When a corporation is to be acquired through a taxable sale of shares, a shareholder who is otherwise charitably inclined may be advised to contribute a portion of the corporation’s stock to a charity or to a donor-advised fund that will thereafter make charitable contributions.

The person making the contribution would be seeking to enjoy a double tax benefit: first, an income tax deduction for the charitable contribution equal to the fair market value of the donated shares, and, second, if the shares are appreciated, relief from the obligation to include the unrealized gain inherent in the contributed shares in gross income. (The donee, as a tax-exempt charitable organization, will also not be taxed on the gain recognized on the sale of the contributed shares to the buyer.)

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