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US 501(c)3 Private Foundations are typically controlled by the primary donator, so that is a nice perk, but in exchange for that perk I realize the tax deductions for donating are significantly lowered than for charities. Aside from being lower, the tax code doesn't recognize appreciated property and only allows for a deduction based on the donating taxpayer's cost-basis: ie. the price they paid for the property no matter its current market value.

When there is a significant delta of price paid vs current redeemable value, it seems this can still be a perk for the donating taxpayer in some circumstances, such as with lottery tickets that are known winners already.

If the donating taxpayer pays $1 for the ticket. Their cost basis is $1. If the ticket is now worth $100,000,000 but has not been redeemed, is it accurate that the donating taxpayer can donate this to their private foundation for a deduction at cost basis, and the private foundation can redeem the $100,000,000 ticket completely exempt from all lottery withholding income taxes?

(Other taxes unique to private foundations are known and outside the scope of this question.)

Most literature I can find is about appreciated marketable securities, and occasionally real estate. It doesn't seem that the tax code specifies any distinction between property, but it also doesn't seem the answer to this question is part of the general collective conscious even if it really is that obvious if my understanding is already correct.

  • I believe this doesn't work, but may be because of lottery rules not IRS ones. – pboss3010 May 23 at 11:46
  • @pboss3010 lottery rules are state by state, going to have to provide a source – CQM May 23 at 14:56
  • A main issue is whether the lottery ticket is considered to be merely documentation of a prize that one has already won, or whether it's an asset in its own right that can be exchanged for lottery winnings. The former seems more logical to me, but being illogical is hardly a bar for government actions. – Acccumulation May 24 at 17:24
  • @Acccumulation yes, these nuances are important, but the same lottery/income tax-free outcome could then be created by signing over all tickets to the private foundation upon purchase and not waiting to find out if they are winners or losers, with documentation and noting the price paid for the ticket. – CQM May 24 at 19:57

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