Why this matters

Gifting closely held business interests — for example, privately held stock, an LLC membership, or a partnership stake — can be a powerful philanthropic and tax planning tool. It can let you support causes you care about, avoid capital-gains taxes on appreciation, and obtain a charitable income-tax deduction. In my practice advising business owners, I’ve seen meaningful tax and estate-planning benefits when the transaction is documented and coordinated with professional advisors. However, these gifts draw close IRS scrutiny, so preparation matters.

(Authoritative references: IRS Charitable Contributions; Form 8283 guidance.)

Key tax rules and documentation you must know

  • Fair Market Value and Appraisals: For most noncash gifts over $5,000, the IRS requires a qualified appraisal to substantiate the fair market value (FMV) and Form 8283 (Noncash Charitable Contributions) must be completed and attached to your return (see IRS guidance on Form 8283 and Publication 561 on valuation) (IRS Form 8283; IRS Pub. 561).

  • Long-term-appreciated property rules and deduction limits: If the donated interest is long-term capital gain property (held more than one year), the general deduction for gifts to public charities is limited to 30% of your adjusted gross income (AGI); excess can usually be carried forward up to five years. For cash gifts the limit is typically 60% of AGI — the rules vary by gift type and by the recipient (public charity vs. private foundation) (IRS Publication 526; IRS Charitable Contributions).

  • Substantiation thresholds: Donations valued at more than $5,000 generally require a qualified appraisal and completion of Section B of Form 8283; donations over $500,000 trigger additional documentation and donee signature rules. See the Form 8283 instructions for exact thresholds and signature requirements (IRS Form 8283).

  • Related-party and retained-benefit concerns: If you retain control, receive benefits, or gift interests in entities where you or family still exert control over operations, the IRS may limit or disallow the deduction. Gifts that create a continued economic benefit to the donor (for example, gifting minority shares but keeping majority control and receiving payments) can be problematic.

  • Charitable organization acceptance: Not every charity accepts closely held securities or partnership interests. Donor-advised funds (DAFs), community foundations, and some public charities have acceptance policies and may require escrow or liquidation plans. Confirm acceptance before initiating the gift.

Practical valuation issues and common pitfalls

  1. Valuation discounts: Illiquidity (lack of marketability) and minority interest discounts can materially reduce FMV. The IRS will look for a credible, methodical valuation performed by a qualified appraiser (see IRS Pub. 561). Using aggressive or poorly documented discounts is a frequent audit trigger.

  2. Marketability for shares vs. partnership units: Public-company valuation mechanics don’t translate to private entities. Valuations often combine income, market, and asset approaches — and you should expect the charity’s and IRS’s valuation to be scrutinized.

  3. Minority vs. control interests: Gifting a controlling interest raises different tax and operational issues (control transfer, potential sale, or operational disruption) compared with gifting a minority interest. Charities may prefer a clean, transferable interest they can liquidate.

  4. Unrelated Business Taxable Income (UBTI): If the charity receives an interest that produces unrelated business income, the charity could owe UBIT on earnings generated by business activities unrelated to its exempt purpose. That makes some charities reluctant to accept active-business interests.

  5. Timing and corporate agreements: Check shareholder agreements, buy-sell provisions, or operating agreements. Many closely held entities have transfer restrictions that could prevent or delay a gift, require a right of first refusal, or impose valuation formulas.

Step-by-step checklist before you gift

  1. Talk to the charity early: Confirm in writing that the charity will accept the type of interest and understand any holding or liquidation plan.

  2. Consult professionals: Engage a CPA/tax attorney, an estate attorney, and a qualified business appraiser experienced with private-company valuations. In my work, early coordination avoids valuation surprises and compliance missteps.

  3. Review entity documents: Check shareholder agreements, operating agreements, and buy-sell provisions for transfer restrictions.

  4. Order a qualified appraisal: If value will exceed $5,000, secure a qualified appraisal that follows IRS standards (attach Form 8283). If the donee signs Form 8283 Section B, ensure the donee’s signature is obtained per Form 8283 instructions.

