This is a fascinating case: when you bid at a charity auction for a unique item, how much of the bidding price can you claim as a tax deduction? My instinct is to say that the price you paid is the fair market value. But I'm sure tax experts would disagree.
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Fair is fair
25 Apr 2008 10:35 am
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My instinct is to say that the price you paid is the fair market value. But I'm sure tax experts would disagree.
Hmm. One thing that comes to mind is eminent domain. An individual house is a unique item; like the jersey or a baseball, there are many others likes it, but there are special circumstances. "Fair market value" in that case is almost never taken to be "the dollar amount necessary to induce the owner to sell," which to me seems broadly equivalent to the auction price. The value of the house is never valued up to the level of the person who values it most.
Note that if we did, it would effectively abolish eminent domain. There may be some pretty good arguments for that, but it's not current practice. I think therefore the analogy argues that the value of the person who values it second-most (the auction price) is higher than commonly accepted "fair market value" by the government.
I agree that circumstances add value-- the jersey clearly is worth more than an ordinary jersey, just like a home-run ball. The problem comes the more narrowly targeted the appeal of the special circumstances are. Your current home, or your grandmother's jewelry, or whatever, may hold a much higher value to you than to anyone else, whereas I think lots of people acknowledge at least some of added value of this jersey.
Megan,
The jersey itself was a donation from the Yankees to The Jimmy Fund. Could the $715 be the amount the Yankees claimed as a tax deduction for the jersey itself?
I don't see a problem with how it was handled. The tax collector isn't being cheated either way. The amount given to charity was $175,000. It is just a question of who gets to claim the bulk of the deduction, the buyer or the Yankees. Since it was stated up front that the Yankees (or whoever donated the Jersey) were claiming $715 as the FMV of what they were donating, the bidder was acting on that knowledge. He was not simply buying a jersey.
The reverse situation has more problems. Let's say that I donate my 1984 Yugo to Melwood as a charitable deduction and they put it up for auction. Then, my billionaire friend, who was going to donate a large sum to Melwood anyway, and is paying the AMT so he wouldn't get the deduction, decides to bid $1 million on my Yugo (and have it crushed into a cube in a junkyard). I've just donated $1 million to charity!
Njorl, the AMT allows charitable deductions, so it's unlikely that your friend will play along.
I know Megan doesn't much believe in charity, and doesn't think that people pay more for things than the fair market value when it's for charity, but they do. In this case, where there is certainly a private, for-profit market for sports memorabilia, it seems like a straightforward question: the FMV of the jersey would be established by putting a number of sports memorabilia on the witness stand to give expert testimony as to its value, and the excess of $175,000 over that amount is allowable as a deduction.
I know that artists cannot deduct the FMV of a piece of artwork that they donate for a charitable auction because its FMV has not been established (according to the tax law). So if Jackson Pollock donates a painting for a charity auction, he only deducts the cost of canvas and automotive paint. In this case, I would think that the Yankees would not be able to deduct the auction price but I suppose that the NYY have more lawyers at hand than most artists and art and jerseys are somewhat different as unique objects go.
I think Kriston is right, and that the same rules apply to this jersey in the hands of the Yankees as to paintings in the hands of the painter, i.e., the Yankees may deduct only the cost of the jersey.
My kids used to attend a private school in the Seattle-area that had lots of super-rich parents (you can guess some of the names). I watched first grade art projects, made up of 6-year-olds painting a chair or whatever, sell for as much as $25,000.
I could not understand it, until it was explained to me later. There are a lot of folks who not only want to give that much money to the school, but want to be seen doing it in a very public place where they can get immediate recognition from other parents.
Whatever the motivation, most of that price paid is legitimately a donation.
There are a lot of folks who not only want to give that much money to the school, but want to be seen doing it in a very public place where they can get immediate recognition from other parents.
