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the sale portion is $20,000 ([50,000 Some additional situations where intent. If the property sold at a bargain
÷ 100,000] × $40,000). C will rec- the bargain sale rules apply are not price would require a qualified appraisal
ognize a long-term capital gain in addressed in this item, such as transfer- if donated outright, the bargain sale
year 10 of $30,000 (the amount re- ring encumbered property, whether element will not avoid the need to ob-
alized of $50,000 less the allocable by contribution or sale to a charitable tain the qualified appraisal. In the event
adjusted basis of $20,000). organization. The taxpayer is treated the charitable contribution is greater
as receiving additional consideration than $5,000, the Form 8283, Noncash
Example 2: Assume the same equal to the indebtedness — regard- Charitable Contributions, attached to the
facts as in Example 1, except, less of whether the charity assumes or donor’s tax return will need to include
instead of waiting until year agrees to pay the indebtedness or takes additional information to show that the
10 to sell the stock, C sells the the property subject to the indebted- contribution was part of a bargain sale.
stock to the charity six months ness (Regs. Sec. 1.1011-2(a)(3)). Also From Angeline Rice, CPA, MT,
after her original purchase. Since not addressed is the treatment of a M.Acc., Cleveland
the stock would now generate charitable gift annuity, where a deduc-
short-term capital gain if it were tion is allowed for the excess of the Deferred compensation
sold for its FMV on the date it amount paid over the value at the time deduction and the sale
was contributed, it will be subject of purchase of the annuity or portion of a business
to a reduction under Sec. 170(e) purchased (Regs. Secs. 1.170A-1(d)(1), It is sometimes said “The exception
(1). Therefore, in addition to 1.170A-1(d)(3), and 1.1011-2(a)(4)(i)). makes the rule.” In the case of the
the short-term capital gain that As is the case with most transac- Internal Revenue Code, then, perhaps
C will recognize of $30,000, tions, documentation of intent and the the exception to the exception (and so
the charitable deduction will be facts at the time of the transaction can on and so forth) makes the rule. The
reduced by $30,000 (which is the significantly help support the taxpayer’s “exception” in question here arises in
$50,000 charitable deduction less position if the IRS ever chooses to business acquisitions that include as-
the share of the property’s adjusted audit the transaction. If the taxpayer sumption of deferred compensation
basis allocated to the contribution does choose to go down the bargain costs and has to do with who — buyer
portion of $20,000). C may deduct sale route, it will be important that the or seller (or neither) — has a right to
$20,000 as a charitable deduction purchase and sale agreements docu- deduct those compensation amounts.
($50,000 charitable deduction less ment both the FMV at the time of the The Tax Court, in Hoops LP, T.C.
the $30,000 reduction). contribution and the seller’s donative Memo. 2022-9 (issued Feb. 23, 2022),

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