Thursday March 28, 2024

Rev. Rul. 80-233

GiftLaw Note: Donor purchased a large number of Bibles at a substantial discount, held the Bibles for one year, then contributed the Bibles to an organization that had a related use for them. The Bibles are gifts of tangible personal property and the deduction is limited to basis unless the gift of such property has a use related to the charity's exempt purpose and the charity intends to use the property for its exempt purpose, in which case the deduction is not cost basis but fair market value. Because there was a related use here, the deduction is taken at fair market value. In this Rev. Rul. the issue is, what is fair market value. Here, the IRS holds that fair market value is determined by reference to the most active and comparable marketplace at the time of the donor's contribution. This includes taking into account the price at which similar quantities are being sold in arm's-length transactions to other individuals. Because Bibles are currently being sold to others at the same price that the donor paid (i.e., with the substantial discount) that lower price would be the fair market value.

July, 1980


Charitable contributions; fair market value; Bibles. A taxpayer purchased Bibles from a promoter who asserted that they could be purchased at a considerable discount from "retail" price and claimed that if the taxpayer held the Bibles over twelve months and then contributed them to a charitable organization, the taxpayer would be entitled to deduct the "retail" price as a charitable contribution. The charitable deduction is based on the fair market value of the Bibles at the time of contribution, and the best evidence of the fair market value at that time is the price at which similar lots of Bibles are being sold to others.

ISSUE


What is the fair market value of Bibles that are contributed to charity under the circumstances described below?

FACTS


P is a promotor who sells Bibles to individuals. P advises potential customers that they can purchase Bibles at a considerable discount from "retail" price, hold the Bibles for 12 months, and then, by donating them to a qualified charitable organization, claim a charitable deduction for the "retail" price.

In 1979 D purchased from P 500 copies of a single edition of a modern translation of the Bible for a total of 100x dollars. Upon receipt of D 's payment of 100x dollars, P furnished D with a statement that the 500 copies of the Bible had a total retail value of 300x dollars.

As part of the purchase agreement, P agreed to periodically furnish D with lists of religious organizations that were interested in receiving a donation of Bibles and for which the use of the books would be related to the organizations' exempt purposes. Pursuant to P 's suggestion that only one organization be the recipient of the Bibles, D selected from the list, X , an organization described in section 170(c) of the Internal Revenue Code, to be the recipient. At D's direction, P mailed the Bibles directly to X 13 months after D had purchased them from P . At the time D contributed the Bibles to X , wholesale dealers of Bibles were selling similar lots of Bibles to members of the general public for 100x dollars.

LAW AND ANALYSIS


Section 170 of the Code provides, subject to certain limitations, a deduction for contributions and gifts to or for the use of organizations described in section 170(c), payment of which is made within the taxable year.

Section 1.170A-1(c)(1) of the Income Tax Regulations provides that if a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution reduced as provided in section 170(e)(1) of the Code and section 1.170A-4(a) of the regulations.

Section 1.170A-1(c)(2) of the regulations provides, in part, that fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

To determine fair market value, reference is made to the most active and comparable marketplace at the time of the donor's contribution. The most probative evidence of fair market is the prices at which similar quantities of Bibles are sold in arm's-length transactions. See Rev. Rul. 80-69, 1980-1 C.B. 55. The 100x dollars, at which similar lots of Bibles were sold to D and are still being sold to others, is the best evidence of fair market value at the time the Bibles are contributed to X .

HOLDING


The fair market value of the Bibles contributed to X is 100x dollars.




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