Tax question-
My client donated a boat on August 1, 2003. He received an appraisal on the boat 1 week before for 395,000. After donating the property the charity sold the boat for 135,000 on August 8, 2003. IRS has disapproved the 395,000 and says the deduction can only be 135,000 and want 100,000 right away. Any help regarding this issue would be greatly appreciated. I understand the rules changed in 2004.
True, the mandatory rules change were after 2003.
So we have here two conflicting Facts.
Fact 1: Appraisal for 395,000
Fact 2: Sale one week later for 135,000.
You did not say how long the taxpayer held the boat before donating it, but if it was for more than one year, you might think you can claim the appreciated value -- FMV? Not here.
Gifts of appreciated property are limited to cost basis unless the recipient organization uses the gift for its charitable purposes. I assume the denial was not due to exceeding the 30% of AGI? (Appreciated property of not more than 30% of AGI can be deducted with remainder carried forward.) Assuming neither of those rules tripped anyone up, then you have an upper and lower bound. If you appeal, your grounds are probably along the lines that the property had not appreciated or if it did, you limited your deduction to cost basis, and that the sale was not what a willing buyer and seller not under any pressure to sell would have agreed to, but rather, the recipient just wanted to get this old boat off its property and took the first offer that came along. In any case, be sure to get the basis of the denial so you can know what you are up against. If the denial came about because the deduction was for appreciated FMV, you are stuck, since they sold it and did not use it for its intended charitable purpose. And if denial was due to going over 30% of AGI, you are stuck. But if denial came about because a law that did not apply to
2003 was being used, you should push this appeal upstairs. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
True, the mandatory rules change were after 2003.
So we have here two conflicting Facts.
Fact 1: Appraisal for 395,000
Fact 2: Sale one week later for 135,000.
You did not say how long the taxpayer held the boat before donating it, but if it was for more than one year, you might think you can claim the appreciated value -- FMV? Not here.
Gifts of appreciated property are limited to cost basis unless the recipient organization uses the gift for its charitable purposes. I assume the denial was not due to exceeding the 30% of AGI? (Appreciated property of not more than 30% of AGI can be deducted with remainder carried forward.) Assuming neither of those rules tripped anyone up, then you have an upper and lower bound. If you appeal, your grounds are probably along the lines that the property had not appreciated or if it did, you limited your deduction to cost basis, and that the sale was not what a willing buyer and seller not under any pressure to sell would have agreed to, but rather, the recipient just wanted to get this old boat off its property and took the first offer that came along. In any case, be sure to get the basis of the denial so you can know what you are up against. If the denial came about because the deduction was for appreciated FMV, you are stuck, since they sold it and did not use it for its intended charitable purpose. And if denial was due to going over 30% of AGI, you are stuck. But if denial came about because a law that did not apply to
2003 was being used, you should push this appeal upstairs. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZHwrote
Well, it's an up hill battle, but the appraisal should stand, as the charity probably didn't wait to get the best offer on the property before selling it. Make sure that the appraiser is willing to go to bat on his work and appeal their decision to change the deduction amount. FYI: This is why they changed the rules, so expect problems. For the tax bite, it's worth the effort to take it on up the legal food chain.
-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net
wrote
Well, it's an up hill battle, but the appraisal should stand, as the charity probably didn't wait to get the best offer on the property before selling it. Make sure that the appraiser is willing to go to bat on his work and appeal their decision to change the deduction amount. FYI: This is why they changed the rules, so expect problems. For the tax bite, it's worth the effort to take it on up the legal food chain.
-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net
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