The benefits of private stock donations
Deducting the value of illiquid common stock
Real World Recommendations from Experts in the Field
Contact Information and Disclaimer
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Benefits to Donors
Support a charitable cause
Receive substantial cash savings from reduced taxes A form of Partial Liquidity for illiquid stock
Recognition with charity and community as a major donor
Entire process handled by OVP – simple, fast, cost effective and rewarding
Is donating private stock a common and accepted donation practice? Answer: Large institutions including Stanford and Harvard have been accepting private stock donations for years.
Sample Tax Savings Calculation
Assumptions: Donor has gross income of $300k per year for six years and $1 million
Fair Market Value in private stock Appreciated stock is limited to a 30% annual deduction from gross
income
The donor saves $243,000 over 6 years
Simplified ScenarioEst. Gross Income Over 6 Years
$1,800,000
Maximum Deduction (30%)
$540,000
Marginal Tax Rate 45%Total Tax Savings $243,000
Tax Rules for Private Stock Donations
Appreciated stock donations (value above investment) allow for a deduction up to 30% of a donor’s annual adjusted gross income
Stock donations with a basis allow for a deduction up to 50% of a donor’s annual adjusted gross income – IRC election 170B (requires modeling to determine if worthwhile)
Donations must be to IRS recognized charities
Deductions are against ordinary income
Deductions beyond annual limit carry forward for 5 years
Approximate tax savings equal an individual’s marginal tax rate (federal + state) multiplied by the value of securities donated
To qualify for a deduction, the donation must be accompanied by an independent valuation appraisal The appraiser must sign off on your form 8283
For specifics, see the IRS Bulletin on Noncash Charitable Contributions (http://www.irs.gov/irb/2006-46_IRB/ar13.html)
Why You May Not Have Heard About This
Private security donations have languished despite enormous private company wealth because:
Very few charities accept private stock donations Lack resources and expertise to screen, manage and value private securities
Unable to respond to a donor’s accountant, board, counsel and transfer agent
Donors lack the time and resources to navigate a complex private stock donation process Unable to locate an acceptable charity that also takes illiquid stock
Lack time to facilitate internal transfer process (accounting, legal, transfer agent)
Require tax expert to confirm tax savings and optimize donation amount
Valuation Appraisal required for noncash donations over $10,000, excluding public stock Outside valuation firms have historically been very expensive ($25,000-$50,000+)
How we add value
OVP works with a select group of IRS-recognized charities that share the following traits: Accept private security donations
Strong values and reputation in the community
Clear objectives and efficient use of proceeds
Experienced management
We provide a detailed valuation report and manage the entire donation process The fee typically represents a small percentage of the savings achieved
by the donation
We can tie this into other compliance valuations (e.g. IRC 409A)
Do I need to get board approval for my donation? Answer: Getting board approval should be straightforward since donors’ private holdings are being used as part of a charitable donation, not for cash sale.
Conclusion
Contact Information
Oxford Valuation Partners provides valuation and advisory services to leading private emerging growth companies and investors. Our experienced professionals assist clients with regulatory compliance, litigation support, charitable donations of private stock, mergers and acquisition support, dispute resolution and portfolio valuation.
T: 212 464 7178E: [email protected]
NEW YORK244 Fifth Avenue, 274GNew York, NY 10001
LONDON71-75 Shelton StreetCovent GardenLondon WC2H 9JQ
oxfordvp.com
Profiles
Sanjay Gandhi, General Counsel Sanjay has worked on valuation and regulatory engagements across e-commerce,
mobile applications, social media, life sciences, online marketing and financial services.
Wealth of experience in operating and advisory roles to companies and investors over the past 15 years Advised Fortune 500 clients on M&A and strategy at McKinsey & Company
Practiced corporate and securities law with leading international law firms
Built a venture program for the United Nations across Africa and Asia
Masters of Law, University of Oxford; Law, McGill University and the University of New South Wales; Undergrad: Finance and Economics
Admitted: NY Bar (2001); Executive Committee, VC Law and Technology Section; Member - Tax and Business Law committees.
Boards: Advisory Board for Business & Ethics (Wharton/UPenn); Kopernik, a a non-profit that brings critical technologies to developing countries.
OVP Staff: Selected Certified Reports