Thursday, December 8, 2011
Forbes reports that billionaire hedge fund manager Leon G. Cooperman lost a $43 million claimed charitable contribution deduction but at least managed to avoid $5 million in related penalties. According to the article, the problem with the deduction was that it consisted of non-publicly traded securities (interests in a hedge fund) and was made to his family's private foundation. As readers of this blog well know - but Cooperman's advisers apparently did not - IRC § 170(e)(1)(B)(ii) generally reduces the amount of a deduction for such a contribution by any long-term capital gain included in the donated property's value when the recipient is a private nonoperating foundation. While there is no reduction even in this situation if the gifted property is stock for which market quotations are readily available, that exception was not available here. As a result, Cooperman had to pay nearly $14 million in additional taxes plus interest, but he managed to avoid penalties by successfully claiming reliance on his (presumably now former) advisers.