Donation questions

Les Beckman · **Joined:** Tue Aug 02, 2005 1:25 pm **Posts:** 6482

Can anyone tell me who sets the value of an item being donated to a not-for-profit (501)(c)(3) museum? Is it the donor, or the recipient? Also, can a museum "negotiate" this figure with the donor? This would apply to everything from paper items to a piece of equipment.

Thanks.

Les

David H. Hamley · **Joined:** Tue Aug 24, 2004 3:07 pm **Posts:** 705

Do tread carefully, as there are some very specific IRS rules involved. The safest approach is to have any donation valued by an independent third party appraisal. The donor can also value the object or service, but they'd better be ready to defend their numbers to the IRS if necessary.

The receiving organization had best keep hands off when it comes to establishing the value of a donation.

colfaxstation · **Posted:** Mon Jun 23, 2008 5:44 pm

The IRS is very clear in its guidance. An unrelated third party that is professionally accredited to perform appraisals at IRS standards is required for valuing donations over $500. It is a good idea for the recipient of the donation to obtain a copy, or at least have the valuation, so that when the annual 990 Form is filed, their valuation matches the donors valuation, otherwise you've got a red flag for an IRS audit. The recipient also has to furnish a form to the donor that is flled out by the appraiser.

Bob Kutella · **Posted:** Mon Jun 23, 2008 5:57 pm

For the receiving organization to be involved in the setting of value is a clear case of conflict of interest. The more you set the value, the larger the donation looms, and the more can be deducted. The sum of $500 was mentioned earlier, so if someone wants to give you a rusty shovel, it is unlikely the audit police would jump out of the bushes.

On the other hand, you will be signing a letter or form acknowledging receipt of such material and have at least some responsibility other than blindly accepting a number supplied by the donor.

If it is a substantial donation, get a third party involved, even if it costs the donor some money for the appraisal. He will save that sum should he ever become audited, and your hands will be clean.

Bob Kutella

Bobharbison · **Joined:** Fri Dec 03, 2004 9:42 pm **Posts:** 3011

colfaxstation wrote:

The IRS is very clear in its guidance. An unrelated third party that is professionally accredited to perform appraisals at IRS standards is required for valuing donations over $500...

The obvious next question would be just how many professionally accredited third party appraisers are there that are also familiar with railway preservation items?

For that matter, exactly who is certified to accredit them to IRS standards? Where do we find a listed of these folks?

Do they have the skills needed to tell a reproduction from the real thing? What do they use to set pricing? We've all seen crazy builder's plate and photo auctions on e-bay. Scarcity of both the extent examples and the original artifact both enter into consideration.

How many times have you talke to somebody who has an old Lionel that they know is "worth a fortune". Granted, it could be a mint Blue Comet complete with original box, or whatever the really rare stuff is, but it's a lot more likely to be the "made by the millions" budget steam loco. Telling them apart is the tricky bit...

Sounds like an extra large Can-o-Worms to me...

Tim Andrews · **Joined:** Mon Aug 23, 2004 9:04 am **Posts:** 90

There are several items that must be done.

1. The Donor must arrange, and pay, for the appraisal.
2. The Donor must complete form 8283 Non Cash Charitable Contributions. This includes a section for the appraiser.
3. The Donee must sign and return the form. This gives the orgainzation the value for their records.
4. If the Donee disposes of the piece within two years. They must file form 8282 Donee Information Return. This tells the IRS if there is a material difference between the appraised value and the "market value".

All of this can change on a regular basis. Publication 561 spells out alot of the instructions for this. These forms and publications are on the www.irs.gov web site.

Two years ago a locomotive was donated to us and the donor was prepared for this as they are a frequent donor of their products to not for profit organizations. A detailed questionaire and forms were forwarded to us for completion.

Tim Andrews
Chattanooga

cwylde · **Posted:** Mon Jun 23, 2008 9:49 pm

I would be interested in whether any of those giving their opinions here are qualified CPAs or Enrolled Agents. Reference to IRS documents is always a good idea. Sometimes they are hard to understand. Advice on tax matter by non-qualified individuals is not a good idea.

That said, I would think that anyone affiliated with a curatorial position at a museum would be qualified to appraise items. There is no qualifing agency for rail-related appraisals.

Lastly, our museum does not set the value and so note on our receipts that the figures listed were furnished by the donor. This get touchy when filling out your schedule B which has a $5000 threshhold for reporting donors by name.

I am not a CPA so this information is purely anecdotal and not meant as any form of advice.

Brian Norden · **Posted:** Mon Jun 23, 2008 10:23 pm

Best to read publication 561 and contact an appropriate professional such as a CPA who is used to such types of donations/non-profits.

An appraiser can not be an "employee" of either the donor (who gives) or the donee (who receives).

