Friday March 29, 2024

4.3.4 Tangible Personal Property Valuation

Tangible Personal Property Valuation

Gifts of $5,000 or Less:  Gifts valued between $250 and $5,000 will require a receipt but not an appraisal.

Gifts Over $5,000 of Tangible Personal Property:  For gifts over $5,000, a qualified appraisal is required.

Fractional Interest:  A fractional interest in tangible personal property is a permissible gift.

Overvaluation Penalties:  There may be a substantial penalty for overvaluing a gift of property.

Gifts of $5,000 or Less


TPP assets must comply with charitable substantiation rules. If similar items of property are donated in the same taxable year, the donor is required to comply with the appropriate substantiation requirements for the aggregate value of the similar items. In addition, the condition of the property must be described. Reg 1.170A-16(c)(3)(iv)(B).

Gifts valued between $250 and $5,000 will require a receipt but not an appraisal. In addition, the taxpayer is required to state the general description of the property. The taxpayer also should record the method used to determine value.

Under the vehicle gift rules, taxpayers with cars, boats, RVs and aircraft usually have a fair market value that is less than their cost basis, since the property has depreciated. When they give an asset to charity, the deduction is an amount equal to the gross sale proceeds of the vehicle.

There are two categories for the new rules. First, if the charity sells the vehicle within 30 days, the "sale" category rules apply. Under the sale category rules, the receipt to the donor must list the name and Social Security number of the donor and the vehicle identification number and must also state that the vehicle was sold "in an arm's-length transaction between unrelated parties." The receipt must also show the gross proceeds of the sale plus state that the charitable deduction may not exceed the gross proceeds.

Form 1098-C may be filled out with this information and sent to the donor. Form 1098-C (or another qualifying statement) must be received by the donor within 30 days of the sale of the vehicle.

This new law basically provides that all gifts of vehicles that are sold will now have a charitable deduction limited to the gross proceeds received by the charity. Since many charities sell vehicles at auctions where the prices are usually below Blue Book, the deduction for gifts of vehicles will be greatly reduced.

The second category is the "hold" category. If a charity plans to hold and use the vehicle, then within 30 days it must certify to the donor its intended use of the property and the intended duration of such use. The charity must also promise that the vehicle will not be sold prior to the anticipated "completion of such use." In addition to the certifications listed above, the charity's receipt to the donor, Form 1098-C, must also list the donor's name, donor's Social Security number and the vehicle identification number.

Because the charity is holding the property, there is no maximum charitable deduction limited to gross proceeds, as is the case in the sale category rules. As a result, a donor will follow the traditional charitable deduction rules with respect to gifts of tangible personal property, i.e., fair market value.

If the vehicle is sold for $500 or less, the donor may deduct the lesser of the vehicle's fair market value or $500. If the donee organization sells or gives the vehicle to a needy individual, the donor may deduct up to the vehicle's fair market value. Vehicle gifts with a value over $5,000 will require an appraisal, with the exception of gifts sold reported on Form 1098-C. Sec. 170(f)(11)(A)(ii)(I).

Significant penalties may be imposed in certain situations, such as when a charity issues a "fraudulent acknowledgment" for either a "sale" or "hold" vehicle. For a "sale" case, the penalty is the greater of the gross proceeds or the claimed sales price times the maximum income tax rate. For a "hold" case, the penalty is a minimum of $5,000, but may be greater if the claimed value times the highest income tax rate is a larger amount.

For gifts of tangible personal property over $500 in value, there are additional requirements. The records of the taxpayer must show the date and manner of acquisition and the cost basis, unless the taxpayer has reasonable cause for not knowing this information. Reg. 1.170A-13(b)(3).

Gifts Over $5,000 of Tangible Personal Property


For gifts over $5,000, a qualified appraisal is required. The appraiser must "hold himself or herself out to the public as an appraiser." The qualifications of the appraiser also include the ability to appraise the type of property, and he or she must be independent. The appraiser must not be a party to the gift, and may not be the charitable donee or an employee of either the donor or donee. Reg. 1.170A-13(c)(5).

For tangible personal property, the appraisal must specifically address the physical condition of the property and the factors appropriate for valuing that type of asset. If there is an agreement or understanding that relates to the use, sale or other disposition of the contributed property, it must be disclosed in the qualified appraisal. Reg. 1.170A-17(a)(3)(ii). If the charity does not have the full power and authority to designate the recipient of the contributed property's income, possession or rights to acquire, this must be disclosed in the qualified appraisal. Reg. 1.170A-17(a)(3)(ii)(B).

Fractional Interest


A fractional interest in tangible personal property is a permissible gift. For example, some works of art have been donated with a calendar-sharing arrangement. The donor may retain, for example, four months' use during the year and transfer to the charity an identified eight months' use. This gift is permissible, but the fractional interest may result in a reduced charitable deduction. See Rev. Rul. 87-37.

Documentation for a fractional gift of tangible personal property is also subject to additional requirements. The donor must list any prior gifts of fractional interests in that property, the physical location of the assets and the person with physical control of the property. Reg. 1.170A-13(b)(2)(ii)(F).

Overvaluation Penalties


There may be a substantial penalty for overvaluing a gift of property. If the property is valued at 150% or more of the correct value and the excess tax reduction is over $5,000, there is a penalty of 20% of the underpayment. Sec. 6662(a), Sec. 6662(b).

However, if the value claimed is 200% or more of the correct number, then the valuation penalty is 40% of the underpayment. Sec. 6662(h).

Example 4.3.4A Black Dogs At Night

John Artcollector finds a painting in his garage with the title "Black Dogs At Night." This painting was bequeathed to him by his late uncle Maximillian. John exclaims, "This was done by my late uncle Maximillian, it must be worth a million!" John contacts Art Flimflam, who "holds himself out to the public" as an art appraiser. Mr. Flimflam determines that the value of "Black Dogs" is $510,000. John transfers the painting to an art museum. The art museum cooperatively places the artwork in its warehouse, but does not display the painting.

John then claims a charitable deduction for $510,000 as a related use gift, since it is reasonable to expect that an art museum would display a painting. The Art Advisory Panel of the IRS examines the painting and determines that the appropriate valuation is $10,000. Since the valuation is more than 400% of the correct amount, the "gross valuation overstatement" penalty of 40% applies. John must repay the taxes saved plus interest and an additional 40% penalty.

Case Studies on Tangible Personal Property Valuation

The Gas Guzzler's Deduction, Part 1:   Brandon Bigtop loves his truck, which he nicknamed "the Beast." It was a gift for Brandon's 18th birthday. It is painted bright red and is two tons of metal, muscle and noise.

The Gas Guzzler's Deduction, Part 2:   Brandon Bigtop loves his truck, which he nicknamed "the Beast." It was a gift for Brandon's 18th birthday. It is painted bright red and is two tons of metal, muscle and noise.
Wild Bill Russell Donates Art – Qualified Appraisal:   Bill Russell grew up on the Great Plains. During his youth, he was a rodeo bull rider and gained fame as “Wild Bill” for his daring exploits. But Wild Bill was an artist at heart and soon decided to move on to his artistic pursuits.

      Quiz-Basic



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