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§ 12.4 ISSUES(c) Transfers of Tangible Personal PropertyThe IRS addressed the tax consequences of the transfer of an item of tangiblepersonal property to a CRT. 259 In the particular case, an individual wanted totransfer a musical instrument to a CRT.The first consideration is the future interest rule. A charitable contribution ofa future interest in tangible personal property is treated as made for tax purposesonly when all intervening interests in, and rights to, the actual possessionor enjoyment of the property have expired or are held by persons other than thedonor or those standing in a close relationship to the donor. 260 By contributingthe instrument to the trust, the donor would be creating and retaining an incomeinterest in it, thus triggering the future interest rule. There would be an incometax charitable contribution deduction, however, when the trustee sold the instrument.261 This is because the income interest would then be in the proceeds of thesale of the instrument rather than in the instrument itself.When there is a charitable contribution of tangible personal property andthe donee uses the property in a manner unrelated to its exempt purpose, theamount of the charitable deduction must be reduced by the amount of gain thatwould have been long-term capital gain if the property had been sold for its fairmarket value. 262 Under the facts of this ruling, it was contemplated that the trustwould sell the instrument (a long-term capital asset) within the calendar year ofthe gift. The sale would be an unrelated use. Therefore, the donor’s charitablededuction (already confined to a remainder interest and in existence only afterthe sale of the property) would have to be reduced to the amount of the donor’sbasis in the property allocable to the remainder interest.When there is a charitable contribution of property and the donee is not apublic charity, 263 the charitable deduction for the gift generally must be confinedto an amount equal to 20 percent of the donor’s contribution base. 264 When therecipient is a public charity, there is a 30 percent limitation. 265 The donor in thisinstance wanted the 30 percent limitation to apply, presumably on the groundthat the remainder interest beneficiary would be a public charity. However, thecharitable remainder donee for the trust was not specifically designated.Under the terms of the trust, the donor reserved a lifetime power ofappointment and a testamentary power to designate the charitable beneficiary.The trust instrument did not confine the class of charitable beneficiaries to thosethat are public charities. Thus, the IRS held that it was possible that one or morebeneficiaries would be other than public charities. Were there to be a charitable259 Priv. Ltr. Rul. 9452026.260 See § 9.21.261 As discussed, the IRS ruled that, unless each transfer to a charitable remainder trust during its life qualifies fora charitable contribution deduction, the trust cannot be a charitable remainder trust for federal tax purposes.See § 12.3(j), text accompanied by notes 248–254. In that case, there would never be a deduction. In this instance,the gift of property was not deductible at the time it was transferred to the trust; the fact that the charitablededuction (of the sales proceeds) would eventually arise preserved the trust’s tax qualification.262 See § 4.6.263 See § 3.4.264 See § 7.12.265 See § 7.6. 447