Charitable Gifting of Privately Held Company Shares
Donating privately held company shares is a powerful tool for business owners who want to support charities while pursuing tax-efficient outcomes. In my experience as a CPA and CFP®, clients use this strategy to reduce concentrated stock positions, obtain a meaningful income tax deduction, and convert illiquid ownership into programs and services for charities. Below I cover how the gift works, the tax and reporting rules (current as of 2025), practical steps, common pitfalls, and strategies to consider.
Why owners consider gifting privately held shares
- Tax efficiency: Donors may be able to deduct the fair market value of long-term appreciated shares up to IRS limits and generally avoid paying capital gains tax on the appreciation the charity would otherwise realize on sale. See IRS guidance on charitable contributions and valuation IRS Charitable Contributions and Publication 561 on valuation IRS Publication 561.
- Philanthropic impact: A substantial noncash gift can be immediately useful to a charity (if it can accept and monetize the asset) and can enable larger grants or long-term endowments.
- Portfolio management: Donors with a large concentration in their company can reduce risk without triggering capital gains tax on a sale.
Key tax rules and documentation (what you must know)
- Valuation and appraisals
- For donations of non-publicly traded securities, the IRS expects a realistic fair market value. If the claimed deduction for a gifted interest in closely held stock or other non-public securities exceeds $5,000, you generally must obtain a “qualified appraisal” and attach it to Form 8283 (Section B). See IRC §170(f)(11) and the Form 8283 instructions: Form 8283, Noncash Charitable Contributions and Publication 561.
- Valuations for privately held shares are fact‑specific and commonly require an independent appraisal that considers earnings, marketability discounts, control premiums, shareholder agreements, and recent transactions.
- Deduction limits and character of the property
- Gifts of long-term capital gain property (generally property held for more than one year) to qualified public charities are typically deductible at fair market value, subject to percentage-of-AGI limits for the year. For appreciated securities given to public charities, the usual limit is 30% of adjusted gross income (AGI) for most taxpayers; other limits apply for private foundations and certain property types. Cash gifts have different AGI limits (see IRS Publication 526 for current thresholds).
- Gifts that do not qualify as long-term capital gain property (for example, inventory, ordinary income property, or certain short-term holdings) have different deductibility rules and may be limited to the donor’s basis.
- Substantiation and filing
- For any noncash gift over $250, you must obtain a contemporaneous written acknowledgment from the charity describing the contributed property and whether the charity provided goods or services in return.
- Noncash donations over $500 require completing Form 8283; donations over $5,000 require Section B with an appraiser’s signature. If the charity sells the donated closely held stock within three years in certain related-party transactions, special rules can reduce or disallow the deduction (seek professional guidance). See Publication 526 and Form 8283 instructions.
- Gift tax and estate tax considerations
- A charitable contribution to a qualified public charity is not a taxable gift and generally does not use your lifetime gift tax exemption. However, charitable transfers can reduce your estate and may interact with estate planning strategies. Always coordinate with estate counsel when planning large gifts.
- Charity’s ability to accept and sell the shares
- Not every charity can accept privately held stock. Many charities will only accept marketable securities or have policies for liquidating privately held interests. Donor-advised funds and community foundations often accept closely held stock but may require a plan for liquidation and may impose holding periods. Check the receiving organization’s policy before you prepare documentation. For guidance on donor-advised vehicles, see our pieces on donor-advised funds and operational differences: “Donor-Advised Funds: Flexible Philanthropy Explained” and “Donor-Advised Funds vs Direct Giving: Tax Documentation Differences.” (Links: https://finhelp.io/glossary/donor-advised-funds-flexible-philanthropy-explained/, https://finhelp.io/glossary/donor-advised-funds-vs-direct-giving-tax-documentation-differences/).
Practical steps to make a gift of privately held shares
- Confirm the charity can accept the security
- Contact the charity’s development officer or gift acceptance committee early. Ask about policies, timing for liquidation, whether they will retain the asset, and their required documentation.
- Obtain a valuation and appraisal (if required)
- Arrange a qualified appraisal when the likely deduction will exceed $5,000. Keep documentation of valuation assumptions; you and the charity will need to report the value on tax filings.
- Review corporate governance and transfer restrictions
- Check the company’s shareholder agreement, bylaws, or operating agreement for transfer restrictions, pre-emptive rights, or tag‑along/drag‑along provisions. Your company may require board or shareholder approval for transfers, especially if the transfer reduces your control.
- Prepare transfer paperwork
- Work with corporate counsel to execute stock powers, assign shares, and update stock ledgers. For S corporations, check S-election rules and consent requirements; transfers may affect S status depending on the recipient.
