Donating Closely Held and Private Company Stock to Charity

Donating private company stock to charity lets you skip the capital gains tax you would owe on a sale and deduct the full fair market value of the shares, provided you follow a specific sequence: verify the shares can be transferred, obtain a qualified appraisal, complete the transfer without any binding pre-arranged sale, and file Form 8283 with your return. Miss any of those steps and the IRS can disallow the entire deduction.¹

The tax logic is straightforward. Sell the stock first and donate the proceeds, and you owe capital gains tax on the appreciation before the charity ever sees a dollar. Give the shares directly to a qualified charity, and you never recognize the gain. If you have held the shares more than a year, you deduct their full fair market value rather than your cost basis. The charity, being tax-exempt, generally pays no tax when it later sells or redeems the shares. One exception matters and is covered below: S-corporation stock.

Confirm the Shares Can Actually Be Transferred

Before anything else, read the company’s governing documents. Most closely held companies operate under shareholder agreements that limit who can own shares and how they change hands. A right of first refusal is common, giving existing shareholders or the corporation itself the option to buy the shares before an outside party can take them. Some agreements restrict ownership to individuals or specific trust types, which can block a direct gift to a nonprofit outright. Buy-sell provisions may force a valuation event or a mandatory sale the moment shares move.

If the charity is not already an authorized owner under the agreement, you will typically need a written waiver from every other shareholder. You will also need the board of directors to formally authorize the transfer through a resolution recorded in corporate minutes. That resolution lets the company secretary update the stock ledger and issue a new certificate in the charity’s name. Skipping the board step leaves a cloud over the charity’s ownership that can later undermine your deduction.

Hold the Shares More Than One Year

The full fair market value deduction only applies to stock held longer than a year. Donate shares you have owned for a year or less and your deduction is reduced by what would have been short-term capital gain on a sale, which usually means your deduction is capped at cost basis.¹ For a founder or early investor sitting on heavily appreciated stock, the gap between 11 months and 13 months of ownership can be dramatic. Verify the acquisition date on your certificate or stock ledger before you commit to a donation timeline.

Know the AGI Limits on the Deduction

Your deduction for appreciated private stock given to a public charity cannot exceed 30% of adjusted gross income for the year. Donations to a private foundation are capped at 20% of AGI. Anything you cannot use in the current year carries forward for up to five additional tax years.²

You can elect to apply a 50% AGI limit instead, but only by giving up fair market value treatment and deducting your cost basis. That trade rarely pays off unless your basis is close to current value.¹

S-Corporation Shares Are Different

A 501(c)(3) is an eligible S-corporation shareholder, so the gift will not terminate the S-election.³ But once the charity holds the shares, all pass-through income from those shares, including any gain when the charity later sells them, becomes unrelated business taxable income for the charity.⁴ The charity pays tax at corporate rates on that income, which cuts the net value of the gift and creates a compliance burden smaller nonprofits may not be ready for.

Discuss the entity type with the receiving charity before you commit. Donor-advised funds and community foundations that regularly accept complex assets are usually the better fit for S-corporation stock than a small mission-focused nonprofit.

Get a Qualified Appraisal

Private stock has no market price, so the IRS requires a formal appraisal to support the value you claim. If your deduction exceeds $10,000, you need a full qualified appraisal from an independent appraiser.¹ For deductions between $5,000 and $10,000, you file Form 8283 Section B with a partially completed appraisal summary rather than a full independent appraisal.⁵ Failing to meet these requirements can wipe out the deduction entirely.

Who Qualifies as an Appraiser

A qualified appraiser must hold a recognized professional designation or meet minimum education and experience standards, regularly perform appraisals for compensation, and demonstrate expertise in the type of property being valued.¹ The regulations disqualify the donor, the receiving charity, anyone who sold or gave the property to the donor, employees and relatives of those parties, and anyone barred from practicing before the IRS in the prior three years. An independent contractor who does most of their work for the donor or the charity also fails the independence test.⁶

Timing and Fees

The appraisal must be signed and dated no earlier than 60 days before the donation and no later than the due date of the return on which the deduction is first claimed, including extensions.⁶ The report has to state fair market value as of the actual contribution date, describe the valuation method (discounted cash flow, comparable private companies, and so on), and include the appraiser’s signature, qualifications, and a declaration that the appraisal was prepared for income tax purposes.

