Non Cash Donations

[taxmandan]

A timely discussion

Have a returning client who wanted to claim a donation of $18,500 for a log skidder he gave to a museum. Even had the museum curator sign off on an appraisal for that amount. Paperwork in his file showed he bought it for $2,760. Unfortunately he bought it in April 07 and donated Dec 07 so it is ordinary income property and he only gets the basis. He is furious that his great tax avoidance scheme won't work. So far has refused to sign the 8879 to file the return, wants to consider his options says he. I'll be dropping him as a client this week.

[Bees Knees]

You deduct the FMV of the item when contributed to charity. That is true even if your cost basis is zero.

Items you inherit can be donated and deducted at FMV. Basis is irrelevant.

The only time basis is an issue is when the item would have produced ordinary gain if it were sold. Such as depreciable business property that is subject to depreciation recapture, or inventory. In that case, your donation deduction is limited to basis.

TTB, page 4-16 says:

Contributions of Property—Form 8283
Enter contributions of property on line 17, Schedule A. If used
items were given to charity, such as clothing or furniture, deduct
the FMV of the items at the time of the contribution. See
exceptions below for situations where the deduction is not
based on FMV.

Fair market value is what a willing buyer would pay a willing
seller when neither has to buy or sell and both are aware of the
conditions of the sale. See Fair Market Value Guide for Used Items,
page 4-2, for examples.

Reductions to FMV. The deduction based on FMV of property
may be reduced depending on whether the property given to
charity is ordinary income property or capital gain property.

• Ordinary income property. Deduction equals FMV minus the
amount that would be ordinary income or short-term capital
gain if the property were sold. Examples include inventory,
works of art created by the donor, and capital assets held for
one year or less. This rule limits the deduction for ordinary income
property to its basis.

• Capital gain property. Property that results in long-term capital
gain if the property were sold at a gain. Examples include
stocks and bonds held long-term and personal items such as
clothes, furniture, and automobiles. Deduction equals FMV.

The deduction is reduced by the amount of appreciation if any
of the follow is true:

– The property is contributed to certain private non-operating
foundations (not including qualified appreciated stock).

– The 50% AGI limit is used instead of the special 30% AGI
limit.

– The contributed property is tangible personal property that
is put to an unrelated use by the charity, such as a painting
donated to a charity that immediately sells it after receiving it
from the donor.

Exception: Fair market value of a contribution is not reduced if
the ordinary income or capital gain is included in the taxpayer’s
income in the same year as the contribution. An example would be
the donation of an installment note to a qualified organization.

Exception: Fair market value may be reduced for donations of
motor vehicles, boats, and airplanes. See Vehicles, Boats, and Airplanes,
page 4-20.

[JohnH]

This discussion has been rolling around in my head ever since it was first posted, so I'm bringing it back up.

I've always thought that inherited goods (furniture, appliances, clothing, etc) could be valued at their FMV when donated to a qualified charity. Is there any other info either supporting or refuting this position?

[fliszt]

Larmil, yes

you are correct that items received via inheritance do recieve a stepped up value. I was under the impression (probably wrongly) that to deduct an item given to charity, one had to have paid for it. Not given, through an estate. You've got me wondering Larmil. I'll do some research on this for my own edification.
Thanks for bringing this up.
Larry

[FEDUKE404]

Inflated donation values

[snipped] You may not wear a suit or tie to work after it has been cleaned or pressed and both the owner and most of the salespeople dry clean and donate their suits after a week or two of daily wear. I do not know how they value the donations for tax purposes but it's obvious that these folks have higher than normal noncash contributions.

Perhaps so, but that $800 suit still has a FMV of maybe $40 at the GoodWill Store. I have several clients that "only buy expensive stuff" also.

Since you are in NC, it's worth noting that the NCDOR has in recent years been auditing a lot of returns with large amounts of non-cash contributions, even though the IRS let them slide. And that was before the recent tightening of the contributions rules.

Not unlike "Why did you rob banks" - "'Cause that's where the money is!"

FE

[Larmil]

clients take a deduction for items they inherited? Isn't inherited items mostly received at $0.00 ? So then the cost is zero? Just wondering.
Larry

Correct me if I am wrong. Inherited items have a stepped up basis - the value at the time of death.

[fliszt]

Larmil, do your

clients take a deduction for items they inherited? Isn't inherited items mostly received at $0.00 ? So then the cost is zero? Just wondering.
Larry

[Zee]

It's Deductible - Guaranty

In their literature, It's Deductible used to claim the visited thrift shops throughout the country to establish their dollar amounts, and you could also purchase (for an extra charge) an audit representation guaranty including the values. I would agree they seem awfully high. I don't know if Intuit (after purchasing this software) offers this guaranty, or how they obtain their prices but they do indicate they are researched.

