9071 / Can a deduction be taken for a charitable contribution of less than the donor’s entire interest in property?

Usually not. Generally, a taxpayer may not deduct a charitable contribution that is less than the entire interest in property unless the contribution is made in trust. (A deduction of a partial interest will be allowed to the extent a deduction would be allowed if the interest had been transferred in trust.¹) However, a taxpayer may deduct contributions of partial interests if they are made to each of several charities, with the result that the entire interest in the property has been given to charitable organizations. An individual may make a gift of a partial interest in property if that is the individual’s entire interest, but not if partial interests were created to avoid the application of the rule prohibiting gifts of less than the individual’s entire interest.²

Exceptions: A deduction is allowed for a contribution of less than the donor’s entire interest in property in the following instances:

(1) The taxpayer donates an irrevocable remainder interest in a personal residence or farm;³

(2) The taxpayer makes a qualified conservation contribution;⁴ or

(3) The taxpayer donates an undivided portion of his entire interest.⁵ An undivided portion is a fraction or percentage of each and every substantial interest or right owned by the donor in property and the fraction or percentage extends over the entire term of the donor’s interest in the property and in other property into which that property is converted.⁶ The right to possession of an undivided portion of the taxpayer’s entire interest has been held sufficient to constitute a charitable gift, even where the donee did not actually choose to take possession.⁷ The possibility that a charity’s undivided fractional interest may be divested upon the occurrence or nonoccurrence of some event has been determined not to defeat an otherwise deductible contribution where the possibility is deemed so remote as to be negligible.⁸

The IRS has also found that a charitable gift of an “overriding royalty interest” or a “net profits interest” in an oil and gas lease did not constitute an undivided portion of the donor’s entire interest in an oil and gas lease where the donor owned a working interest under the lease.⁹

The IRS has ruled privately that a donor’s transfer of a life insurance policy to a charity, where the donor retained bare legal title, was not a retention of a substantial interest for purposes of the partial interest rule. Thus, the donor did not violate the partial interest rule, and was allowed to claim the charitable contribution deduction on the first day following the end of the 30-day cancellation period.¹⁰