Friday April 26, 2024

Rev. Rul. 80-329
GiftLaw Note: Gifts of tangible personal property that have a use related to the charity's exempt purpose and will be used by the charity for its exempt purpose allow the donor a fair market value deduction rather than cost basis. The IRS in this Rev. Rul. addresses the issue of what is fair market value. Donor purchased a substantial number of Bibles with two options for payment. Both options offered the donor a reduced cost for the Bibles because of the quantity purchased. The seller claimed that if the donor holds the Bibles for one year before contributing them to a charity with a related use for the Bibles, the donor will be allowed to take a deduction for the retail value of the Bibles rather than the reduced cost that was paid. The issue here is what is fair market value. The IRS references Rev. Rul. 80-233 and states that the best way to determine fair market value is to look at prices at which similar quantities of Bibles are actually sold in an arms-length transaction. Because the seller was offering Bibles in similar quantities to other buyers at a discounted price, the fair market value would be the discounted price.
July, 1980


Charitable contributions; Bibles. A promoter offers investors a choice of two plans to purchase Bibles and donate them to charities. Under one plan, investors purchase the Bibles and donate them to charity 12 months later. The investors are told that they may deduct the "retail" price, which is three times as high as the purchase price. Under the other plan, investors purchase the Bibles at the "retail" price, put down the same amount as the purchase price in the first plan, and execute promissory notes for the balance. Principal and interest on the notes is payable in 12 years. The investors then donate the Bibles to charity. The deduction is limited to the cash paid in the second plan.

ISSUE


What is the fair market value of Bibles that are contributed to a charitable organization, under the circumstances described below?

FACTS


P , a promotor, offers to sell Bibles to individuals. Depending on when an investor desires the purported tax advantages, the investor has a choice of two purchase plans. If the investor is willing to wait 12 months for a charitable deduction, P advises that the customer can purchase Bibles at a considerable discount from "retail" price and, by donating them to a qualified charitable organization more than 12 months after purchase, claim a charitable deduction based on the "retail" price. Under this plan, the purchase price is one-third of the "retail" price. See Rev. Rul. 80-233, page 69, this Bulletin, which holds that the charitable contribution is limited to the price at which similar lots of Bibles were sold and were still being sold to others at the time of the contribution.

If the investor wants a charitable deduction within a year of purchase, P advises that the customer can purchase Bibles at the "retail" price on a deferred payment basis and claim a charitable deduction based on the "retail" price, upon donating them to a qualified charitable organization. Under the latter plan, the investor pays for the Bibles with cash in the amount of the discounted price and with a note for the balance. The note provides for interest at the rate of 8 percent per annum, and it matures in twelve years. Principal and interest are not due until the twelfth year.

In 1980 A contracted with P to purchase 500 copies of a single edition of a modern translation of the Bible. A had the opinion to pay 100x dollars in cash under the first plan or to pay 100x dollars in cash and execute a promissory note for 200x dollars under the second plan. A , who wanted to make a charitable contribution in 1980, purchased the Bibles under the second plan. On August 1, 1980, A donated the Bibles to X , which was an organization described in section 170(c) of the Internal Revenue Code and for which the use of the books would be related to X 's exempt purposes.

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 generally 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.

Section 170(e)(1)(A) of the Code provides that if a taxpayer contributes property that would have resulted in gain which would not have been long-term capital gain if the property had been sold at its fair market value on the date of contribution, the amount of the contribution must be reduced by the amount of such gain. Section 1222(3) defines "long-term capital gain" as gain from the sale or exchange of a capital asset held for more than 1 year.

Section 1.170A-1(c)(2) of the regulations provides 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 or relevant facts.

The definition of fair market value depends upon a knowledgeable willing buyer and a knowledgeable willing seller.The most probative evidence of fair market value is the prices at which similar quantities of Bibles are actually sold in arm's-length transactions. See Rev. Rul. 80-233. P was selling similar lots of Bibles for either 100x dollars or 300x dollars. Neither the quantity nor the quality of the Bibles varied with the price; rather, the difference between the two prices was solely at the discretion of the buyer. P was a willing seller for 100x dollars.The fair market value of the Bibles is 100x dollars, the amount at which similar lots of Bibles could be purchased from P by members of the general public.

If P were not offering Bibles for 100x dollars, the fair market value of the Bibles contributed would be determined by all the relevant facts and circumstances including the sales price of comparable Bibles by others; the sales price by P of 300x dollars would not conclusively determine the value of the Bibles.

HOLDING


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



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