Unlocking the Value of C- Corp Shares

There are approximately 1.7 million business in the US that are classified as C- corporations (C- corp). They take their name from Subchapter C of the Internal Revenue Code. Although less prevalent than other classifications, C- corps are often larger companies and account for the majority of business receipts & assets in the country.

Unlock the value of C- corp shares for tax savings and charitable impact

C-corps have several defining characteristics including:

• Ownership Structure: They can have an unlimited number of owners (shareholders), and they can be persons, other corporations, or other legal entities. Unlike S-corps, they can even have foreign investors. Multiple classes of stock( i.e. common and preferred) can exist.

• Perpetual Existence: The enterprise can continue to exist independent of its owners.

• Limited Liability: Share owners are protected from personal liability of the company  debts and legal obligations.

• Formalities: C- corps have more regulatory & administrative requirements, including having bylaws, requiring a board of directors, etc.

• Double Taxation: Profits of the corporation are taxed via corporate income tax and then profits at the shareholder level are taxed again when profits are distributed as dividends or realized as capital gains.

When a private C- corp is sold, shareholders—particularly founders or senior executives—who hold highly appreciated stock with a low cost basis face the prospect of a significant capital gains tax liability upon the liquidation of their shares.

To significantly reduce the capital gains tax burden from a business sale, the owner can strategically use charitable giving as a powerful tool for tax planning. To ensure the sale and the accompanying tax strategy are executed smoothly, a team of advisors is essential.

The Path to Better Giving and Tax Savings

Although there a variety of ways to donate C- corp shares to a charitable cause, this article will focus on how a donor advised fund (DAF) can unlock the charitable value and build a path for smart tax planning.

A donor advised fund (DAF) is a charitable investment account which can only be used for charitable purposes. Money can go in but never leave unless it is directed toward charitable causes. This type of account provides a variety of benefits, including tax reduction, flexibility, privacy, and (unlike a private foundation) no requirements concerning minimum annual payouts to charity.

The guidelines to do this successfully are as follows:

1. Shareholder agreements must be reviewed to determine specifics concerning allowable transfers, timing, and required processes or restrictions concerning how or if the shares can be transferred to a DAF or similar charitable vehicle.

2. The shareholder would need to donate the C- corp shares prior to the sale of the business.

3. The value of the C- corp shares is deductible at the fair market value (FMV) on the contribution date, with that value being determined by a qualified appraiser. This appraisal value gets reported on the IRS Form 8283 which gets accepted and signed by the DAF sponsoring charity.

4. The appraisal must occur within 60 days before the date of the donation, and not past the donor’s tax return for the year that the gift is made.

Conclusion

Using C- corp shares strategically to lower your capital gains tax is a sophisticated technique that requires precise execution and timing.

At Generosity Nexus, we offer the deep experience and technical insight necessary to manage this complex form of charitable giving and tax planning. We have been successfully executing

C - corp charitable transitions for nearly 15 years, completing numerous instances of this process.

Don’t hesitate to schedule an appointment to learn more about how we can help you.