501(c)(3) alternative

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I’m supposed to meet with our attorney and CPA tomorrow morning for our annual corporate meetings. While we’re talking about all of our structures anyway, I figured we should talk about our next steps in terms of legacy planning. What should we do, for example, with the 501(c)(3) proposal or alternatives (like the Christian Foundation of the Triangle LLC Wrapper concept)?

Last week I contacted the attorney at National Christian Foundation who has been assigned as our primary contact and asked her if she might help me prepare for tomorrow’s meeting by giving me insights into the kind of idea she has (or NCF has) that might replace J____’s 501(c)(3) proposal.

I just received her reply. Sounds interesting!

To aid you in your meeting tomorrow, the following comments summarize the general concept we discussed previously as an alternative to obtaining your own 501(c)(3) tax exempt status:

Structure InquisiCorp, Inc. stock into voting shares and non-voting shares (if this has not already been done).

Gift a percentage of the non-voting InquisiCorp stock to a family donor advised fund (”Giving Fund”) with The National Christian Foundation (NCF).

Receive a charitable income tax deduction for the fair market value of the gifted shares (as determined by qualified business appraisal and likely discounted for non-voting, minority interest). You can take this deduction on your personal income tax return in the year the gift is made up to 30% of your adjusted gross income for the year. Any unused charitable deduction above that 30% limitation can be taken over the course of an additional five years.

NCF would hold the stock as a long term investment without jeopardizing the corporation’s S-election.

Because InquisiCorp is a S-corporation, shareholder income allocated to NCF will be taxed to NCF as unrelated business taxable income (”UBTI”). We have a “Type I Supporting Organization” specially created for receiving, liquidating and holding UBTI type gifts. Because it is organized and operated in a state without state income tax and has such a large volume of charitable gift activity, our historical UBTI tax rate has been less than 7% but could possibly be as high as 17.5% (half the top federal income tax rate). This is a significant ongoing income tax savings accruing to your charitable giving objectives.

Taxes assessed due to NCF’s stock ownership will be paid by NCF out of its corporate pro rata distributions to shareholders.

Corporate distributions in excess of tax costs will be placed in your family’s Giving Fund. Thereafter, you can request the proceeds be distributed from your Giving Fund to any public charity with 501(c)(3) status for which the charity and the use of the funds are not antithetical to Christian principles.

In the event shareholder costs (i.e. tax obligation) exceed the corporate distributions in any given year, NCF would draw from any accumulated proceeds in your family Giving Fund to pay those costs. If your Giving Fund does not have enough funds to cover the costs, we would ask you to make a personal contribution to your Giving Funds so that NCF would have the available cash to pay the shareholder costs.

Because our ministry is to facilitate charitable giving, NCF does ask that you maintain an average minimum charitable grant making activity from your Giving Fund at a level of 5% of the value of the underlying fund assets. We recognize that this may not always be possible due to the nature of the business operations and income. However, our intent behind requesting this average minimum grant making activity is to help ensure that the outcome of NCF’s stock ownership is to facilitate ongoing charitable giving.

End results:

Personal income tax savings to you from the charitable deduction resulting from your gift and from the ongoing corporate income allocation to your family Giving Fund that is no longer taxable to you personally,

Estate tax savings by avoiding any estate tax on the gifted corporate shares, and

Increased charitable giving opportunity.

The above summary is merely meant to be an outline of the concept and its probable outcomes. I hope this is helpful in framing the future discussions with your professional advisors.

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