Quick Links
Request a Gift Planning Guide
The Oracle eNewsletter
1804 Society
Mission Video
Mission Video
Make a Gift
Here is our suggested bequest language for use by our donors and advisors.

Tuesday October 13, 2015

Case of the Week

Barbara Banker's Youth Center


Barbara Banker started with nothing. She not only did not own a bank, she had nothing to place in the bank. Barbara lived in a midsized town and worked in the local hardware store. But the store owner noticed her industrious efforts and strong work ethic. When he decided to retire, he suggested that Barbara could take over the hardware store and pay him over a term of ten years from store profits. Barbara did exactly that. In fact, when the town drugstore owner wanted to retire, she bought it under a similar plan. Later, Barbara started buying apartment buildings in town. Since she needed financing, Barbara became good friends with the town bankers.

Two bankers approached Barbara about starting a new local bank. She agreed to be one of the initial directors and they all invested in the local bank (with the name LoBank). Years later, the bank services and value have greatly increased. Barbara is a respected businesswoman and now has a large block of stock in LoBank.

As a strong community supporter, Barbara gives regularly to her favorite local charity. She would like to make a large gift of bank stock to local charity for a new youth center. But as a director she knows that LoBank is discussing a sale of all stock to MegaBank from a nearby large city. Barbara met with her CPA to discuss the gift.


Barbara explained, “My favorite charity would like to name the new youth center after me. I am interested in supporting youth and this center would be a fine addition for our town. The LoBank stock has gone way up in value, but I have heard that there may be problems with gifts when bank negotiations are underway. Can I make this gift? Are there any problems?”


Barbara’s CPA explained that it is possible to make a gift of LoBank stock at this time. Negotiations for sale of a bank can be protracted. The acquisition of local banks and other companies may be subject to specific federal regulatory rules. Therefore, the negotiation period may be quite lengthy in order to comply with external requirements.

Since there is no binding agreement under Rev. Rul. 78-197 during the negotiation period, outright charitable gifts or transfers to a charitable trust are usually permissible and will bypass capital gain. In some cases the directors may have restricted stock. With restricted stock, the charity may need to wait the applicable period of time before actually selling the stock. However, there is no restriction on Barbara’s stock and it may be transferred and sold.

Since LoBank is not publicly traded and the stock gift is for $100,000, substantiating the charitable deduction will require an appraisal by a qualified independent appraiser. In addition, the few stock sales that occur each year are usually to other current LoBank shareholders. Because the charity and Barbara do not have a binding agreement to sell to other shareholders, she may make the gift, bypass the capital gain and deduct the appraised value. This will be a 30% type appreciated gift. If she cannot use the full $100,000 amount under the 30% limit for this year, Barbara can carry forward the remaining gift value for up to five years.

Published October 9, 2015

Previous Articles

Lucky Lucy Lindstrom's Flood Recovery Plan

Lucky Lucy's Foundation Goes Public

Lucky Lucy Pays Tax on "Northern Long Shot" Foundation Income

Lucky Lucy Asks If "Northern Long Shot" Can Lobby

Lucky Lucy Lindstrom's "Northern Long Shot" Charity Diversifies