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TIMING OF CHARITABLE DEDUCTIONSthe year the letter of credit was established and the other three in the subsequentyear. The IRS ruled that the entire $150,000 was deductible by this individual forthe year in which the letter of credit was established, because the full amountwas made available without restriction to the charitable organization. The factthat the charity only withdrew a portion of the amount available during the firstyear was held to be immaterial, because the charitable organization could havewithdrawn the entire amount. 48§ 6.9 GIFTS OF PROPERTY SUBJECT TO OPTIONA person may own an item of property and create an option by which anotherperson may purchase the property at a certain price at or during a certain time.An option may be created for or transferred to a charitable organization. There isno federal income tax charitable contribution deduction, however, for the transferof property subject to an option to a charitable organization. Rather, the generalrule is that the charitable deduction arises at the time the option is exercisedby the charitable donee. 49Thus, the transfer to a charitable organization of property subject to anoption by the option writer is similar to the transfer of a note or pledge by themaker (see above). In the note situation, there is a promise to pay money at afuture date; in the pledge situation, there is a promise to pay money or transfersome other property, or to do both, at a future date. In the option situation, thereis a promise to sell property at a future date.These rules were interrelated by the IRS with the private foundation restrictions,50 in an instance involving a pledge by a corporation of an option on itscommon stock to a private foundation. The option document permitted thefoundation to transfer the option to one or more charitable organizations, but thefoundation decided not to exercise the option. The corporation was a disqualifiedperson with respect to the foundation, 51 and the transaction would havebeen an act of self-dealing. 52 Thus, the foundation was to sell the option, at itsfair market value, to an unrelated charitable organization. The IRS ruled that thecorporation will be entitled to a charitable contribution deduction in the year thecharitable organization exercises the option and that the amount of the contributionwill be the excess of the fair market value of the stock at the time the optionis exercised over the exercise price. 53A charitable deduction can also arise when the option expires. In oneinstance, an S corporation executed a deed, contributing a tract of land to a charitableorganization; the corporation retained an option to repurchase the land fora nominal amount. The IRS concluded that there was more than a remote possibilitythat the option would be exercised. The gift was made in 1993; the optionwas set to expire in 1995. For 1993, each of the shareholders of the corporation48 Priv. Ltr. Rul. 8420002.49 Rev. Rul. 82-197, 1982-2 C.B. 72; Rev. Rul. 78-181, 1978-1 C.B. 261.50 See § 3.3.51 See § 3.3, note 405.52 See Private Foundations, ch. 5.53 Priv. Ltr. Rul. 9335057. 180