FACTS: Property to be sold is under a validly executed purchase and sale agreement ("P&S"). Purchase and Sale agreement is between two third parties.

QUESTIONS:  Can the P&S be assigned before closing by Seller to a charitable organization?  Is the income from the sale of the property taxable to Seller? Is the client allowed a charitable deduction?

CONCLUSION:  Once a P&S agreement is signed, it is too late.  The income cannot be assigned to a charity.

In Ferguson v. Commissioner [Dec. 5, 2007], 108 T.C. at 259, " In determining the reality and substance of a transfer, the ability, or the lack thereof, of the transferee to alter a prearranged course of disposition with respect to the transferred property provides cogent evidence of whether there existed a fixed right to income at the time of transfer. Although control over the disposition of the transferred property is significant to the assignment of income analysis, the ultimate question is whether the transferor, considering the reality and substance of all the circumstances, had a fixed right to income in the property at the time of transfer."

TAX RESEARCH

BNA 502-3^rd, Gross Income: Tax Benefit, Claim of Right and Assignment of Income,  IV.B.1.a.(3) - "Transfers by Gift - In general, where the attempted transfer is by a purported gift, the gift is valid only if the following apply:

• the donor is competent;
• the donee is capable of accepting the gift;
• the donor intends to irrevocably transfer title, dominion and control of the property;
• there is an irrevocable transfer;
• there is delivery of the gift or of control over it; and
• the donee accepts the gift.

The donor's motives in making the gift are given relatively little weight in determining whether a valid transfer has occurred."

BNA 800-3^rd, Estate Planning, VI.D.3.b.(5), "Assignment of Income Principles - the Subpart E. regulations indicate that "assignment of income" principles may apply to grantor trusts in determining the owner of certain items of income.  Therefore, even through the trust grantor is not required to include the trust's gross income in his or her gross income under the statutory Subpart E. rules, gross income inclusion cannot be avoided where the income was previously economically earned by or otherwise accrued to the trust grantor and is thereafter sought to be deflected to the trust."

BNA 800-3^rd, Estate Planning, IX.E.3.b.(4), "Possible Assignment of Income Risk - Even though property is apparently transferred, in some situations the donor might need to be concerned about the possible applicability of the assignment of income doctrine.  In this context, the charitable contributions deduction would be available for the amount contributed, but that amount constituting income would also be required to be included in gross income.  The risk that then arises is that the charitable contribution deduction may not be fully utilized because of the percentage limitation on charitable contributions and because of other limitations."

BNA 521-3^rd, Charitable Contributions: Income Tax Aspects, II.F.2.b.(1), "An income tax deduction is not allowable for the contribution of an income interest in trust unless the donor is treated as the owner of the interest for tax purposes.  If a Section 170 deduction is allowed for the value of an income interest transferred to charity, neither the grantor, the trust, nor any other person is allowed a deduction under Section 170 or any other action for the annual amount contributed to charity."