Sunday, August 28, 2005

Gifts to Clubs

Courtesy of Private Letter Ruling 200533001, here are some things about gifts to social clubs that you may not know about:

-- A transfer by a member to a social club can constitute a taxable gift subject to give tax.

-- While a transfer of property by a donor to a corporation generally represents a gift by the donor to the other individual shareholders of the corporation, Treasury Regulations 25.2511-1(h)(1) provide that there may be an exception to this rule, such as a transfer made by an individual to a charitable, public, political or similar organization which may constitute a gift to the organization as a single entity. This exception was found to apply in the Ruling.

-- If the amount of the gift is under the $11,000 annual exclusion amount, such gifts can often qualify for that exclusion and thus not be subject to gift tax. Where the cash gift was to be used to upgrade club facilities, the IRS ruled that the gift qualified as a "present interest" thus allowing it to qualify as an annual exclusion gift under Internal Revenue Code Section 2503(b). Not all gift transfers to entities qualify for the annual exclusion. For example, Rev. Rul. 71-443, 1971-2 C.B. 337, concludes that a gift to a corporation in that ruling was a gift of a future interest in property to the shareholders of the corporation that was not eligible for the annual exclusion.
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