Wednesday, February 1, 2012

Facebook IPO Article Causes Tax Nerd Rage! Film at 11....

Whenever I see articles in the popular press on tax or charitable issues, I'm torn. On the one hand, I want to read them because it's important to know what the general public hears about such issues in order to able to advise about or teach them appropriately. On the other hand, the tax geek runs strong in me, so the technical errors one finds in such articles drive me absolutely bananas. And so, with great trepidation, I clicked the following link over my first cup of coffee of the morning:

The Facebook effect: Will charities reap some of the IPO dough?

The first few paragraphs were fine, until...

To lessen their tax burdens, the new Facebook millionaires could contribute some of their stock to a donor-advised fund, a type of public charity that serves as an umbrella giving vehicle. They could also set up a "charitable remainder trust," whereby a chunk of money goes to a charity after a specified time – like upon death – but the donor receives income or interest off the donated assets. In both cases, the donor can avoid capital gains tax and might also be eligible for an income tax deduction. (Emphasis added).

Really. REALLY? In search of an audience, I stormed into the living room and nerd raged at my unsuspecting husband, complete with indignant finger pointing, "HOW MANY TIMES do I have to tell people that CRTs do NOT allow you to avoid capital gains tax, only to defer paying it!" He blinked, and asked me if I needed more coffee. I wandered back to the computer, muttering something about the time value of money and retention of character of income.

I feel better now, though. EWW

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CRTs do permit people to avoid paying capital gains in many instances. They can diversify their holdings without current capital gains tax, and whether they ever have to pay tax on those gains depends on (1) the workings of Code section 664(b) (governing taxation of distributions), (2) the nature of the receipts of the CRT (which depends in turn on how the CRT's portfolio is invested), and (3) the amount of and term of the lead interest.

Posted by: Harvey Dale | Feb 2, 2012 4:19:44 AM

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