Question

Dress for Success is a 501 (c) (3) organization that provides clothes and job training to homeless individuals. Its annual operating budget is $100 million. Steve Jobs, a philanthropist, would like to will his computer company, Apple Tools (a C. Corp) to Dress for Success. Dress for Success has retained your services to provide an analysis of the tax consequences of each option.

(a) Sell the Apple Tools business and contribute the net proceeds to Dress for Success;

(b) Continue to operate the Apple Tools business as a division of Dress for Success;

(c) Continue to conduct the Apple Tools business as a wholly owned subsidiary of Dress for Success.

Answer 1

Option C is better one when compared to option A and Option B,

Why Option A is not choose: It is better to continue the business instead of selling because it is a reputated company with huge turnover and Goodwill where you the share price is also high, so for coming years the profits will also increase and no need to worry about the company, so when a company performs well there is no need to sell it. So option A is not at all correct

Why Option B is not choose: If you make it as division and run, people will think you are using charity for generating sales or you are having huge black money, so many negative things will flow out once you make it as a division.

Option C : If you make it as a Subsidiary and you will gain full voting power you can decide the entire running of Business and you can rule it, take how many reserves you want and can you can decide future of that company and your charity will also back-boned by company.