The appraiser’s fee cannot be a percentage of the appraised value. Any percentage-based arrangement disqualifies the appraisal.¹ Flat fees and hourly rates are standard.

Do Not Pre-Arrange the Redemption

A frequent pattern with private stock donations: donor gives shares to a charity, and the company then redeems those shares from the charity for cash. Done cleanly, the donor avoids capital gains tax and the charity walks away with liquid funds. Done carelessly, the IRS collapses the gift and the redemption into a single transaction and taxes the donor as if they sold the stock.

The dividing line is whether the charity was legally obligated to surrender the shares at the moment it received them. If the charity had real discretion to hold or sell, the gift and any later redemption are separate events. If the charity was bound by a prior agreement to redeem, the donor is treated as having received the cash and donated it.⁷ Never include a binding redemption commitment as part of the donation. The company can signal interest in buying back, and the charity can negotiate afterward, but nothing should obligate the charity to sell before the gift is complete. Records showing the charity could vote the shares, collect dividends, and choose whether to sell strengthen the position.

Execute the Transfer

The transfer itself involves endorsing the physical stock certificate and delivering it to the charity, or signing a stock power that authorizes the transfer agent to reassign ownership without the original certificate. Once the endorsed certificate or stock power reaches the company, the stock ledger is updated to show the charity as the owner of record and a new certificate is issued in the charity’s name. From that moment you no longer have voting rights, dividend rights, or any other incident of ownership in those shares. The date the ledger is updated is generally the contribution date for tax purposes.

Confirm the charity’s exempt status and legal name against IRS records before completing the transfer.⁸ A name mismatch causes problems on Form 8283.

File Form 8283 and Get a Written Acknowledgment

Any noncash charitable contribution over $500 requires Form 8283.⁹ For private stock donations over $5,000, use Section B, which covers non-publicly traded securities and other property requiring a qualified appraisal.¹⁰

Section B, Part I asks for a detailed description: company name, number of shares, class of stock, your taxpayer identification number, the acquisition date, and how the shares were acquired. If the shares came to you by gift or inheritance, you need the original owner’s cost basis and acquisition date. You also enter fair market value and the valuation method.¹¹ Part V is the Donee Acknowledgment: an authorized representative of the charity signs to confirm receipt of the shares on a specific date. That signature is not agreement with your valuation, only confirmation of receipt.¹⁰

Separately, any charitable contribution of $250 or more requires a contemporaneous written acknowledgment from the charity. The letter must describe the property (without stating a value), say whether the charity provided any goods or services in exchange, and if so estimate their value in good faith.¹ You need this in hand before you file. Private stock donations effectively always exceed the threshold, so treat it as mandatory.

What the Charity Reports After the Gift

If the charity sells, exchanges, or otherwise disposes of the shares within three years, it must file Form 8282 reporting the disposition to the IRS and to you.¹² The IRS compares the charity’s actual sale price against the value you claimed. A significant gap is one of the most common triggers for an audit of the deduction.

Penalties for Overstating Value

Losing the deduction is not the only risk. If the IRS finds you overstated the value of the donated stock, accuracy-related penalties apply to the resulting tax underpayment. A substantial misstatement (claimed value 150% or more of correct value) triggers a 20% penalty on the underpaid tax. A gross misstatement (200% or more) doubles that to 40%.¹³ These sit on top of the additional tax owed once the deduction is reduced. An aggressive appraisal that inflates value by even 50% can produce a combined liability well beyond the tax benefit you originally claimed, which is why private stock donations draw closer IRS scrutiny than most other charitable contributions.

1
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
2
Internal Revenue Service. Publication 526, Charitable Contributions
3
Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined
4
Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income
5
eCFR. 26 CFR 1.170A-13 – Recordkeeping and Return Requirements for Deductions for Charitable Contributions
6
GovInfo. 26 CFR 1.170A-17 – Qualified Appraisal and Qualified Appraiser
7
Justia. Palmer v. Commissioner
8
Internal Revenue Service. Tax Exempt Organization Search
9
Internal Revenue Service. About Form 8283, Noncash Charitable Contributions
10
Internal Revenue Service. Form 8283 – Noncash Charitable Contributions
11
Internal Revenue Service. Instructions for Form 8283
12
Internal Revenue Service. About Form 8282, Donee Information Return
13
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments