Quick overview

Donating closely held stock means transferring ownership of shares in a private company (not listed on public exchanges) to a qualified charitable organization. When handled correctly, the donor can avoid paying capital gains tax on appreciated shares and claim a charitable deduction for the fair market value (FMV) of the gift, but the transaction is more complex than donating publicly traded securities. Below are practical, step-by-step procedures, the IRS rules you must know, common risks, and professional best practices I use in client work.

Step-by-step process (practical checklist)

  1. Confirm the charity can accept closely held stock
  • Not every charity is set up to receive private-equity gifts. Confirm the charity’s board and development staff can accept, hold and sell private shares, and check for any restrictions in the charity’s gift policy. If the recipient is a private foundation, additional rules (and potential conflicts) apply.
  • Internal link: see our guidance for charitable organizations and donors in “Charitable Giving for Business Owners” for practical charity-side considerations.
  1. Determine whether the stock is eligible and characterize the property
  • Determine if the shares are long-term capital gain property (held more than one year). For long-term appreciated property, donors generally may deduct FMV; for short-term or ordinary-income property, the deduction is limited to the donor’s basis.
  • Confirm there are no transfer restrictions (shareholder agreements, right-of-first-refusal, buy-sell clauses) that prevent or delay the charity’s ability to take or sell the stock.
  1. Obtain a qualified appraisal when required
  • If the claimed value of a noncash contribution exceeds $5,000, the IRS requires a qualified appraisal and completion of Form 8283 Section B (for most nonpublicly traded securities). Maintain the appraiser’s signed report. See IRS Publication 561 for valuation guidance and the Form 8283 instructions for thresholds and requirements (IRS, 2025).
  • Use an appraiser who understands business valuation for private companies (ASA, NACVA, or similar credentials). In my practice, a valuation prepared by a credentialed business appraiser prevents most IRS questions.
  1. Complete Form 8283 and other tax forms
  • For noncash gifts over $500, file Form 8283 with your tax return. For gifts over $5,000, attach the qualified appraisal and complete Section B. If your total deduction for noncash gifts is large, work with your tax advisor to ensure reporting is correct. (See IRS: About Form 8283.)
  1. Transfer mechanics and legal documentation
  • Use a stock power, share transfer form, or assignment instrument consistent with your company’s bylaws and state law. Have the corporation update its transfer ledger and issue new share certificates or electronic records in the charity’s name if the stock is certificated.
  • If shares are restricted or subject to shareholder agreements, document any consents required and get written confirmation that the charity will acquire or be allowed to sell the shares.
  1. Substantiate and obtain the charity’s acknowledgment
  • For tax substantiation, obtain a contemporaneous written acknowledgement from the charity stating the donation date, description of the property, and whether the charity provided any goods or services in return. For noncash gifts, this acknowledgement is required for deductions over certain thresholds (see IRS Publication 526 and substantiation rules).
  • Keep appraisal reports, transfer records, and the charity’s written acknowledgment together with your tax records.
  1. Claim the deduction and plan for AGI limits and carryovers
  • For donations of appreciated long-term capital-gain property to public charities, the deduction is generally limited to 30% of your adjusted gross income (AGI). If you give the same property to a private foundation, the limit is typically lower. Excess amounts may be carried forward for up to five tax years (IRS Publication 526, 2025).

Key IRS rules and reporting (authoritative sources)

  • IRS guidance on charitable contributions and qualified organizations: https://www.irs.gov/charities-non-profits/charitable-contributions (primary overview).
  • Valuation rules: IRS Publication 561, Determining the Value of Donated Property (covers FMV and appraisal requirements).
  • Noncash contribution reporting: About Form 8283 (use this form when noncash contributions exceed $500). See also Publication 526 for deduction limits and carryovers.

