May 15, 2011 | Read Time: 2 minutes
Will the donation of the Bose Corporation to the Massachusetts Institute of Technology start a trend?
It’s rare for a donor to give away a majority share of a business, as Amar G. Bose, the founder of the Bose Corporation, did last month with his gift to MIT.
The process of donating a privately held business to a charity can be messy—both for the donor and for the group receiving the gift. But some experts say such a gift can be a tax-savvy move for a donor who has nurtured a business over decades and has seen its value increase exponentially.
Donors can often reap the greatest tax benefit by giving away assets that have appreciated the most. In the late 1990s, when affluent investors were sitting on hefty stock-market gains, it made sense to give away stock, notes Bryan K. Clontz, founder of the Dechomai Foundation, which helps charities process complex noncash donations, including business interests.
Following a decade of small gains in the stock market, financial advisers should encourage clients to consider donating business interests instead, he argues. “Whether it’s Bose or some pipe-fitting company, it’s the same thing,” Mr. Clontz says. “Many of these companies have gained in value and are run by the ‘millionaires next door’ who are active in their community and very charitably inclined.”
Unpleasant Surprise
Charities should pay close attention to the legal structure of the company a donor wants to give. A C corporation, in which the company is taxed separately from its owners, is the most straightforward type of company to donate. Limited-liability corporations and S corporations are trickier—and charities could end up paying tax on the gains that the donor accumulated over the years.
Mr. Clontz says he once received a call from a university that was surprised to learn it had to pay $350,000 in tax on donated S corporation shares that were used to establish a $1-million endowed faculty position. The university had to find other money to cover the full cost of the endowed chair.
“This is a big university that should have known better,” Mr. Clontz says. “It put mud in a lot of faces.”
