PLR 200004032: Proposed land donation will not trigger built-in gains tax if it qualifies under § 170

Plain-English summary

An S corporation planned to donate real estate to a government entity. Because the corporation's S election had not been effective since its inception, it asked whether the gift would cause gain or loss subject to the built-in gains tax under § 1374. The IRS ruled that it would not, provided the transfer is a charitable contribution under § 170 to the extent of the property's fair market value. The letter expressly gives no opinion on whether § 170 applies to the transfer, and it does not decide other tax consequences.

Ruling snapshot

• Question: Would the proposed real estate contribution cause gain or loss to which § 1374 applies?
• Outcome: Approved, provided the transfer qualifies as a fair-market-value charitable contribution under § 170; § 170 eligibility was not decided.
• Key authorities: IRC §§ 1374, 170, 1001; Treas. Reg. § 1.1374-4.

Full text (IRS public release)

Internal Revenue Service                      Department of the Treasury

Index Number: 1374.00-00                      Washington, DC 20224

                                              Person to Contact:
Number: 200004032                             Telephone Number:
Release Date: 1/28/2000
                                              Refer Reply To:
                                              CC:DOM:CORP:5-PLR-111965-99
                                              Date:
                                              October 26, 1999

   Legend:

   Company                 =

   State A                 =

   date b                  =

   Government Entity       =

   d                       =

   e                       =

       This responds to your June 29, 1999 request for rulings as to the federal
   income tax consequences of a proposed transaction. The information submitted
   in that request and in subsequent correspondence is set forth below.

       Company is a State A corporation that has elected to be an S corporation
   under §1362 of the Internal Revenue Code. The election was effective for the
   tax year beginning on date b, but has not been effective since Company’s
   inception.

     Company intends to make a charitable contribution of real estate within the
   meaning of §170 to Government Entity. Company makes the following

  representations with respect to this charitable contribution:

      (a) Company will be allowed a charitable deduction under §170 equal to the
  fair market value of the real estate.

     (b) The fair market value of the real estate represents less than d percent of
  Company’s gross assets, and less than e percent of Company’s net assets. The
  contribution is not being made in conjunction with any other gifts or contributions.

     (c) To the best of Company’s knowledge, there is no plan or agreement
  between Government Entity and Company for Government Entity to sell or
  otherwise dispose of the real estate.

      Based solely on the information set forth above, and provided that the
  transfer of real estate is a charitable contribution under §170 to the extent of the
  real estate’s fair market value, we rule that the charitable contribution of real
  estate by Company does not result in gain or loss recognition to which §1374
  applies. See §1001, §1.1374-4 of the Income Tax Regulations.

      No opinion is expressed about the tax treatment of the proposed transaction
  under other provisions of the Code and regulations or about the tax treatment of
  any conditions existing at the time of, or effects resulting from, the proposed
  transaction that are not specifically covered by the above rulings. Specifically,
  no opinion is expressed and none was requested concerning the applicability of
  §170 to Company’s contribution of real estate to Government Entity.

     This ruling is directed only to the taxpayers who requested it. Section
  6110(k)(3) provides that it may not be used or cited as precedent.

      It is important to attach a copy of this letter to the federal income tax returns
  of the taxpayers involved for the taxable year in which the transaction covered by
  this ruling is consummated.

     Pursuant to a power of attorney on file in this office, a copy of this letter has
  been sent to the taxpayer’s authorized representative.

                                            Sincerely yours,

                                            Assistant Chief Counsel (Corporate)
                                            By:
                                            Chief, Branch 5