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Tax free owners no longer tax free


n 2003, the Senate Permanent Subcommittee on Investigations looked into such transactions and found that in some cases, they were an elaborate way of using a charity's tax-exempt status to erase tax liabilities for the other shareholders of the company involved.

A charity involved in such a tax strategy would receive income from the company in proportion to the size of its holdings of nonvoting stock. But while that income was taxable, it was not distributed to the charity and stayed at the company to be reinvested.

The charity did not owe taxes on the income, anyway, because it was tax-exempt.

Later, the charity would sell the nonvoting shares back to the company at fair market value, and the company would distribute the income, tax-free, that had been associated with those shares among its other shareholders.

In other, similar cases, charities that received nonvoting stakes in privately held companies through gifts of stock used large losses they had incurred on unrelated businesses to offset taxes for other shareholders. Mr. Dryburgh wrote a paper on that type of tax shelter.

In 2004, the I.R.S. listed as "restricted" such transactions and denied deductions associated with them.

BUSINESS DAY
Gift to M.I.T. from Bose Founder Raises Tax Questions
By STEPHANIE STROM
Published: April 29, 2011
Amar G. Bose has donated the majority of his high-end audio products company to his alma mater, the Massachusetts Institute of Technology.

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