Giving a gift twice

I cannot, off the top of my head, come up with a reason why this would not work if you indeed waited a year.

But if I were on the church board, and just decided to give away church property that had been appraised a few years ago for more than $5,000, something would smell very badly.

Why would any church board just up and give away over $5000 of its property?

Something smells.

The art world is an entity unto itself.

There have been cases where museums have "deacquisitioned" gifts, sold them on the open market and have been successfully sued by the heirs of the person who donated the work to the museum. The logic goes something like this:

1. The work was given to the museum to display.
2. If the museum no longer intends to display the work it should be returned to the donor.
3. If the museum sells the work to a collector it is violating an implied covenant with the donor. (I don't have any idea what the courts would decide if the museum sold the work to another museum.)

It is rather odd that the museum would give you a gift; if they don't want an asset, though would sell it. If I were the IRS, I would contend that it either wasn't worth $5000 the first time, or was a loan rather than a legitimate donation. Donating it again is like daring them to claim it as fraud.

Taxation is also an entity unto itself. A donation with a "Return to Donor" clause is not a charitable donation. It is a loan.

Back to the OP's question where he donated a painting and took a deduction for it. Four years the museum is clearing out the collection containing the painting he donated and is offering to return the painting to him. This does not strike as an unusual occurrence. Museums have limited space and this museum obviously wants the space for another collection.

If the museum sold donated art to collectors and/or dealers, they would have create a serious PR problem that might have an adverse effect on future donations. So it makes sense that the museum give donors the option of recovering their paintings before such a sale or even an exchange with another museum.

I'm not familiar with the rules and regs pertaining to the disposal of assets by 501(c)3's. So I ask "DOES THE RETURN OF A CHARITABLE CONTRIBUTION CREATE INCOME TO THE ORIGINAL DONOR?"

If not, why not?

Dick

(snipped for brevity....)

In the case of medical deductions, any recovering from an insurance company in a subsequent year is income to the extent of a previous year's deduction. Rebates of property taxes are other income to the extent of previous deductions. So then, I'll vote with Dick. Income at FMV at the time, which may or may not be same as originally deducted amount; more or less.

ChEAr$, Harlan Lunsford, EA n LA

I'll claim the middle ground, with nothing but my good looks for support.

Seems to me that it would be a taxable recovery, but only up to the amount of the deduction. Anything beyond that would be an unrealized cap gain.

Probably not, especially if your 2004 year is still open. A timely filed federal return would be closed now, but where I am, state income tax returns have a 4 year period (tax year 2004 timely filed closes April

Assuming all tax issues for 2004 are closed, if there was nothing that said that you should get it back, and you do get it back, I don't see anything (else) offhand that says that it's not a gift comng back to you. However, its value might have changed, so you need to re-establish it.

absent any real research, I'll vote that it is a gift by the museum to the initial donor. If I donate money to a charitable organization, take the deduction, and years later fall on hard times and receive from that charitable organization some benefits, those do not strike me as "income". In neither instance was there an obligation for the transfer to the individual. So, while this is not the exact same circumstance (as it is not the same circumstance as receiving an insurance recovery or a property tax rebate, where there is seemingly an obligation to do so), and without some clear statute, regulation, or case law on point, I say it is not income. When in doubt, don't offer to pay even more taxes.

if this is a gift, you can deduct the lesser of what the museum paid for it or FMV. I think this amount would be zero (plus any adjustments to basis).

I believe we have a winner as to the second deduction question. It's especially nice, aside from being supported by Pubs 526 and 551, because it gets rid of that "That ain't right" feeling about two bites of the deduction apple for the same initial outlay of cash.

I have zero confidence in where we are regarding whether the return of the painting is a gift or a taxable recovery.

I agree only with the second paragraph.

Dick

As we all know: After all these years, I am still unfamilar with the Pubs. So perhaps someone could tell me where it is written that a 501(c)3 is permitted to make gifts with a value of $5,000 or more to individuals.

I liked your previous assessment that the taxpayer has income to the extent of the 2004 deduction in 2008 and the difference between that and FMV is an unrealized capital gain.

It might be expeditious for the taxpayer to donate the painting to another museum before year end and amend the 2004 return so that he gets the current FMV as a deduction in 2008. The cost of the first appraisal would stay as a 2004 deduction and the cost of the second appraisal could be either a 2008 or 2009 deduction.

Dick

After all the replies below, I couldn't find one to reply to in order to take this off on another tangent, something we're usually pretty good about doing. anyway.......

What if, instead of returning the art work (a Van Gogh)in a year after the donor's successful tax deduction, the museum, having no room for some other paintings, selects one of approximate equal value (a Matisse) and not the one donor donated, and presents it to him as a "token of their gratitude" for having made the previous donation?

Since this is not the original work of art, there's no question about recovery as income. Unlike a wash sale of stock (don't quibble now!) it's a separate type of asset.

This would not be income, but a gift with basis same as in hands of donor = zero.

What's the difference between a Matisse and a Van Gogh? I just....................................don't know.

ChEAr$, Harlan Lunsford, EA n LA

snipped-for-privacy@powerreporting.com started this whole can of worms by asking:

It occurred to me that some donors in high social circles (as opposed to my "friends in low places") might concoct a scheme by which one donates a very valuable painting with the side understanding that it's just a loan, but "officially" it's a tax deduction. Then when he wants it back, the curator "declares" the museum doesn't want it any longer and "gives" it back to donor.

Even IF, as previous replies have it, the basis of the reacquired painting is zero, the donor still has the painting in his private collection for the rest of his life, at which time his heirs get it with stepped up basis anyway.

Provided of course that IRS never finds out about the side agreement with curator, will that work?

ChEAr$, Harlan Lunsford, EA n LA

So long as the IRS doesn't find out, any fraud will work, by definition. I donate to a charitable account at Schwab/Fidelity, taking the deduction in the year I send the stock. Years later, when I direct the broker to send to the end charity, I get a letter thanking me for the donation. No mention of the broker. Can I take the deduction again? Only if I wish to commit fraud. The NPR "Car talk" guys once offered a special deal, they'd send you a receipt for triple your donation. "For you rich people, you'll break even and we'll get some good money coming in." Of course they were kidding, as I hope you are.

Joe

I suppose the museum official would have to decide between admitting misappropriation of assets or tax fraud collusion; as there are no legitimate reasons for such a gift.

To me, it doesn't pass the Smell test.

I would think they would then modify their original receipt's Return Value amount, and donor would amend to recognize the return value reduction of original gift?

If you are trying to rhyme Gogh with Know, that doesn't work. Gogh ends with a hard gutteral, much like Charlie Brown's Aaarghhh!

I thought that for property held long term, FMV is OK?

Where is it written that a public charity can distribute its assets to its friends?

The exchange of a Matisse and a Van Gogh might well be a like-kind exchange. But since you took a deduction for the Van Gogh, you have income from the Matisse. Someone sophisticated enough to keep Scotch in the refrigerator so that they won't need to add ice should know that.

Dick