The current run-up of value in gold and gold-related assets, in combination with its dramatic history of volatility, makes TODAY the right time to consider a gift of gold. The donor is in a position to possibly get a fair market value deduction (See the analysis in the CAR Newsletter 1.3 Technical article) at a significantly appreciated value for those assets, and may correspondingly avoid the inherent taxable gain on the gifted asset.

Some IRS Pronouncements relating to Gifts of Gold

Revenue Ruling 69-63 holds that a collection of rare coins held not primarily as a medium of exchange, but as collector's items are tangible personal property - the ruling also holds that cash is not tangible personal property and that a gift of a future interest in tangible personal property is not currently deductible (See, the discussion under the heading Planned Gifts Funded with Gold below for more).

PLR 9225036 - South African Krugerrands were held not to be tangible personal property, as such coins are more akin to money rather than have value as collectibles, distinguishing Revenue Ruling 69-63 - the IRS recognized that these coins are one of the most recognized types of gold bullion coins and have no numismatic value (See, the discussion under the heading Planned Gifts Funded with Gold below for more).

PLR 8718006 - an investment by a private foundation in gold or gold mining stocks do not constitute a jeopardy investment.

Chief Counsel Memorandum dated 5/2/2008 - the sale of an interest in an ETF that directly invests in a physical metal (such as gold) is treated as the sale of a "collectible," such that any gain from the sale of the interest is subject to the maximum capital gain of 28%, and investors in the ETF are deemed to own undivided beneficial interests in the assets held by the ETF (when treated as a trust under Treasury Regulation Section 301.7701-4). Also see PLR 200732026 for a holding that an interest in a trust that owns an interest in gold does not constitute a collectible for purposes of Code Section 401(m) as it relates to an IRA and an individually-directed account under a qualified retirement plan, and for a description of owning an interest in gold where another entity stores the physical gold (And see the companion PLR 200732027, relating to a similar ownership interest in silver).

IRS Publication 526 - the IRS has defined "tangible personal property" in IRS Publication 526, page 10, as any property, other than land or buildings, than can be seen or touched. However, cash, currency, securities and other intangible property do not constitute TPP. (This Publication is a very useful resource relating generally to the tax rules associated with charitable contributions.)

Considering the Issues from the Donor's Perspective

Evaluating the benefits of a gift of gold to a charitable organization depends upon many factors. First, you have to determine the character of the gold being contributed - is it bullion, jewelry or a mutual fund or ETF? Second, you have to determine the character of the charitable organization, i.e., a public charity or a private foundation, to receive the gift. Third, will the donor be entitled to a charitable income tax deduction equal to fair market value of the gold? Fourth, what percentage limitation will apply? Fifth and as a practical matter, significant thought should be given to the method for transferring ownership of the gold.

Lastly, the donor should fully consider the use of the gifted funds by the charity - is there a particular charitable purpose or activity that the donor wants to specifically support. A complete consideration of this issue is in the best interest of both the donor and the charity:

For the charity - to have an engaged donor who is aware of the various gifting possibilities and needs of the charity develops a deeper relationship between the donor and the charity; and

For the donor - an opportunity is presented to make the most meaningful gift - See my article on the Planned Giving Value Chain for a description of a method to view the gift planning process.

Considering the Issues from the Charity's Perspective

There are some practical issues for the charity to consider before accepting a gift of gold. Depending upon the character of the gold, different safeguards will need to be analyzed by the charity representative. For instance, if jewelry, numismatic coins, bullion coins or even bullion bars are being gifted and are in the physical possession of the donor, here are some very general suggestions to consider:

If gold is not in the physical possession of the donor, you need to determine in advance the nature of that ownership, i.e., a certificate of ownership or an account (See the CAR Newsletter 1.3 Fundamentals article for more) and the proper method of transfer and sale.

Mutual funds, ETFs and gold mining company stock should not present the types of issues on acceptance by the charity, but be sure to determine the character of these gold-related investments - for instance, are they represented by publicly-traded, non-restricted marketable securities?

Planned Gifts Funded with Gold - Depending on the character of the gold, consideration could be given to the transfer of gold into a planned giving vehicle, such as a charitable remainder trust or in return for a charitable gift annuity.

In Revenue Ruling 69-63, a taxpayer created an irrevocable trust and transferred to the trustee a collection of rare coins and 1,000x dollars in cash. It was the taxpayer's intention that the rare coin collection be placed on exhibit for viewing by the public with a fee charged therefor. Under the terms of the trust agreement, the trustee is to pay the income earned from the trust property to the taxpayer for life with the remainder to be distributed to a specific charitable organization. In addition to holding that the collection of rare coins is tangible personal property, the IRS ruled that the gift of the coins to the trust in this case was a gift of a future interest in tangible personal property; and thus, no charitable income tax deduction for the gift of the coins could be taken in the year of the gift. The IRS relies upon Code Section 170(f) which provides, in part, that payment of a charitable contribution that consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those related to him or her.

In PLR 9225036, a donor contributed 740 South African Krugerrands (which he had owned for more than a year) to a charitable remainder unitrust. In addition to holding that the South African Krugerrands did not constitute "tangible personal property", the IRS held the following: (i) provided there is no express or implied obligation imposed upon the trustee to sell or exchange the coins, the taxpayer will not realize income on his contribution of the appreciated coins to the CRT, and (ii) the proposed trust's qualification will not be adversely affected by the transfer of the South African Krugerrand gold coins if the proposed trust otherwise qualifies as a valid CRUT.

As you will note, a gift of gold may not be simple - there are many potential pitfalls for the donor and the charity. In addition, the character and method of investing in gold and gold-related assets are evolving. In all events, professional counsel should be retained to fully analyze the implications of a gift of gold given a particular set of circumstances.