- Complete IRS forms and acknowledgments
- File Form 8283 when required, retain the charity’s contemporaneous acknowledgment, and itemize deductions on Schedule A of Form 1040 if you itemize.
- Coordinate timing
- Plan the gift in the year you want the deduction. If the stock’s value is volatile or litigation/transactions are pending, consider timing risks and get written confirmations of valuation dates.
Common pitfalls and how to avoid them
- Overvaluing the shares: An aggressive valuation increases audit risk. Use a qualified, independent appraiser and document methodology to support the claimed FMV.
- Ignoring transfer restrictions: Failing to secure corporate approvals can make a transfer invalid or trigger buyout obligations.
- Assuming all charities will accept the gift: Confirm acceptance in writing before relying on the gift for tax planning.
- Incorrect tax reporting: Missing Form 8283 or a qualified appraisal for high-value gifts can result in disallowed deductions and penalties.
When to use a donor-advised fund, private foundation, or split-interest trust
- Donor-advised fund (DAF): DAFs are commonly used to accept privately held securities because they provide a fast way to claim a deduction and then recommend grants over time. Sponsors vary in their ability to accept and liquidate closely held stock—contact the sponsor early. See our DAF guides for setup and documentation details: https://finhelp.io/glossary/donor-advised-funds-dafs/ and https://finhelp.io/glossary/how-to-set-up-a-donor-advised-fund/.
- Private foundation: A private foundation can accept privately held stock, but the foundation’s rules, excise tax requirements, and self-dealing prohibitions add complexity. Foundations also face stricter annual payout rules (minimum distributions) and additional recordkeeping.
- Charitable remainder trusts (CRTs) or charitable lead trusts (CLTs): These split-interest vehicles can accept closely held stock and provide income or estate planning benefits, but they require careful structuring and ongoing administration.
Example illustration (simplified)
- Assume you purchased shares in a private company for $20,000 and today the fair market value is $100,000. If you donate the shares to a qualified public charity and the shares qualify as long-term capital gain property, you may be eligible to deduct the $100,000 FMV (subject to AGI limits) and avoid tax on the $80,000 appreciation that would have been realized on a sale.
- If instead you sold the shares and donated the cash, you’d likely owe capital gains tax on the $80,000 gain and be able to deduct the post-tax proceeds.
Audits and valuation risk
Donations of closely held stock receive careful IRS scrutiny. Accurate, conservative valuation, contemporaneous documentation, and compliance with appraisal and Form 8283 rules substantially reduce the risk of a disallowance. Keep records of the appraiser’s credentials, assumptions, and the engagement letter.
Final considerations and best practices
- Engage a multidisciplinary team: CPA/tax advisor, valuation specialist, corporate counsel, and the receiving charity’s gift officer.
- Confirm charity acceptance in writing and obtain all required acknowledgments and receipts.
- Use qualified appraisers for non‑publicly traded securities and retain appraisal reports and supporting workpapers.
- Align the gift with broader tax, estate, and liquidity planning; charitable transfers can affect corporate control and estate outcomes.
Professional disclaimer
This article is educational and general in nature. It does not substitute for personalized tax, legal, or financial advice. Consult a qualified CPA, tax attorney, or financial advisor who can analyze your facts and the current law before making a gift of privately held company shares.
Author note
As a CPA and CFP® with years of advising business owners on charitable strategies, I’ve seen well-structured donations of privately held shares produce substantial philanthropic benefit while meeting tax and estate planning goals. Working with appraisers, counsel, and charities early typically makes the difference between a smooth gift and an administratively complex or disputed one.
Authoritative sources
- IRS — Charitable Contributions: https://www.irs.gov/charities-non-profits/charitable-contributions
- IRS Publication 561 — Determining the Value of Donated Property: https://www.irs.gov/pub/irs-pdf/p561.pdf
- IRS — About Form 8283, Noncash Charitable Contributions: https://www.irs.gov/forms-pubs/about-form-8283
Internal resources
- Donor-Advised Funds: Flexible Philanthropy Explained — https://finhelp.io/glossary/donor-advised-funds-flexible-philanthropy-explained/
- Donor-Advised Funds vs Direct Giving: Tax Documentation Differences — https://finhelp.io/glossary/donor-advised-funds-vs-direct-giving-tax-documentation-differences/
- Donor-Advised Funds (DAFs) — https://finhelp.io/glossary/donor-advised-funds-dafs/
If you’d like, I can provide a one-page checklist for the steps and documents commonly needed to donate privately held shares.
