Important Information about Your Business Interest Contribution and Deduction
Please review the following important general information and share with your legal counsel. Note that neither the PCA Foundation nor any of its employees or agents may or will provide to you legal or other professional advice, or legal or other particular information for your reliance, and neither may or will represent you or your interests. We urge you to engage your own legal and other professional counsel to assist you in the consideration and making of any charitable gift.
Pre-Arranged Sale: The Internal Revenue Service treats a gift of property (real or personal, tangible or intangible) that is subject to a binding contract for sale as in effect (i) a sale of the property that produces taxable gain, followed by (ii) a gift of the after-tax sales proceeds, thereby significantly reducing the tax savings of the gift. Persons contemplating a gift of any kind of non-cash property should refrain from entering into any binding contract for sale of the property or binding letter of intent, whether written or verbal. Proceed with discussions, and drive close to agreement, but refrain from binding agreement until after the gift.
Excess Business Holdings: The Foundation essentially is prohibited from owning directly or indirectly for more than five years from the date of contribution an interest in the company (or any other company) that when added to the interests of certain related persons equals more than 20% of the company. We will ask you to provide on the gift information form the holdings of donor, any person the donor has designated or intends to designate to recommend grants of proceeds of the gift, or any related individual or entity, in the company or any other business entity downstream from the company in the chain of ownership. This business holdings section does not apply, and the associated part of the gift information form need not be completed, if neither the company nor any downstream entity engages in any active business (but note that active business includes real estate development).
Debt: Debt can significantly reduce the income tax savings of the gift by (i) causing the gift to be partially a sale to the extent of debt from which the donor is (or is deemed) discharged, upon the gain from which the donor is subjected to income tax, (ii) reducing the amount of the charitable income tax deduction, and (iii) subjecting PCAF to debt-financed unrelated business income tax on its share of the company operating income while it holds the gifted interest, and on the gain when it subsequently liquidates the interest (reducing the amount available for granting out for charitable purposes). The donor may be deemed discharged from debt that encumbers property to be gifted, and from the donor’s share of debt of a partnership. Accordingly, before gift, the donor if possible should pay off all debt that encumbers the interest to be gifted, and by all means should carefully evaluate the ramifications of partnership debt before giving an interest in a partnership (or LLC taxed as a partnership). We will ask you to provide on the gift information form the debt that currently encumbers the interest to be gifted, and all debt of the company if it is taxed as a partnership, including ad valorem taxes already due even if not yet payable:
Recapture and Other Ordinary Income: If the company is taxed as an S corporation or partnership, its ownership of so-called “hot assets,” such as unrealized receivables, appreciated inventory, and property subject to depreciation recapture, also may significantly reduce the income tax savings of the gift, and may even make the gift little more tax efficient than a gift of cash. The donor’s charitable income tax deduction is reduced by the amount of ordinary income the donor would have realized if he had sold the items.
Process: PCAF will review and assess the information and documentation provided to try to assure that the value of the gifted interest is substantial and unencumbered (or able to be unencumbered), that the interest may be transferred, that receiving, holding, and liquidating the interest will not produce liability or substantial financial obligations for PCAF, and generally that receiving the interest is likely to advance its charitable purposes. If PCAF decides to pursue the gift, it will draft and provide to the donor a proposed brief gift agreement and proposed transfer documentation for consideration by the donor in consultation with the donor’s own legal and other professional counselors.
Liability Generally: PCAF has no significant resources not subject to donor advisory privileges, and therefore must pay any substantial liability arising from one gift from the donor advised funds of all other donors. Accordingly, PCAF must assure to the extent possible that receiving a gift will not result in unreimbursed liability or other cost that exceeds the cash proceeds of the gifted interest at any time.
Donor Indemnity: PCAF will expect the donor to indemnify it for any present or future liability related to the gifted interest that exceeds the amount of cash in the donor’s donor-advised fund or funds with PCAF.
Responsibility for Requirements for Charitable-Contribution Deduction: Please note, as critically important, that you are responsible to identify and comply with all requirements to secure a charitable-contribution deduction for your gift. The IRS insists on strict compliance with all such requirements. We urge you to obtain the assistance of your own qualified professional counsel, and remind you that neither PCAF nor any of its staff may provide any legal or other professional advice or service to you, and this disclosure form may not include every requirement for securing a deduction for your particular gift under the circumstances.
Receipt: To deduct any gift of $250 or more, you must obtain by the day you file your return, and no later than the due date for filing, and retain, a receipt that meets the requirements of Code section 170(f)(8). We will provide a receipt.
Form 8283: You will need to complete and submit with your income tax return a Form 8283 if the deduction you will claim for your gift, or your gift and other similar gifts you make to us or any other donee in the year, is more than $500.
Appraisal: To claim a deduction of over $5,000 for a gift of property other than cash or marketable securities (or certain other kinds of property), you must obtain and retain indefinitely in your records a “qualified appraisal” prepared, signed, and dated by a “qualified appraiser.” To qualify, both the appraisal and appraiser must meet certification and multiple other specific requirements laid out in the Internal Revenue Code and Treasury Regulations for purposes of the rules for deducting charitable contributions. You must obtain the appraisal (it must be signed and dated, and in your possession) no earlier than 60 days prior to the contribution date, and no later than the due date for your income tax return. The appraisal must value the property as of a date no earlier than 60 days prior to the contribution date, and no later than the contribution date, if the appraisal is dated prior to the contribution date. The appraisal must value the property as of the contribution date if it is dated on or after that date. You may want to review IRS Publications 526 and 561 to better and more comprehensively understand the rules, but again, we encourage you to engage professional counsel.
To claim a deduction of over $500,000 for a gift of property other than cash or marketable securities (or certain other kinds of property), you must attach the qualified appraisal to your income tax return.
Form 8282: When the Foundation liquidates or otherwise disposes of most property it has received by gift, other than cash or publicly traded securities, within 3 years of receiving the gift, it must file a Form 8282 to report such disposition. We eventually will need your Social Security number to be able to complete this form.
PCAF System Use Agreement: The System Use and Gift Agreement (“Agreement”) to which we have asked or will ask you to agree both as part of the specific agreement for your gift and when you enrolled or will enroll for your donor-advised fund here establishes your and PCAF’s respective rights and obligations with regard to our interaction in charitable ministry. The Agreement, as amended from time to time, is available on our website at https://pcafoundation.com/wp-content/uploads/2019/11/AGR-Form-System-Use-rev-191122-1.pdf
Gift Agreement: To assure an actual substantial gift and avoid unreimbursed liability that exceeds gift value, PCAF will ask the donor (and individual donor indemnitor if the donor is a trustee or entity) to do the following in the gift agreement: (i) transfer unencumbered title to the gifted interest, (ii) agree to refrain from increasing excess business holdings, (iii) agree to secure the legal status and valid existence of the company and the gifted interest, and (iv) agree to indemnify PCAF for any financial obligations related to the property that at any time exceed cash amounts in the donor’s donor-advised funds with PCAF. See our standard terms and conditions that will be incorporated in the gift agreement here.