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§ 6.5 GIFTS OF SECURITIESthe bank identifying the charitable donees. Further, on the same day, the doneeswere sent a memorandum directing them to instruct the bank as to the dispositionof the stock (that is, whether the donees wanted to accept the tender offeror retain the stock). The final offer was made about one week later, with theactual transfer of the shares on the corporation’s books made approximatelyone month following the sending of the letters and memorandum by the donor.In the interim, dividends were declared; they were sent to the charities by thebank. The donor claimed a charitable deduction for the gifts of the securitiesand did not report the dividends as income.The IRS concluded that the donor had control of the stock when it was soldand therefore attributed the capital gain on the sale of the securities to the donor.The dividend income was also found to be gross income to the donor. The issueswere litigated, with the donor prevailing. The court found that the donor hadestablished a voluntary trust for the donees, using an independent party (thebank) as trustee. This, said the court, effectively removed any potential for theexercise of control by the donor “despite the failure to accomplish titular transferon the corporate books.” 34 The federal income tax regulation on the point 35 washeld to be inapplicable, inasmuch as delivery was neither to the donor’s agentnor to the issuing corporation or its agent. Thus, delivery was held to be effectedupon tender of the stock by the bank to the offeror, which was prior to the stocksale dates and the dividend declaration date. The consequence of all this wasthat the donor was held to have the charitable deduction for the gifts of thestock, and not to have any capital gain or dividend income tax liability.By contrast, in another case capital gain in the property was ruled to be taxableto the donors of appreciated securities to charitable organizations. This wasbecause, by the date the gifts were completed, the securities had ripened frominterests in a viable corporation into a fixed right to receive money, by means ofan ongoing tender offer or a pending merger agreement. Therefore, despite thegifts, the gain in the stock was taxable to the donors. 36The donors owned 18 percent of a privately held corporation, as to whichthey served as several of its officers and directors. These securities wereobtained in 1985. On July 28, 1988, the corporation entered into a merger agreement.The transaction was planned and negotiated by one of the donors. Theresulting tender offer was the subject of a letter sent to all shareholders onAugust 3, 1988. The stock price set for the offer embodied a 24 percent premiumover the market price for a share of the corporation’s stock as of July 1988.The tender offer (and thus the merger agreement) was conditioned on theacquisition of at least 85 percent of the outstanding shares of the corporation bythe expiration date of the tender offer, originally set for August 30, 1988. Thisminimum tender condition was waivable at the discretion of the acquiring entity.Certain of the donors were expected to continue to have extensive involvementin managing the business, including being executive committee and board members.The tender offer started on August 3, 1988, and was successfully completed34 Richardson v. Commissioner, 49 T.C.M. (CCH) 67, 73 (1984).35 See Reg. § 1.170A-1(b).36 Ferguson v. Commissioner, 99-1 U.S.T.C. 50, 412 (9th Cir. 1999). 177