Charitable Organizations Can Now Be Shareholders in S Corporations. Beginning in 1998, qualified charitable organizations may qualify as shareholders in an S corporation. This will provide new opportunities for donors to contribute interests in their S corporations to a charity. Unfortunately, the tax treatment of the income from the S corporation may create some problems for charities. The charity's share of taxable income and loss items flowing from the S corporation must be treated as unrelated business taxable income, regardless of whether this income is distributed to the charity by the S corporation. This could potentially cause a cash flow problem if the S corporation generates significant income but does not distribute the income to the shareholders. Additionally, any profit on the sale of the S-corporation stock by the charity will be treated as unrelated business taxable income.
Deduction for Contributions of Appreciated Stock to Private Foundations. As discussed above, contributions of certain appreciated stock to a private foundation made between July 1, 1996, and May 31, 1997, will result in a tax deduction in the amount of the full fair market value of the stock.
