The establishment of a bright-line test for gifts of appreciated property

In the G.A. Rauenhorst case, the Tax Court focused on the exempt organization's control of the property and determined the transfer of appreciated stock warrants to the charity was not a taxable event. The court reasoned the IRS must abide by its prior rulings, with particular interest focused on the IRS's issuance of Rev. Rul. 78-197. This ruling declares the assignment of income doctrine applies only if the donee organization is legally bound, or can be compelled, to surrender the donated property. The IRS developed this bright-line test and the ruling continues to provide guidance to taxpayers. The Rauenhorst decision is the most recent in a line of cases addressing the tax treatment of donated appreciated property. With the precedent established by the prior line of cases, one would think that courts would follow the precedent in rendering their decision. However, in many instances, courts have failed to do this, thus creating uncertainty for taxpayers and practitioners when planning donations of appreciated property.