Corporate Inversions Offer Timely Charitable Giving Opportunity

Special to The Community Foundation of Greater New Britain
Updated October 8, 2014

By Adam P. Cohen, CPA

(Time-sensitive information. Please note date.)

A special giving opportunity is currently available for individuals who hold common stock in any public company which has announced plans to merge with a foreign corporation and reincorporate in another country – a process known as an Inversion.

Among the companies that have announced plans to merge and reincorporate overseas are Burger King Worldwide, Medtronic, AbbVie (a 2013 spin-off from Abbott Labs), Applied Materials and Mylan.

Many individuals who have long-held shares in such companies in taxable accounts may be faced with capital gains taxes that could be substantial on the exchange of “old” shares for “new” shares.  For Connecticut individuals and trusts, 2014 combined federal and Connecticut long-term capital gains rates range from nil to up to 30.5 percent.

Shareholders have a very brief window of opportunity to eliminate or reduce capital gains taxes on an inversion transaction through a contribution of their shares to the charity of their choice. Shareholders holding stock for a period greater than one year are generally entitled to a charitable deduction for the market value of donated shares on the date the shares are irrevocably received by the charity.

Timing is critical and individuals should act promptly. Shareholders anticipating significant gains should contribute shares before each deal “ripens” – generally before shareholder meetings or regulatory approvals occur – to avoid the recognition of the gains.

Shareholders should consult the respective company disclosures and their professional advisors about the specific tax consequences to them, as well as the benefits of a charitable gift of stock, including the appropriate timing of the gift. Note that the U.S. Department of the Treasury recently announced new rules, which may affect pending or potential transactions.

A community foundation such as the Community Foundation of Greater New Britain offers donors many ways to make a meaningful and tax-wise gift. The Foundation offers a variety of charitable fund options, including donor-advised, designated and unrestricted funds, and works with donors and advisors on numerous planned giving vehicles including charitable gift annuities for donors who desire lifetime income.

To learn more, contact Ann Bova, (860) 229-6018 ext. 302, or email abova@cfgnb.org