Primary risks and red flags

  1. Liquidity and marketability problems
  • Privately held shares often have low liquidity. A charity may face difficulty selling the shares or may need to accept a significant discount. Before donating, assess the likely market for the shares or consider planning an alternative vehicle (see below).
  1. Transfer restrictions and shareholder agreements
  • Rights of first refusal, drag-along/tag-along provisions or board consents can block or delay a transfer. If the charity cannot freely dispose of the shares, the charitable deduction may be challenged or the charity may receive a less useful asset.
  1. Private-foundation issues and self-dealing
  • Donating closely held stock to a private foundation you (or your family) control raises self-dealing and excess business holdings risks under IRC rules. Private foundations are subject to restrictions that can force them to divest or impose excise taxes.
  1. Over-valuation and IRS scrutiny
  • Claiming an inflated FMV draws IRS attention. A qualified appraisal, properly documented, reduces the risk of challenge. Overstated written valuations can lead to penalties under IRC § 6695A for tax return preparers or penalties to the taxpayer when valuation misstatements occur.
  1. Unintended tax consequences for the charity
  • If the charity retains business interests that generate unrelated business taxable income (UBTI) or engages in business operations, it could create taxable income or compliance burdens. Evaluate the charity’s ability to hold and sell or spin off the stock.

Alternatives and structures to consider

  • Donor-Advised Fund (DAF): You can contribute closely held stock to a DAF if the sponsoring organization accepts private-equity gifts. A DAF lets you receive an immediate deduction and advise grants over time, while the sponsor handles sale/liquidity.
  • Charitable Remainder Trust (CRT): A CRT can accept closely held stock, provide an income stream to the donor or beneficiaries, and later sell the asset within the trust to avoid immediate capital gains exposure at the donor level. CRT rules are complex—work with specialty counsel.
  • Sale to a charitable buyer or structured sale: In some situations a charity or affiliate can negotiate to buy or hold shares under terms that qualify as a charitable gift under IRC—these require careful legal drafting.

Practical tips I use with clients

  • Start early. Don’t wait until filing season; valuation and charity acceptance can take months.
  • Use credentialed business appraisers (state-certified or ASA/NACVA credentials). Insist on a contemporaneous valuation dated at the gift date.
  • Check corporate documents. Get written confirmation from the issuer (or counsel) that the transfer is permitted and that the charity will be recorded as owner.
  • Consider liquidity solutions. If the charity cannot sell the shares quickly, consider donating to a DAF or structuring the gift through a CRT to preserve the charity’s interests and your tax benefits.
  • Coordinate with estate planning. Stock gifts often interplay with estate tax planning—plan across advisors.

Common mistakes (and how to avoid them)

  • Failing to obtain a qualified appraisal when required. Remedy: obtain and attach the appraisal and Form 8283 documentation.
  • Donating restricted shares without confirming transferability. Remedy: get issuer and shareholder consents in writing.
  • Donating to a private foundation you control without addressing self-dealing or excess business holdings. Remedy: consult counsel and consider a public charity or DAF instead.

Short FAQ (quick answers)

  • Is capital gains tax always avoided? Generally yes for publicly traded or qualified long-term appreciated property donated directly to charity, but exceptions apply (short-term assets, ordinary income property). Consult Publication 561 and 526.
  • Do I always need an appraisal? If the claimed value exceeds $5,000, a qualified appraisal is required for most nonpublicly traded securities; file Form 8283 per IRS rules.
  • Can I donate stock owned by a closely held family corporation? Yes, but watch shareholder agreements, minority interest discounts, and transfer restrictions.

Documentation checklist to keep in your file

  • Qualified appraisal report (if required) dated at gift date.
  • Completed Form 8283 (attach where required).
  • Written acknowledgement from charity describing the gift and any restrictions, plus proof of transfer (stock power, updated ledger or certificate).
  • Copies of shareholder agreements, consents, or corporate resolutions if applicable.
  • Tax advisor and counsel correspondence summarizing the plan.

Related FinHelp resources

Professional disclaimer

This article is educational and reflects general federal tax rules current through 2025. It is not legal or tax advice. In my practice I always coordinate with a tax advisor, valuation professional and nonprofit counsel before completing a gift of closely held stock. Consult qualified professionals about your specific facts and state-law issues.

Sources and further reading

If you plan a significant gift of private stock, assemble your advisor team early: valuation expert, tax adviser, and nonprofit counsel to protect philanthropic intent and tax benefits.