esther8850[at]hotmail.com (Ronald) wrote:

- quote -

There are a number of issues that make this "scheme"
unworkable.

The value of art objects is not fixed, but based on a
combination of condition, rarity, and potential market.
Three years is a long time. Besides, the IRS requires the
donor to obtain a qualified appraisal within 60 days of the
donation. Your three year old appraisal and insurance policy
do not qualify.

Second, you can sell these objects for whatever price you
want, and that becomes the "cost basis" to the buyer/donor.
However, if held for less than one year their donation to a
qualified charity (not merely a non-profit organization) is
limited to this cost basis - NOT FMV or appraised value
(which should be the same).

Third, if sold for significantly LESS than FMV, there may be
a gift aspect involved. If the sale price to any buyer is
more than $11,000 below FMV you will be required to file a
Gift Tax return on Form 709. This may not require the
payment of the gift tax at this time, but can reduce your
lifetime Unified Credit by the amount of the taxable gift.

You can find additional information on charitable donations,
and valuation of them, in IRS Pubs 526 and 561, available
for download at www.irs.gov

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Ronald wrote:

- quote -

Sorry, but that won't happen. Fair market value in excess of
basis is only available for capital assets held for more
than one year before donation.

- quote -

You and any possible "donor" have other potential problems.
If the item is sold by willing seller to a willing,
unrelated buyer, the fair market value is the sales price.
There are likely other problems that fall under the general
heading of tax fraud as well.

Regards,
Bill
~~~~
Associate Professor of Accounting
Longwood University
Department of Accounting, Economics & Finance
http://www.longwood.edu/staff/wpbrown/
Opinions expressed by me are mine, not my employer's.

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Ronald <esther8850[at]hotmail.com> wrote:

- quote -

Yes, and it has nothing to do with the age of the appraisal.

If somebody buys an item and immediately donates it, then
it's going to be impossibly difficult to claim its value is
anything other than the price paid.

Seth

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- quote -

Your scheme is a scam and defective from the start. The
buyer would need to hold the art for at least one year. At
least one yacht dealer saw the inside of prison for such
games.

True, if a buyer bought a piece of art at auction for say
$1000, held it for a year and donated it to a charity which
also held it or used it in its ordinary course of business
AND the donor complied with the appraisal rules, especially
after he found it it was a very rare piece worth $10,000 the
donor would be entitled to the donation based upon $10,000.

Frankly as the seller I think you should steer clear of
giving potential buyers tainted tax advice lest you get in
trouble too.

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"Ronald" <esther8850[at]hotmail.com> wrote

- quote -

The thing is, they can't....unless they hold the "art" for a
full year first. Otherwise, it's a deduction at their cost
basis.

- quote -

The appraisal MUST be within 60 days of the donation. See
Form 8283 and their instructions, and/or Regulation 1.170A
for the details.

For what it's worth, the value would be what they paid for
it when they bought it from you.

--
Snowmen fall from heaven unassembled.
-------------
Paul A. Thomas, CPA
taxman at negia.net

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"Ronald" <esther8850[at]hotmail.com> wrote:

- quote -

It sounds like you have an incorrect understanding of the
word "basis." Basis is what your cost is for an item, not
its fair market value. Basis can be higher or lower than
FMV and there may not be any direct correlation between the
two.

I am not up on the rules for donating appreciated art work
so I can't comment about what the deduction is based on,
cost, adjusted tax basis, or FMV. I do recall something
about in order to deduct FMV for some items those items have
to be retained by the recipient organization and used by
them in their tax exempt purpose. For example (as I recall),
say I bought an original Monet at auction for $50K. That
work is now worth $500K. If I donate it to the art
department of a university and they keep it and display it
as an example of what to strive for, I get to deduct $500K,
BUT if they auction it off to get cash for operating
expenses I get to deduct ONLY what they get for it at
auction. I also seem to recall some time limit that they
have to hold it for, but the details escape me.

Gene E. Utterback, EA

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I am disposing of a large collection of Asian art objects.
The prior owner ordered a certified appraisal of each item
and carried homeowners insurance for same. The appraisal
was made 3 years ago. I have been asked by family members
to dispose of the entire collection.

I was thinking of selling these items at a large discount
(75%) to high income earners who would immediately donate
the objects to non profit organizations and take the full
appraised value. I can supply each buyer with a copy of the
certified appraisal and insurance policy. My question is,
is there a problem with the donor using a 3 year old
appraisal as his basis assuming the condition is as
originally stated.

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