Charitable organizations receive all types of donations, including cash, personal property, and even business interests. Often times, the charity is so excited about a potential gift that no diligence is completed prior to acceptance, and failure to complete diligence on gifts can turn out to be costly. Take gifts of real property – these are very common and can be financially beneficial to a charity. However, without completing diligence, the charity may find that it now owns a superfund site. Another not-so-obvious example is a donation of stock. Although most donated stock is marketable, certain types of stock, including stock in an S corporation (usually small, family owned corporations), are not. This post explores the implications of a charity accepting gifts of S corporation stock.
Subchapter S corporations can only have certain types of shareholders. Generally, these “permissible shareholders” include individuals (who are not nonresident aliens), estates, certain trusts, and certain exempt organizations. We will