Privately-held business interests: a source for giving

The number of businesses in the United States totals more than 27 million, but only a tiny fraction of those are publicly traded. In Napa Valley’s viticulture economy, LLCs are nearly as common as award-winning cabernets – and we’ve helped a growing roster of donors make tax-smart contributions of such assets in recent years.  

In September, one of our donors asked us to accept a 15% interest in a California Limited Liability Corporation that owned just one asset: a double-digit stake in a 500-acre property in Napa, a good portion of which was planted to vineyard.  

Within days, we engaged our Finance Committee to weigh the pros and cons of accepting this gift, with special attention to:  

  1. Current and future value  
  2. Liquidity/exit 
  3. Holding period 
  4. Risks/costs during holding period 
  5. Donor’s intent in making the gift.  

By October, after our due diligence process (and some quality time with outside legal counsel) we were in a position to say yes.  The net result?  The property was sold late last year, and the donor has another $1 million in his Donor Advised Fund at the Foundation to distribute to local charities.   

As you talk with your clients about giving LLC and partnership interests, keep in mind that complex tax and legal rules may apply. 

For example, the operating agreement or partnership agreement will indicate whether interests can be gifted to charity in the first place. Another consideration in the case of an LLC is whether the entity is taxed as a partnership. Finally, if the interests are given to a public charity, such as DAF or Scholarship Fund at Napa Valley Community Foundation, in general, the contribution is deductible up to the fair market value of the gifted property (minus reductions for certain components that may include liabilities, short-term capital gain and ordinary income).   

Please contact us to explore ways your clients can fund their charitable giving strategies through gifts of closely-held business interests.   

We’d be honored to help. 


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