On the other hand, if you visit a Salvation Army Store, you'll find their selling pricing aren't always cheap and may approach the values used in the listings. I've only visited a couple of times for odds & ends, pictures, etc. The pricing was higher than I expected.

If It's Deductible still sells a guaranty, maybe after reviewing the list,if you think the values are too high perhaps you should simply recommend they purchase a guaranty because the prices look inflated if it's still available.

[erchess]

My two cents

Most bring me the receipts but I always ask for them and I require a picture or a written appraisal before I will go above the standard guides that we all use like the Salvation Army, CFS Tax Tools, and Its Deductible. I am kind of flexible on the guide if they've got something that seems reasonable. I have rarely had anyone bring me a guide and no one has brought a picture or an appraisal.

What is reasonable though really does depend on the situation. There is a very high end Men's Clothing store in Asheville NC where salesmen work in suits they purchase at or below wholesale from the store. You may not wear a suit or tie to work after it has been cleaned or pressed and both the owner and most of the salespeople dry clean and donate their suits after a week or two of daily wear. I do not know how they value the donations for tax purposes but it's obvious that these folks have higher than normal noncash contributions.

[S T]

I have been

I have been asking all along, I just have these handful of clients (like 6 -10) of them every year that make me really want to question. I know that I am not the person to "police" this issue, but I am preparing the return, so in good conscious need to discuss with the client and alert them to some of the potential audit areas.

As the new rules are passed, my non-cash are diminishing thank goodness! Most clients are saying forget it, not worth the trouble to keep records, but still have those few that always pull the $$ from the ceiling and hope that you will fall for it and place it on the tax return!

Those particular clients always seem to come up with amounts greater than $3,000, and as much as $8,000 or $9,000 on non cash donations (not any one single item, combination of giving). Makes me wonder!

So what I am doing in preparation of 2008 deductions is supplying these clients with a list such as from the Salvation Army, CFS print out or giving them the link to "Its Deductible.Com" ( I am not sure about this site, the values seem high) for them to complete with each and every donation date, and also suggestng that they take pictures before they "bundle it all up".

So maybe in 2008, I won't just be given a number that is "pulled" from the sky somewhere! And in reality the client and I have a record!

Thanks for sharing!

Sandy

[Burke]

People always think their furniture, clothes, etc are worth more than they are, until they try to sell them at a yard sale. I have always required the receipts for non-cash donations, as you need the detail of to whom, what, when, cost, etc for the 8283. I am now asking for detail on the cash contributions as well, at least amt and to what organization it is donated. Most gave it to me anyway in prior years, some just put a total down.

[Larmil]

Two possibilities

My wife spends a fortune buying clothes and always has large non-cash donations. I argue with her about the amount she says they are worth and sometimes get her to reduce the amount she claims. The IRS has never questioned us.

I've had a few very large claims by clients supported by appraisals.

None have ever been audited for non-cash contributions to my knowledge.

I have had some clients with large non-cash donations. Sometimes it is a case of buying 'the best' and not wanting the clothes, furniture etc. once they are 'used' or not in fashion.

Other clients have inherited expensive clothing or household goods and donated them.

[S T]

Audit

In my 25+ years I have had only one audit on the non-cash donations and I won with a no change, but that was at least 15 years ago.

I don't like the sound of the new rules, and yet clients still insist on claiming high deductions for non-cash donations. I have been furnishing the rules, giving them the websites for the Salvation Army and It's Deductible. But still very high values are being presented.

I know it is not our job, but these are long time clients and it is always the same clients that I have this same issue with every year!

Finally as of 6PM tonight one turned the corner, and thought better of his almost $3,500 deduction and decreased it. You know this is the client that always has $600, $500, $1000, on their worksheets.

Thanks for sharing!

Sandy

[taxxcpa]

Non-cash donations

My wife spends a fortune buying clothes and always has large non-cash donations. I argue with her about the amount she says they are worth and sometimes get her to reduce the amount she claims. The IRS has never questioned us.

I've had a few very large claims by clients supported by appraisals.

None have ever been audited for non-cash contributions to my knowledge.

[DTS]

Receipts

Anything over $500 I've been asking to see documentation and then make a copy for my records. Sure have a lot of them, even the lower income that clean out the closet and go by some of - at least I think - inflated value guides. I explain the rules and I think that's the best I can do.

I have not been asking my clients to show me receipts for all the donations, just been firm in explaining the situation now. All have been assuring me they have them and what was donated on the day.

I hope this is enough. As was stated, it's not our job to verify all this, I hope this turns out to be so.

Dennis