The Tax Law of Charitable Giving. Bruce R. Hopkins

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The Tax Law of Charitable Giving - Bruce R. Hopkins


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completed, the securities had ripened from interests in a viable corporation into a fixed right to receive money, by means of an ongoing tender offer or a pending merger agreement. Therefore, despite the gifts, the gain in the stock was taxable to the donors.36

      The donors owned 18 percent of a privately held corporation, and served as several of its officers and directors. These securities were obtained in 1985. On July 28, 1988, the corporation entered into a merger agreement. The transaction was planned and negotiated by one of the donors. The resulting tender offer was the subject of a letter sent to all shareholders on August 3, 1988. The stock price set for the offer embodied a 24 percent premium over the market price for a share of the corporation's stock as of July 1988.

      The tender offer (and thus the merger agreement) was conditioned on the acquisition of at least 85 percent of the outstanding shares of the corporation by the expiration date of the tender offer, originally set for August 30, 1988. This minimum tender condition was waivable at the discretion of the acquiring entity. Certain of the donors were expected to continue to have extensive involvement in managing the business, including being executive committee and board members. The tender offer started on August 3, 1988, and was successfully completed on September 9, 1988. By August 31, 1988, more than 50 percent of the stock had been tendered. On September 12, 1988, acquisition of more than 95 percent of the stock was announced.

      During the course of the tender offer, the donors transferred some of their stock in the corporation to three charities. Two of them were family foundations created on August 26, 1988. Various letters to the stockbroker authorizing the transfers were ostensibly executed in August 1988. The date the broker formally transferred title to the securities to the charities was September 8, 1988. Final letters of authorization were signed the next day.


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