Publication 561 states the following:

Quote:

Excluded individuals. The following persons cannot be qualified appraisers with respect to particular property.

1. The donor of the property, or the taxpayer who claims the deduction.

2. The donee of the property.

3. A party to the transaction in which the donor acquired the property being appraised, unless the property is donated within 2 months of the date of acquisition and its appraised value is not more than its acquisition price. This applies to the person who sold, exchanged, or gave the property to the donor, or any person who acted as an agent for the transferor or donor in the transaction.

4. Any person employed by any of the above persons. For example, if the donor acquired a painting from an art dealer, neither the dealer nor persons employed by the dealer can be qualified appraisers for that painting.

5. Any person related under section 267(b) of the Internal Revenue Code to any of the above persons or married to a person related under section 267(b) to any of the above persons.

6. An appraiser who appraises regularly for a person in (1), (2), or (3), and who does not perform a majority of his or her appraisals made during his or her tax year for other persons.

In addition, a person is not a qualified appraiser for a particular donation if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser to falsely overstate the value of the donated property. For example, if the donor and the appraiser make an agreement concerning the amount at which the property will be valued, and the donor knows that amount is more than the FMV of the property, the appraiser is not a qualified appraiser for the donation.

superheater · **Joined:** Sun Aug 22, 2004 11:54 pm **Posts:** 2605

Can anyone tell me who sets the value of an item being donated to a not-for-profit (501)(c)(3) museum? Is it the donor, or the recipient?

Assuming you are talking about something unique and of significant value, you need an independent, third party appraisal, so the answer is neither. Donees and Donors are specifically listed as "excluded individuals"

You will note from the criteria on pages 10 & 11 of IRS Publication 561 http://www.irs.gov/pub/irs-pdf/p561.pdf, that there's no official IRS approval for a qualified appraiser, instead, you are looking at individuals who exhibit the characteristics listed, education, designations and membership, regular practice and experience, non-exclusion from practice, etc. That having been said, I don't know where somebody obtains "verifiable education and experience" in valuing steam locomotives (ITEM NO. 3, p 10) also note that the appraisal must meet the requirements listed on page 9.

Also, can a museum "negotiate" this figure with the donor?

No.

This would apply to everything from paper items to a piece of equipment.

Yes, but there are exceptions to the general rule in Pub 561

Randy Hees · **Posted:** Tue Jun 24, 2008 1:19 am

The IRS rules, which do change especially the details are consistent in that the receiving museum must not apprise or otherwise set a value of a donation of an artifact or object.

The receiving museum should acknowledge the donation, either by letter, or by IRS form (or both) describing the donation. They can also cooperate with any appraisers hired by the donor by making the object available.

If under a set value (rules for this change) the donor can set their own value, subject to IRS review. If over it must be appraised by a certified appraiser.

The rules were designed to prevent museums from "bidding" up the donation value against each other for an artifact, i.e. my museum will say your switch lantern is worth $1500 while the museum down the road will only value it at $1000.

For smaller donations I suggest the donor print out appropriate recent Ebay auctions...

SZuiderveen · **Posted:** Tue Jun 24, 2008 12:45 pm

Alan Walker · **Posted:** Tue Jun 24, 2008 1:59 pm

Randy Hees wrote:

For smaller donations I suggest the donor print out appropriate recent Ebay auctions...

Assuming that there are any. I have yet to see another United States Military Railroad pass from the late Civil War. Something like this will have to get an independent third party appraisal-something that will have to be done to a number of the items in my personal collection once I approach a suitable museum with an offer to donate and they accept.

colfaxstation · **Posted:** Tue Jun 24, 2008 8:30 pm

One thing that we do for our donors that don't have a readily available 'railroad artifact' qualified appraiser is to provide info on recent transactions and listings for their appraiser.

Someone mentioned curatorial staff for appraisals. If they have the educational credentials to be certified as an appraiser, they would be the best choice (so long as they are not involved with any of the parties in the transaction).

As for my qualifications, I have a Masters in Financial Services with an emphasis on estate planning and business valuation and have the course hours and background to sit for my CPA (I just don't care to take the tests since my job does not call for a CPA). I am also the chairman for the Colfax Railroad Museum and handle the donation paperwork.

As to the Military Railroad pass, there was one recently at auction, but I did not see what it went for. Unique items can be valued based on a number of factors, recent sales, current offerings, similar items adjusted for the uniqueness (with an analysis on how the adjustment was arrived at) or an analysis on valuation based on professional experience (be prepared to defend if audited with backup info).

Alan Walker · **Posted:** Tue Jun 24, 2008 10:16 pm

You wouldn't happen to remember which auction house it was?

colfaxstation · **Posted:** Wed Jun 25, 2008 8:35 pm

I believe it may have been on 'LiveAuctioneers.com' but not positive. I remember seeing a large number of unique railroad items with some horrendous starting bids.