I attended a Seattle-area private school with many of those kids back in the day, and I recall one auction night in which the first item of the night was 4 hats with the school's letter on it. They sold for $1600 and promptly went on the heads of the buyer and his wife. Some of my friends and I were there helping out with the evening, so we scrounged up some more of the hats, and we went around the rest of the evening wearing 4 hats each because we thought the ostentatiousness of the purchase was so annoying.
This is why I am not in non-profit fundraising.
I offer no opinion on the deductibility, but for $50,000 I'll write you an opinion letter, AKA "get out of jail free" card.
I would say that the fair market value, as far as the buyer is concerned, is the amount bid by the second-highest bidder, not the amount of the winning bid.
Megan, people do often pay more than market for items at a charity auction (my favorite example: at an auction I attended some years ago, a hundred dollar bill was auctioned off at the beginning of the evening for $1300, just to set the tone - the auctioneer gaveled the bidding closed and said "Now you're getting the idea".)
In addition to providing a congenial atmosphere in which to be relieved of more of one's money, auctions also provide a way for those who can better make in kind donations to contribute, and have their contributions generously monetized by those with more cash.
I'm afraid I think coyote and Rob Lyman are being unkind to the bidders at the school auctions they describe. Coyote's instructor about motives was mistaken, I think - the bidders know perfectly well that they are there to give money to the school, and they come intending to do just that. Many if not most have already made private donations, and the items on offer at the auction just provide a little palliative for donating more. I imagine the bidders at Mr. Lyman's school, if they noticed at all, were probably amused by the spectacle of a group of kids (whose education was being supported by both the donations at the auction and the tuition checks already written by the attendees) using their privileged positions to mock those who granted that privilege.
Coyote's instructor about motives was mistaken, I think - the bidders know perfectly well that they are there to give money to the school, and they come intending to do just that.
How does this conflict at all with what Coyote wrote? They're there to give money--we all agree on that--but as coyote points out, they're also there to be seen giving money, else they could just have written their checks in private, like my parents did.
I suppose you're right that we should be grateful that people are giving money to good causes, but I can't help finding the demand for public attention implicit in wildly overpaying for a $100 bill or a few cheaply-made hats distasteful.
I imagine the bidders at Mr. Lyman's school, if they noticed at all, were probably amused by the spectacle of a group of kids (whose education was being supported by both the donations at the auction and the tuition checks already written by the attendees) using their privileged positions to mock those who granted that privilege.
So in other words...everybody wins!
I'm not arguing that people don't overbid at charity auctions; only that in the case of this object, we have only one market price for it--the price the buyer paid. But using the second highest bid is an interesting idea.
Concerning car donations, the rules have changed. Used to be you could just deduct the most optimistic Blue Book value available. Sure, my car is in excellent condition...so I can deduct an extra thousand...
Now, if the car is sold at an auction, you can only deduct what the charity actually receives for the car.
IRS pamphlet explaining all the exceptions.
Gosh, who makes a better citizen? Who would I rather have in my community? Who is a positive externality and who is a negative externality?
A) Someone who gives his own money to a worthy cause , or
B) Mr. Lyman, who looks down his nose and mocks such a person for doing it in a manner Mr. Lyman finds distasteful.
These are tough ones.
It would have to be the second highest bid. If the free market value is the highest value that someone else is willing to pay for it, then the highest value is the second highest bid.
Gosh, who makes a better citizen? Who would I rather have in my community? Who is a positive externality and who is a negative externality? A) Someone who gives his own money to a worthy cause , or B) Mr. Lyman, who looks down his nose and mocks such a person for doing it in a manner Mr. Lyman finds distasteful. These are tough ones.
So let's suppose some racist wanted to give money at some event to "help dem negroes", but was only willing to do it at $200/head for every black person in the room who was willing to take a turn groveling for it in the fashion of some abject slavery stereotype. Y'know, to be seen publicly, and all that. By your own logic, you would have no problem with this?
Or is your problem that you DO have limits on what you find to be (legal, but offensive) manners of giving, and those happen to be a bit different than Rob Lyman's standards?
