Sale of donated warrants.

The Tax Court held in Gerald A. Rauenhorst, 119 TC No. 9 (2002), that donated stock warrants that charities sold to an interested buyer known to the donors before the contributions, were not prohibited assignments of income. The court concluded that, at the time of the gifts, the charities were not legally bound and could not be compelled to sell the warrants; moreover, the facts fell squarely within Rev. Rul. 78-197, on which the taxpayers had relied in structuring the transaction.

The taxpayers were the sole partners of a partnership that owned warrants in NMG, a Delaware corporation. The partnership assigned the warrants in 1993 to four charities after it learned that NMG's stock was going

to be sold to World Color Press, Inc. (WCP).

The donees subsequently sold their warrants to WCP. The IRS determined that the contributions were anticipatory assignments of income. The taxpayers argued that the doctrine did not apply under Rev. Rul. 78-197 (which involved similar facts, except that the stock contributions were followed by a redemption, rather than a sale). The IRS had concluded in that ruling that there was no barred assignment, because the donees were not legally obligated (and could not be compelled) to sell the contributed property.

Although the IRS argued that it was not bound by Rev. Rul. 78-197, the Tax Court concluded that although that was true, the ruling has (1) been in existence for nearly a quarter-century, (2) not been revoked or modified and (3) been cited by the IRS itself in numerous letter rulings. The taxpayers argued that they had relied on the ruling in planning their charitable contributions.

Revenue rulings are intended to assist taxpayers in achieving maximum voluntary compliance. The Tax Court treated the IRS's position in Rev. Rul. 78-197 as a concession that the anticipatory-assignment-of-income doctrine could not apply if the charitable donees were not legally obligated and could not be compelled to sell, which was the case here.