Gil Faver wrote:

- quote -


My take is, he screwed up when he claimed it as income (when it was returned.) It was
just a gift. He donated it in good faith, so the original charitable deduction was proper.

I also think the museum would lose a lot more "good faith" than the value of the painting
by suing one a benefactor over their mistake. When word gets out, people will think twice
before donating anything to them.

Bob

"Gil Faver" <rowdy'sboss[at]xxyz.com> writes:

- quote -

Just a guess, but would that not be a casualty loss?
(loss of property due to sudden, unexpected and unusual
event). There's certainly a question of whether he can
take even that, given that he "did not own it at that point".
But he'd paid income taxes on it and certainly had ever
reason to believe he did own it.

It would be subject to a $100 reduction and then further
reduced by 10% of AGI. If this guy has any moderate
income, he's simply out the painting (and the taxed he'd
paid on it in that second tax year during which he'd
declared it as income). In which case, there's no
reason to even bother declaring it or opening the can
of worms as to whether he really could have anyway.

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Taxpayer has a lovely oil portrait of a White Elephant. Seeing that a local
museum is going to be putting on an exhibit featuring animals in the wild,
taxpayer offers to donate the portrait to the museum. The museum studies
the portrait and determines it would be a wonderful addition to the exhibit.
An independent appraisal puts the value of the portrait at $5,000. The
donation is made, and taxpayer takes a charitable donation for $5,000 in
this first tax year.


A number of years pass, and the museum decides to remove the animal exhibit
and use the space for other exhibits. The various animal artwork exhibited
are given back to their owners, placed in other parts of the museum, or
placed in storage. More years pass, as does the statute of limitations for
amending tax returns for that first tax year.

The museum then decides it does not have the space to store the White
Elephant any longer, and offers to return it to the taxpayer who donated it.
Taxpayer accepts the White Elephant back into his home. Taxpayer, being a
devoted fan of MTM, researches the tax implications of the White Elephant's
return. After studying the various responses to a similar issue posted on
MTM, taxpayer tosses a coin and decides to declare the return of the White
Elephant as "other income" in a second tax year. Taxpayer gets an
independent appraisal and, to keep things simple, the appraisal comes in at
$5,000.

A number of years pass, as does the statute of limitations for amending tax
returns for that second tax year.

There is a change in staff at the museum, and as part of a
reorganization/study/analysis it comes to light to the new staff/directors
at the museum that the White Elephant was given back to the original donor
for free. Discussion ensues, and the new powers decide that they really
should have that White Elephant back at the museum. Taxpayer at this time
says he has again grown fond of the White Elephant. A lawsuit is filed, and
the Judge renders a decision that in this particular instance, with this
particular museum, the return of the White Elephant to the original
donor/taxpayer was improper, and title to the White Elephant is still held
by the museum. The Judge's ruling specifically states that this decision
need not be the outcome with all museums or charitable organizations, he is
simply deciding the specific facts in this case, including this specific
museum's charter, etc. The Judge's ruling also clearly states that there
was no wrongdoing whatsoever on the part of the original donor in accepting
the return of the White Elephant. Nevertheless, the return was improper
with respect to this museum, title remains in the museum, and the White
Elephant must be returned to the museum. Taxpayer does so in a third tax
year.

What is the tax situation with respect to the taxpayer? The period for
amending either prior tax years has passed. He cannot take a charitable
donation in the third tax year, as he was ordered to return the White
Elephant, and he did not own it at that point anyway.