auction fair market value


S

Seth Breidbart

This is hypothetical, based on observations (that is, I'm
making up a lot of the key facts, but some underlying stuff
happened).

There's a charity auction (all proceeds go to the charity,
everything is donated) with a celebrity auctioneer and the
audience gets very involved, joking back and forth, making
random-sounding bids ("$137.26"), etc. Some items at the
auction are standard commonly available items (e.g. in-print
books), others are unique (signed manuscripts, artwork).

The typical item with a determinable fair market value sells
at this auction for around twice that fair market value.
Thus half of the purchase price is deductible as a
contribution to the charity.

What about those items without outside fair market values?
Is it reasonable to conclude that their fair market value is
also about half of what they sold for at this auction?

Seth
 
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B

Barry Margolin

What about those items without outside fair market values?
Is it reasonable to conclude that their fair market value is
also about half of what they sold for at this auction?
Isn't this basically the same issue that's been discussed
for the past couple of days in the thread "Fair Market Value
of Celebrity donated auction items"?
 
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S

Stuart A. Bronstein

There's a charity auction (all proceeds go to the charity,
everything is donated) with a celebrity auctioneer and the
audience gets very involved, joking back and forth, making
random-sounding bids ("$137.26"), etc. Some items at the
auction are standard commonly available items (e.g. in-print
books), others are unique (signed manuscripts, artwork).

The typical item with a determinable fair market value sells
at this auction for around twice that fair market value.
Thus half of the purchase price is deductible as a
contribution to the charity.

What about those items without outside fair market values?
Is it reasonable to conclude that their fair market value is
also about half of what they sold for at this auction?
I haven't done any research on this issue, but it seems
reasonable to me. The evidence is that most items get bid
way up for charitable purposes, so it would be hard for the
IRS to argue that the same thing didn't happen for the other
items.

Stu
 
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S

Seth Breidbart

Barry Margolin said:
(e-mail address removed) (Seth Breidbart) wrote:
Isn't this basically the same issue that's been discussed
for the past couple of days in the thread "Fair Market Value
of Celebrity donated auction items"?
No; that reminded me of this, but in general it's assumed
that an auction defines fair market value when it isn't
otherwise clear. However, in this case, it's clear that the
auction is _not_ generating fair market value.

Seth
 
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D

Drew Edmundson

This is hypothetical, based on observations (that is, I'm
making up a lot of the key facts, but some underlying stuff
happened).

There's a charity auction (all proceeds go to the charity,
everything is donated) with a celebrity auctioneer and the
audience gets very involved, joking back and forth, making
random-sounding bids ("$137.26"), etc. Some items at the
auction are standard commonly available items (e.g. in-print
books), others are unique (signed manuscripts, artwork).

The typical item with a determinable fair market value sells
at this auction for around twice that fair market value.
Thus half of the purchase price is deductible as a
contribution to the charity.

What about those items without outside fair market values?
Is it reasonable to conclude that their fair market value is
also about half of what they sold for at this auction?
If the value is over $75 and something is received in return
(which happens in an auction) then the charity is supposed
to tell the donor ahead of time how much is for the value of
the thing received. Lets say a charity is going to auction
a 2gb Ipod Nano, retail $200. The charity, prior to the
item going up for auction, would provide something in
writing stating the fair market value. Then the buyer would
know that anything in excess of $200 is a charitable
contribution. A catalog could be distributed at the door
when you enter for the auction to meet thsi requirement.

So the answer to your question, if over $75, is "no." The
charity determines fair market value *before* the sale.

See IRC 6115(a).

Drew Edmundson, CPA
Cary, NC
 
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T

Ted

Stuart A. Bronstein said:
(e-mail address removed) (Seth Breidbart) wrote:
I haven't done any research on this issue, but it seems
reasonable to me. The evidence is that most items get bid
way up for charitable purposes, so it would be hard for the
IRS to argue that the same thing didn't happen for the other
items.
I don't know if the IRS will buy that argument or not; but
it is ridiculous. At a normal auction things with readily
determined value will sell for about that value. Things
that are not so easy to evaluate can sell for absurdly low
prices or absurdly high prices; it is a crapshoot. So if
there is no relationship in a normal auction, why should
there be in a charity auction?
 
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S

Seth Breidbart

Drew Edmundson said:
So the answer to your question, if over $75, is "no." The
charity determines fair market value *before* the sale.
See IRC 6115(a).
So a charity isn't allowed to auction off something it got donated if
it can't figure out a fair market value? (What if it didn't expect
the price to go over $75 but the bidders decided to bid that high
anyway?)

Seth
 
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S

Stuart A. Bronstein

I don't know if the IRS will buy that argument or not; but
it is ridiculous. At a normal auction things with readily
determined value will sell for about that value. Things
that are not so easy to evaluate can sell for absurdly low
prices or absurdly high prices; it is a crapshoot. So if
there is no relationship in a normal auction, why should
there be in a charity auction?
Because people routinely pay more than things are worth in
charitable situations. In fact the IRS and the Supreme Court
have recognized that and explicitly allow the deduction of
the amount in excess of the fair market value. See States v.
American Bar Endowment, 477 U.S. 105 (1986).

Stu
 
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D

Drew Edmundson

So a charity isn't allowed to auction off something it got donated if
it can't figure out a fair market value? (What if it didn't expect
the price to go over $75 but the bidders decided to bid that high
anyway?)
How does anyone determine fair market value? Comparable sales, price
lists, newspaper ads, ebay, etc. A fair market value can be figured
out for anything (excluding love, etc.), some things are just more
difficult to value than others.

The fact that the taxpayer cannot easily comply with the law does not
make the law unconstitutional or in some other way invalid.

Drew Edmundson, CPA
Cary, NC
 
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