• "I am deeply grateful to the Masonic Village's employees, and will never be able to express my gratitude to all of them." — Catherine L.

  • "I liked my Masonic Charity Foundation charitable gift annuity so much, I opened three more. Why? I might be old-fashioned, but the scriptures have taught me the virtue of looking out for others. Knowing that the funds left in my gift annuities will care for the Masonic Village residents makes me feel wonderful." — Dorothy B.

  • "I am writing to tell you, from the bottom of my heart, just how wonderful the last two years of my mother's life were, thanks to all of you at the Masonic Village at Burlington." — Carol O.

  • "It's not just the Masonic Village's beautiful facilities and the many services that are offered to the residents – most of all, it's the employees. They are personally dedicated it seems to each and every individual here." — Catherine L.

  • "We are equally grateful for the 'loving arms of hospice' that were wrapped around our family in our hour of need." — M.W.

  • "When we decided to come to the Masonic Village at Burlington, we knew it was going to be a very big change in our lives. When we came here, we were very pleased that it was not difficult. We would recommend the Masonic Village highly to a friend." — Joseph and Bertha B.

  • "There is simply no way to express the depth of gratitude I feel for the Masonic Village at Burlington – thank you!" — Jim C.

  • "We know first-hand how very special Acacia Hospice's caregivers are, and we thank every single one of them from the bottom of our hearts." — J.M.

  • "It is with a grateful heart that we extend to you our deepest gratitude for the loving care that Acacia Hospice afforded our beloved Aunt." — M.W.

  • "It has been a source of tremendous relief that my parents were in such caring and professional hands during the final years of their lives." — Jim C.

  • "It takes a very special person to do the job Acacia Hospice's caregivers do every day. We would like you to know we think you have an incredible group of 'Angels.'" — J.M

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Saturday November 17, 2018

Case of the Week

Barbara Banker's LoBank Letter of Agreement

Case:

Barbara Banker started with nothing. Barbara lived in a midsized town and worked in the local hardware store. The store owner noticed her industrious efforts and strong work ethic. When he decided to retire, he suggested that Barbara could take over the hardware store and pay him over a term of 10 years from store profits. Barbara did exactly that. In fact, when the town drugstore owner wanted to retire, Barbara bought the store under a similar plan. Later, Barbara started buying apartment buildings in town. Since she needed financing for these purchases, Barbara became good friends with the town bankers.

Two bankers eventually approached Barbara about starting a new local bank. She agreed to be one of the initial directors and they all invested in the local bank, which they named LoBank. Over the years, the bank's services and value greatly increased. Barbara is a respected businesswoman and she now owns a large, valuable block of LoBank stock.

As a strong supporter of her local community, Barbara gives regularly to her favorite local charity. She would like to make a large gift of bank stock to thelocal charity to be used to build a new youth center. But as a director she knows that LoBank's directors have approved signing a letter of agreement for the sale of all stock to MegaBank, a bank located in a nearby large city. Barbara meets with her CPA to discuss the gift.

Question:

Barbara explains, "My favorite charity would like to name the new youth center after me. I am interested in supporting youth, and this center would be a fine addition for our town. The LoBank stock has gone way up in value, but I have heard that there may be problems with this gift now that there is a letter of agreement. Can I still make this gift? Are there any potential problems?"

Solution:

Barbara's CPA explains that it is possible to make a gift of LoBank stock at this time.

After negotiations, the next step in the C corporation sale process is to sign a letter of intent. The letter of intent is negotiated and deemed acceptable by both buyer and seller. It normally does not require specific action by either party. Rather, the letter of intent is a description of the proposed sale arrangement.

In Gerald A. Rauenhorst, et. aux. v. Commissioner; 119 T.C. No. 9; No. 1982-00 (7 Oct. 2002), the court noted, "[T]he letter of intent was not an offer; it was neither a purchase, tender, or exchange offer as the antidilution provision specifies." The Rauenhorst court stated that the letter of intent and the resolution accepting the letter of intent "[did] not demonstrate that the warrant holders were legally bound, or could be compelled, to sell their stock warrants at the time of the assignments."

Therefore, with a typical letter of intent there is a description of the proposed sale transaction, but neither party is legally bound to complete the agreement. Thus, there is no Rev. Rul. 78-197 binding agreement that precludes transfer of the stock to charity or to a charitable trust. Barbara may complete the gift of LoBank stock, bypass the capital gain and deduct the appraised value. This will be a 30% type appreciated property gift. If she cannot use the full $100,000 amount under the 30% limit for this year, Barbara may carry forward the remaining gift value for up to five years.

Published November 9, 2018
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Previous Articles

Barbara Banker's Youth Center

Lucky Lucy's Foundation Goes Public

Lucky Lucy Pays Tax on "Northern Long Shot" Foundation Income

Lucky Lucy Asks If "Northern Long Shot" Can Lobby?

Lucky Lucy Lindstrom's "Northern Long Shot" Charity Diversifies

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