Philanthropy with Purpose: A Strategic Guide for Businesses

Donating C Corp shares is a powerful philanthropic strategy that offers substantial benefits to both the donor and the recipient charity. However, like any complex financial transaction, several crucial considerations must be taken into account to ensure that the donor's generosity truly achieves its intended impact. As a gift officer, it is not only your role to understand these considerations but also to uphold the highest ethical standards, ensuring that the best interests of both the donor and the organization are protected. Our responsibility as development professionals is to navigate these opportunities with integrity, transparency, and a commitment to the values that safeguard the trust of those we serve.

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Key Factors to Consider Before Donating C Corp Shares

Below, I outline the key factors donors should carefully evaluate before proceeding with such a gift:

1. Valuation: Ensuring Accurate Appraisal

The first and perhaps most critical step in donating closely-held C Corp shares is determining their proper valuation. Unlike publicly traded stocks, where market prices are readily available, closely-held stocks do not have a clear market value. This makes accurate appraisal essential not only for ensuring the donor receives the appropriate tax deduction but also for compliance with IRS regulations. A professional appraisal is often required, and it's crucial to work with an expert who understands the nuances of valuing closely-held businesses. Incorrect valuation can lead to disputes with the IRS and potentially reduce the benefits of the donation.

2. Timing: The Importance of Strategic Planning

Timing plays a pivotal role in the success of a C Corp share donation. The case study highlighted in our previous discussion (Thinking Beyond Cash: Using C Corps to Realize Transformative Gifts) underscores the necessity of planning well in advance of any potential sale or liquidity event. By donating shares before a sale, donors can maximize tax benefits, avoid capital gains taxes, and provide the charity with assets that may appreciate even further. However, waiting too long or acting too quickly can complicate the process. Strategic planning allows donors to align their gift with broader financial goals while ensuring that the charity receives the maximum possible benefit.

3. Corporate Structure: Understanding the Specifics

It's important to note that the strategy of donating C Corp shares is specific to C Corporations. S Corporations, LLCs, and other business entities have different tax treatments and legal considerations that may not offer the same benefits. For instance, S Corporation shareholders may face additional tax implications, and LLCs often require more complex legal arrangements to transfer ownership. Donors need to fully understand their corporate structure and consult with legal and tax professionals to determine the most advantageous approach for their specific situation.

4. Long-Term Planning: Integrating Gifts into Overall Financial Strategy

Donating C Corp shares should not be viewed as an isolated act of generosity but rather as a component of a donor's broader financial and estate planning strategy. This type of donation can have far-reaching implications for the donor's financial future, including the management of their estate, the transition of business ownership, and the long-term financial security of their heirs. Integrating stock donations into a well-considered financial plan ensures that the donor's philanthropic goals are achieved without compromising their personal financial objectives. Donors should work closely with financial advisors to map out how such gifts fit into their overall plan.

5. Charity Selection: Ensuring Capacity and Alignment

Not all charities are equipped to handle gifts of stock, particularly closely-held shares. The administrative burden, legal complexities, and potential liquidity challenges may be beyond the capacity of some organizations. Donors should carefully select charities that have the expertise and infrastructure to manage such gifts effectively. Working with an intermediary, such as a donor-advised fund or a specialized charitable organization, can provide more options and ensure that the gift is processed smoothly and used to its fullest potential. Additionally, it's important to choose a charity whose mission aligns with the donor's values and philanthropic goals, ensuring that the gift has the intended impact.

6. Tax Implications: Navigating the Complexities

While the general tax benefits of donating C Corp shares are well-documented—such as avoiding capital gains taxes and receiving a fair market value deduction—the specifics can vary widely depending on the donor's individual financial situation. Factors such as the donor's income level, the structure of their business, and the timing of the gift all play a role in determining the exact tax implications. Therefore, it's essential to consult with tax professionals who can provide personalized advice and ensure that the donation is structured in the most tax-efficient manner possible.

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The Role of Charitable Organizations

It's worth noting that specialized charitable organizations play a crucial role in facilitating these types of gifts:

• Expertise: They provide the necessary knowledge to structure these gifts properly.
• Legal Framework: They use systems of supporting organizations to receive and process complex gifts efficiently.
• Donor-Advised Funds: They offer flexibility in timing grants to charities

André P. Gorgenyi, CAP®
Vice President of Philanthropy, The Granite YMCA
Founder, Profit with Purpose

Found this blogpost insightful?

Unlock the secrets to simplifying and closing complex gifts in the upcoming webinar, "Thinking Beyond Cash: 3 Proven Steps on Simplifying and Closing Complex Gifts." Led by André Gorgenyi on October 24^th, 2024 at 1pm EST. Register today.

André P. Gorgenyi, CAP®, brings over two decades of experience in fundraising, philanthropic advising, and nonprofit leadership. With a proven track record of securing seven, eight, and nine-figure gifts, André is an expert in planned giving and capital campaigns. As the Vice President of Philanthropy at The Granite YMCA and founder of Profit with Purpose, André leverages his deep expertise to help nonprofits optimize operations and maximize social impact, making him a sought-after advisor in the field.

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