  5. Model tax impacts: Estimate your AGI deduction limits (30% vs. 20% for private foundations), carryforward rules, and any potential state tax consequences.

  6. Decide the vehicle: Direct gift to a public charity, donor-advised fund, or private foundation — each has pros and cons: timing, control, administrative cost, and deduction limits. (See our resources on donor-advised funds for tactical uses and documentation differences.)

Choosing the right charitable vehicle

  • Donor-Advised Funds (DAFs): DAFs often accept marketable securities and may accept closely held interests in limited circumstances, but acceptance policies vary. DAFs provide immediate tax deduction with flexible grant-making over time. See our guide: Donor-Advised Funds: A Practical Guide and related DAF strategy pages for more on choosing and using DAFs effectively.

  • Private foundations: Offer control and flexibility but have higher administrative costs, payout requirements, and different deduction limits for noncash gifts. Private foundations may be more willing to manage and, if necessary, hold or dispose of complex assets.

  • Direct gift to public charity: Easy when the charity can use or sell the interest quickly; however, many public charities limit acceptance due to UBIT or management burdens.

Internal resources:

Examples (illustrative)

Example 1 — Avoiding capital gains tax
You own 10,000 shares in a private company you acquired years ago for $50,000 with a current FMV of $500,000. By gifting those shares to a qualified public charity (that accepts them), you could claim a charitable deduction for the FMV (subject to AGI limits) and avoid capital gains taxes you would have owed on a taxable sale.

Example 2 — Liquidity and transfer limits
You plan to donate a 40% membership interest in an LLC. The operating agreement requires existing members’ consent or a right of first refusal on transfers. The gift cannot close until those conditions are met, so coordinate the timing and informal approvals before counting on the deduction in a specific tax year.

Special entity considerations

  • S corporation stock: S corp rules limit the types of permitted shareholders. Transferring S-corp stock to certain charitable entities can be complex because the charity might not qualify as an S corp shareholder or the transfer could terminate S status.

  • Partnerships and LLCs taxed as partnerships: Gifts of partnership interests have special tax consequences related to allocation of income, built-in gain issues, and partnership tax filings. Some partnerships require partnership consent for transfers.

  • C corporations: Gifting C-corp shares is straightforward from a tax perspective if the shares are transferable and the charity accepts them, but valuation still matters.

What the IRS pays attention to (audit risk triggers)

  • Overstated valuation without a qualified appraisal.
  • Failure to attach or properly complete Form 8283 for noncash contributions over $5,000.
  • Discounts applied without substantiation (majority/minority or marketability discounts).
  • Transfer restrictions not disclosed.

Cite IRS guidance: see IRS Charitable Contributions rules and Form 8283 instructions.

Professional tips and best practices

  • Start early: Valuations, charity acceptance, and transfer approvals can take months.
  • Consider partial gifts over multiple years if AGI limits would otherwise waste deductions.
  • Use charitable vehicles strategically: a DAF can be a quick way to convert a gift into grant-making flexibility if the recipient can accept the asset.
  • Get documented legal opinions for unusual transfers — particularly for S-corp stock or complex partnership interests.
  • Understand the charity’s plan for the asset: will they hold, operate, or liquidate? That affects both practicality and tax consequences.

Risks and when not to gift

  • If transfer restrictions make sale impossible, the gift may be more trouble than benefit for the charity.
  • If gifting will disrupt business operations or family governance, other estate-planning tools (installment sales, family limited partnerships, or charitable remainder trusts) might be better.

Quick reference links (authoritative)

Final thoughts and professional disclaimer

Gifting closely held business interests to charity can deliver meaningful philanthropic and tax outcomes, but it’s one of the more technically demanding donation types. In my practice, the gifts that succeed are those where donors confirm the charity’s acceptance early, invest in a high-quality appraisal, and work with tax and legal advisors to document the transfer.

This article is educational and does not constitute legal or tax advice. Before making a gift of closely held business interests, consult a qualified CPA, tax attorney, valuation specialist, and the receiving charity to confirm that the plan meets IRS rules and the charity’s acceptance policies.