Charitable Contributions

Business owners may desire to donate a portion of their privately held business to charity.  As such, a tax deduction in the amount of the gifted stock can be earned in the year that the donation is made. 

The IRS requires that donors substantiate the amount of their gifted stock with a business valuation that has been completed by a qualified appraiser, as defined by the IRS.  Since these tax deductions are carefully monitored by the IRS, we work diligently to provide accurate, thorough, and defensible valuation reports that will stand up to scrutiny.

Hypothetical scenarios that require an expert in business valuation

A couple wishes to gift 10% of their privately held company to charity. The value of minority interests, such as the 10% the couple wishes to gift, is reduced by various discounts. The couple wants to receive the greatest tax deduction for their gift, and in order to do this they need to try to reduce these discounts. Providing the gifted interest, which is going to charity, with control prerogatives and the ability to sell the interest back to the donors, can help reduce the discounts, thus maximizing their couple's tax deduction.

A businesswoman would like to donate 20% of her real estate holding company to a local charity.  The physical property must be valued by a real estate appraiser, but the 20% stake in the holding company must also be valued and is subject to valuation discounts since it is a minority share.  The businesswoman needs a real estate appraisal as well as a business appraisal with valuation discounts to for tax purposes, specified by the IRS.

Special considerations for charitable contribution valuations:

There are special IRS reporting rules that must be adhered to for charitable contribution valuations.  Click here for a complete list. (link to text from page 7 to the Guide to Charitable Gifting report) For gifts of closely held stock over $10,000, the Internal Revenue Service requires a qualified valuation report to validate the value of the gift.

The value of the interest being gifted is typically a minority interest in a privately-held business, which is subject to various discounts that reduce the overall value of the gift. Steps can be taken to minimize valuation discounts associated with a minority gift of stock.  Click here to view a complete list. (link to text from page 11-14 on Guide to Charitable gifting)

Another important consideration is that the effective date for a charitable contribution valuation is the date the interest was gifted. Business valuations should only reflect information available up to the effective date. Events that occurred after the effective date should not be taken into consideration in the appraisal.

For more information, please see Allied Business Group's guide, "Business Valuation Information for Charitable Gifting Purposes."