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Tax Affects of Assignment of Executed
Purchase and Sales Agreement
FACTS: Property to be sold is under a validly
executed purchase and sale agreement ("P&S"). Purchase and
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 502-3rd, 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's motives in making the gift are
given relatively little weight in determining whether a valid
transfer has occurred."
BNA 800-3rd, 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 800-3rd, 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 521-3rd, 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."
If you have an important question requiring an authoritative answer, do not hesitate to contact the professionals at Dana S. Beane & Company, PLLC
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