Sale of donated warrants.

• Author: Laffie, Lesli S.
• Position: Stock warrants sold by charities

The Tax Court held in Gerald A. Rauenhorst, 119 TC No. 9 (2002), that donated stock warrants that charities sold to an interested buyer known to the donors before the contributions, were not prohibited assignments of income. The court concluded that, at the time of the gifts, the charities were not legally bound and could not be compelled to sell the warrants; moreover, the facts fell squarely within Rev. Rul. 78-197, on which the taxpayers had relied in structuring the transaction.

The taxpayers were the sole partners of a partnership that owned warrants in NMG, a Delaware corporation. The partnership assigned the warrants in 1993 to four charities after it learned that NMG's stock was going

to be sold to World Color Press, Inc. (WCP).

The donees subsequently sold their warrants to WCP. The IRS determined that the contributions were anticipatory assignments of income. The taxpayers argued that the doctrine did not apply under Rev. Rul. 78-197 (which involved similar facts, except that the stock contributions were followed by a redemption, rather than a sale). The IRS had concluded in that ruling that there was no...