Better Yacht Donations Without The IRS Risk
Better Yacht Donations Without The IRS Risk
Yacht donations are often promoted as a way to claim a charitable deduction for a vessel that won't sell on the open market while avoiding operating costs. However, these programs carry significant IRS risks, including challenges under the doctrines of economic substance and substance over form.
The Mechanics and Risks of Inflated Valuations
When a yacht fails to sell at an owner's desired price, brokers may suggest a charitable donation utilizing an appraiser and a participating nonprofit. If the appraised fair market value exceeds the actual economic reality—and the nonprofit structures a lease-purchase option rather than an immediate sale to bypass the three-year reporting rule—the IRS may recharacterize the transaction, reducing the allowed deduction to the net present value of the actual proceeds. Large charitable deductions and aggressive appraisals serve as primary audit triggers, exposing donors to retroactive tax adjustments and penalties.
A More rofitable Lower-Risk Alternative
Yacht Executive Solutions (YES) offers an alternative approach by purchasing yachts directly under structured agreements designed to be net worth neutral, eliminating the compliance and audit risks associated with conventional donation schemes.
Feature
Market Sale
Donation
YES Purchase Program
PRICE / VALUE RECEIVED BY SELLER
NET CASH AT CLOSING
TAX DUE
NET AFTER TAX
IRS AUDIT RISK
SUBSEQUENT BENEFITS
TIME TO CLOSE
Market Price
Market Price Less Commissions & Fees
Depreciation Recapture At Ordinary Income Up To 37% Or Capital Gain 23%
Market Price Less 10% broker fees & Taxes : Any Recapture At Ordinary Income Tax Rate Up To 37% Or 23% Capital Gains
Can Increase Or Decrease
None
Weeks To Months To Find Buyer Willing To Pay Market Price
Appraised Fair Market Value X Seller's Effective Tax Rate
Cash Value Of Tax Savings 20-37% Of FMV Limited To 50% OF AGI
NONE
Cash Value Of Tax Savings 20-37% Of FMV Limited To 50% OF AGI
Large Charitable Donations Are IRS Red Flags, FMV Appraisals Often Abused, No Statute Of Limitations If IRS claims Fraud
Charitable Deductions Subject To 50% AGI Limits Can Be Carried Forward
Weeks to Months Usually After MKT Price Buyer Can't Be Found-Increasing IRS Risk
100% Of The Listed Asking Price
20 - 100% Of Asking Price Depends On Seller As Client Priorities For Minimum Tax Maximum Wealth
LITTLE - IF ANY (Generally Expected To Be 5% Or Less)
Listed Asking Price Less - little to no tax
Substantially Reduces IRS Audit Risk
Seller Receives Full Asking Price,Future Yacht Ownership Is Cash Flow Positive & Net Worth Neutral, Future Taxes Lower
Generally 14-90 Days & Largely Dependant Upon Seller