When a partnership donates stock to a non-profit organization, it must take four factors into account when determining tax consequences: the taxation status of the non-profit, the valuation of the stock by IRS standards, restrictions on the right to deduct the donation and the allocation of the deduction among the partners.
Donations to a non-profit organization are tax deductible if the organization's sole purpose is to engage in educational, literary, scientific, charitable, religious pursuits or to test for public safety. Unless it is a church, the non-profit must have filed Form 1023 with the IRS and received approval for donations to be deductible. Although donations to a church are generally deductible even if it has not filed Form 1023, it must qualify as a "church" under IRS requirements -- for example, it must have an established doctrine, a regular congregation and a distinct religious history.
If the partnership donates stock that is not publicly traded, its value is the price it could have been sold for in an arm's-length transaction. If it is publicly traded, its value is its trading price. If the stock has lost value between the time of purchase and the time of donation, the deduction is limited to its value at the time of donation. If it has gained in value, however, the value of the deduction is limited to its purchase price.
The partnership cannot deduct the value of the stocks if it received or expects to receive any tangible benefit in return for it, even something of lesser value. Good publicity is not considered a tangible benefit and will not prevent the donation from being deductible. Donations of fractional interests in stocks are subject to complex rules and may not be deductible.
Allocation of the Deduction
To allocate the deduction among partners, the managing partner must complete Schedule K-1, send one copy to the IRS along with Form 1065, and distribute copies of Schedule K-1 to each partner to help them file their own income tax returns. On Schedule K-1, each partner is allocated a portion of the deduction that is proportional to his share of partnership profits and losses -- normally, his proportionate equity stake in the partnership. Since the partnership itself is not subject to federal income tax, it cannot claim the deduction.
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