• Tax Court affirms tax treatment of donations of appreciated stock—In T.C. Memo. 2020-128 (Sept. 3, 2020), the Internal Revenue Service issued notices of deficiency for a taxpayer’s Form 1040 for multiple years, relating to stock donations to the Fidelity Charitable Gift Fund (the Gift Fund), which is a donor-advised fund. The taxpayer had made repeated donations of stock in a privately held company, of which he was the chief financial officer, to the Gift Fund. Prior to each gift, the taxpayer obtained the consent of the Board of the company to donate the stock. The consents noted that the Gift Fund has procedures and policies that require it to immediately liquidate the stock.
However, when making the donation, the taxpayer also signed a letter of understanding with Fidelity, acknowledging that the stock would be exclusively owned and controlled by Fidelity after the donation and noting that Fidelity wouldn’t be under any obligation to redeem, sell or transfer the stock. Ultimately, shortly after each donation, Fidelity redeemed the shares.
The IRS asserted that the taxpayer was liable for the tax on the redemption of the donated shares. In its notice of deficiency, it determined that each donation of shares followed by Fidelity’s sale should be treated in substance as a redemption of shares for cash by the taxpayer, followed by a donation of cash proceeds to Fidelity. However, the court disagreed. The court respected the form of the transaction because it found the taxpayer had granted Fidelity exclusive legal control of the shares. The repeated pattern of donation followed by sale wasn’t enough to transform the transaction. The court held that it would only collapse the transaction if the redemption was practically certain to occur at the time of the gift, regardless of whether the taxpayer had made the gift or not. The court found that the sale wasn’t a fait accompli at the time of the gift, so the transaction was respected, and the taxpayer’s motion was granted.
• Estate and gift tax returns can be signed digitally—In IR-2020-19 (Aug. 28, 2020), the IRS announced that gift and estate tax returns may be signed digitally (that is, they don’t need a “wet” signature), but they still need to be filed by mail. The notice states that “The IRS will not specify which digital signature product tax professionals must use. There are several commercial products available.” This will allow gift tax returns that have been signed and faxed to the preparer or signed and emailed from a tablet to be printed and filed, without having to circulate hard copies to the client to sign by mail. Presumably, taxpayers may also use Docusign and similar products.