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SPECIAL GIFT SITUATIONStax shelter, with substantial accounting income and little in the way of actualcash distributions to pay the unrelated business income tax.When the stock is sold, the charity will want adequate assurance that it isselling the stock for a fair price. Sales made close to the date of the gift can usuallybe done at a price that is at or near the original appraised value of the stock.If the sale will be several years later, the original appraisal will be outdated andthe charity will require some other assurance (such as a contemporaneousappraisal) that the price is adequate. A charitable organization can sell the stockat a below-value price if it makes a valid business judgment that it should riditself of the asset because of tax liabilities.Unlike most other assets, gain from the sale of S corporation stock is subjectto the unrelated business income tax that the charity must pay. 238 The amount ofthe gain from the sale of S corporation stock, however, is usually much less thanthat from comparable C corporation stock, because the basis of S corporationstock is usually increased by the amount of corporate profits that were retainedby the S corporation. 239Other Tax Issues. As noted, actual distributions of cash and property by an Scorporation (as contrasted with accounting-based income) are generally nontaxable.There are, however, three situations in which a distribution from an S corporationcan be taxable. One is when the distribution is greater than the basis inthe stock; the excess is taxable as capital gain. 240 The second is when the S corporationpreviously was a C corporation; a distribution of accumulated profitsattributable to the C corporation years could be a taxable dividend to taxpayingshareholders, but it is probably not taxable as unrelated business income to atax-exempt shareholder in the year paid. A tax-exempt shareholder that purchasedS corporation stock may, however, ultimately have to pay tax on such adistribution in the year the stock is sold, because the distribution reduces thebasis of the stock. The third situation can be the most serious: when the S corporationdistributes appreciated property (such as real estate) to its shareholders.This type of distribution can trigger taxable income, irrespective of whether it isdistributed as an ongoing distribution or a liquidation. 241 This could pose a burdenfor all shareholders, including charities, because they will have to spendmoney to pay the tax when all they might have received is illiquid property.If a donor has a low basis in his or her S corporation stock, it increases thelikelihood of two problems. The first, as noted, is that a distribution from thecorporation might be taxable because distributions in excess of basis are taxable.The second problem is that if the S corporation has losses instead of profits, thecharity might not be able to deduct the entire amount of the losses. The lossdeduction is limited to the charity’s basis in the stock and any unused loss is carriedforward to future years. 242 This could be a problem if the charity owns interestsin other S corporations or partnerships that generate unrelated business238 IRC § 512(e)(1)(B)(ii). Cf. IRC § 512(b)(5) (general exclusion for capital gains).239 IRC § 1367(a), (b).240 IRC § 1368(b)(2), (c)(3).241 IRC §§ 311(b), 1371(a)(1).242 IRC § 1366(d); IRC §§ 1367(2)(B) (for stock), 1367(b)(2) (for debt). 298