8074 / May an individual take a deduction for charitable contributions to private foundations?

Editor’s Note: Under the 2017 tax reform legislation, the 50 percent AGI limitation on cash contributions to public charities and certain private foundations increased to 60 percent for 2018-2025. The 2025 OBBB made this increase permanent.  In response to the COVID-19 pandemic, the 2020 CARES Act increased the 50/60 percent income limitations discussed below to 100 percent for 2020 and 2021.

Yes, subject to certain limits. Most private foundations are family foundations subject to the special contribution limits described below. Certain other private foundations (i.e., conduit foundations and private operating foundations, which operate much like public charities) are treated as 60 percent -type organizations and subject to the rules for those organizations as explained in Q 8070.¹ The term “private foundations” as used below refers to standard private non-operating (e.g., family) foundations.

The deduction for a gift of long-term capital gain property “to” or “for the use of” a private foundation is subject to an income percentage limit of the lesser of (a) 20 percent of adjusted gross income, or (b) the unused portion of the 30 percent limit.² A deduction denied because it exceeds 20 percent of adjusted gross income may be carried over and treated as a 20 percent -type deduction over the next five years.³

Ordinarily, the value that is taken into account for a gift of long-term capital gain property to or for the use of a private foundation is limited to the donor’s adjusted basis (i.e., the value of the gift is reduced by the amount that would be long-term capital gain if the property were sold at its fair market value at the time the gift was made).⁴ However, if the gift is of publicly traded securities that meet the definition of “qualified appreciated stock” and the contribution is made to a private foundation, the gift will be deductible at its full fair market value.⁵

Qualified appreciated stock is generally publicly traded stock that, if sold on the date of contribution at its fair market value, would result in a long-term capital gain.⁶ A contribution of stock will not constitute qualified appreciated stock to the extent that it exceeds 10 percent of the value of all outstanding stock of the corporation; family attribution rules apply in reaching the 10 percent level, as do prior gifts of stock.⁷

The Service has determined that shares in a mutual fund can constitute qualified appreciated stock.⁸ Restricted stock cannot be qualified appreciated stock, despite the availability of market quotations for other stock of the same class, because a restriction on transferability may materially affect the value of the stock.⁹ Unlisted stock does not constitute qualified appreciated stock. According to the Service, this is because the legislative history indicates that IRC Section 170(e)(5) is to be applied only to situations where price quotations for the contributed stock are readily available on an established securities market.¹⁰  Therefore, it is not sufficient merely that market quotations for the stock are readily available (e.g., from established brokerage firms); rather, the market quotations must be readily available on an established securities market.¹¹

Private foundation contributions other than long-term capital gain property are subject to an income percentage limit of the lesser of (a) 30 percent of adjusted gross income, or (b) 50 percent minus the amounts contributed to 50 (or 60) percent -type organizations (see Q 8070).¹² The deduction for a gift of property other than long-term capital gain property (e.g., stock held for one year or less) is limited to the donor’s adjusted basis.¹³