Just to be clear, it's wonderful that charities have found a way to harness status-grubbing conspicuous consumption of the most outrageous kind for the benefit of society, just as it's wonderful that the capitalist system has found a way to harness rapacious greed for broad social benefits.
But do not expect me to celebrate either status-grubbing or greed as noble motivations.
But perhaps I am simply being unfair to auctiongoers. As I recall, there was an open bar.
Two comments:
First, as to the tax question: The available deduction equals the auction price less the FMV of the item. The portion of the tax law quoted on the Tax Prof's site provides the general rule that the taxpayer may rely on the charity's representation of FMV (unless the taxpayer has reason to believe the charity's representation is incorrect). However, that provision is used for things like tickets to the Policeman's Ball for which they charge $100 and are "worth" $20. For unique items sold a charitable auction, the presumption is that FMV is the auction price. Absent a qualified appraisal documenting the FMV, there's no way I'd sign a client's tax return that claimed any deduction for such an item. There's just no way the deduction would meet the "more-likely-than-not" standard required to avoid the application of preparer penalties.
Second, Mr. Lyman is undoubtedly correct in his assessment of the human condition: some people like to be seen doing good. Still, sometimes charities "salt" the auction with (reluctant) celebrity bidders who've been encouraged to publicly give in the hope their example will encourage giving by others. Some people like to follow the leader and will only bid after they've seen someone they know and respect break the ice. Since, without the ability to read someone's heart, it's impossible for us to know whether the motivation is to be seen doing good or (reluctantly) to serve as an example for others, it's perhaps unwise and unfair to assume only one possible motivation.
I believe that the tax deduction for charity is immoral. The Federal, state and local governments are actually the largest charities in the world because they give away more money to the poor, the needy, the old, the sick, the crippled, the widows, the orphans, and the deserving, than any other charity in the world.
If you give money to a charity and deduct it from your taxes, you are simply taking money out of the pocket of one charity and giving it to another, causing one group of people to suffer so that another may grow fatter.
True charity is giving without claiming a deduction.
If you give without taking a deduction you can give to people you know need help because you know them personally -- provided you pay the gift tax. The gift tax is the penalty you must pay for personally helping needy people.
Rob Lyman - I'm not a Christian. However; Jesus might have criticized public giving saying that such people 'have had their reward' on earth, but he never said that they shouldn't be given their reward. If someone wants to buy status with charitable donations, I have no problem whatsoever with giving them what they want while they can get it and leaving the rest to the man upstairs.
There's the issue of priorities also. I would much prefer someone who gives publicly in the community than someone who does not give at all.
sol vason - The Federal, state and local governments are actually the largest charities in the world
But not necessarily the most efficient or effective.
Jesus also urged us to judge not, lest we be judged, and invited one without sin to cast the first stone. Obviously I'm not doing too well in the obeying Jesus department.
The Federal, state and local governments are actually the largest charities in the world because they give away more money to the poor, the needy, the old, the sick, the crippled, the widows, the orphans, and the deserving, than any other charity in the world.
Giving away other people's money may be a lot of things, but it isn't charity.
Besides, most of what the government gives to people is delivered under statutes that create an entitlement; when the government pays someone's medical bills under Medicare, it is more acting as a charity than an insurance company.
The Federal, state and local governments are actually the largest charities in the world because they give away more money to the poor, the needy, the old, the sick, the crippled, the widows, the orphans, and the deserving, than any other charity in the world.
Giving away other people's money may be a lot of things, but it isn't charity.
Besides, most of what the government gives to people is delivered under statutes that create an entitlement; when the government pays someone's medical bills under Medicare, it is no more acting as a charity than an insurance company.
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The "unique item" argument would work, in the sense of making the fair market value equal to the price paid at auction, if the jersey were a one-of-a-kind item such as a painting or sculpture. Here, however, it's an ordinary baseball jersey with a nominal value, with its high auction price resulting from the burial stunt.
Posted by Peter | April 25, 2008 10:55 AM