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, 2019 at 11:46
  • @pboss3010 lottery rules are state by state, going to have to provide a source
    – CQM
    May 23, 2019 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. May 24, 2019 at 17:24
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    It'll probably also matter whether or not you report the $100,000,000 as gambling winnings or not. If you donate the ticket, you spent $1 on that donation. If you're donating the winnings, you have to first claim them - and report them as income - at which point your cost of the donation is the full income from the winnings. Honestly, I'd just donate the ticket and let their accountant worry about how to report it. ;) Jun 3, 2021 at 14:25
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    @WilliamWalkerIII I've gotten more sources on this since, and also talked with non-profit lawyers and they say that donating a ticket to a private foundation will give you a cost-basis deduction. As it is an asset you bought. So the foundation gets the whole gain on the asset tax free, likely just the 1.39% net investment income tax. Much better than the state having potentially greater than 50%.
    – CQM
    Jun 3, 2021 at 21:46


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