is evolving. In all events, professional counsel should be retained to fully analyze the implications of a gift of gold given a particular set of circumstances.