Kendall had asked for my experience on this issue of tax deduction. Now, I am not a tax accountant. But, I have spent 25 years as a piano appraiser for Piano Finders and have handled many IRS 8283 forms, which is the form that has to be filled out by any donor claiming more than $5,000 of value on a deduction. I have placed fair market values on more than 3,500 pianos after a qualified piano technician has inspected them. Any donor claiming more than $5,000 in value for a donation, who wants a tax deduction, has to submit an IRS 8283 form with their tax return. The value placed on the IRS 8283 form by the appraiser needs to be "Fair Market Value" "FMV is the price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell." See: http://www.irs.gov/pub/irs-pdf/i8283.pdf Section III of the 8283 form defines what the IRS requires of an independent third party appraiser. Section IV is signed by the non-profit receiving the donation. As an appraiser, I will only sign this form in Section III if I am not an officer of the non-profit receiving the donation. And I also will only sign this form if I am not re-selling the piano for the non-profit as a broker later representing Piano Finders. The independent third party appraiser can have no conflict of interests when signing this form. For this reason, when I am signing the form on behalf of a non-profit that I am Executive Director of, I have always suggested that the donor hire an independent third party appraiser, that is not me, Kendall or anyone employed by or related to us, to sign the IRS 8283 form. Also non-profit organizations are not supposed to be the ones establishing the value of the donated item. This is because it is in the interest of the non-profit to receive the donation and it is too much of a temptation to give the donor a high value to get the donation. So, the officer of the non-profit giving a donation receipt, should only state the value the donor has claimed, and not any other value. The IRS considers that the burden of proof lies with the donor to establish the fair market value of the item being donated. Now, say the FMV for a piano is $20,000 and the seller of the piano is selling that piano to a non-profit organization for $10,000. The non-profit organization could give the seller of the piano $10,000 in tax credit for the difference between the FMV and the cash the non-profit paid to the seller. Now, if the non-profit keeps the piano and doesn't resell it, then the donor received the equivalent of $20,000 in FMV for the piano. $10,000 in cash and $10,000 in tax deduction. In IRS Rev. Rul. 67-246, it states that "To be deductible as a charitable contribution for Federal income tax purposes under section 170 of the Code, a payment to or for the use of a qualified charitable organization must be a gift. To be a gift for such purposes in the present context there must be, among other requirements, a payment of money or transfer of property without adequate consideration.". See: http://www.irs.gov/pub/irs-tege/rr_67_246.pdf But, say the non-profit resells the piano. Then the non-profit has to submit IRS form 8282, http://www.irs.gov/pub/irs-pdf/f8282.pdf . This form has to be submitted to the IRS with the non-profit organization's tax return. It reveals what the piano was resold for and who the donor was. Say the piano was resold for $10,000. Then, my understanding is that the IRS could reassess the donor tax return, telling the donor they could not take the $10,000 tax deduction because the IRS assumes that the amount the piano was resold for is the actual FMV. It is my understanding that the rule that is stated here for vehicles and vessels also applies to pianos: "If the qualified vehicle is sold by the donee organization without a significant intervening use or material improvement by the donee organization, then (except as provided in section 3.02(3) of this notice) the deduction claimed by the donor may not exceed the gross proceeds received from the sale of the qualified vehicle. In no event may the deduction for a donated vehicle exceed the amount that is otherwise allowable under § 170(a) (fair market value). " See: http://www.irs.gov/irb/2005-25_IRB/ar09.html But, things can get complicated if there is a difference in the value claimed by the donor and the resale price by the non-profit. Say the donor/seller has pretty strong market evidence that the piano was worth $20,000, not $10,000. And they contest the IRS ruling on their tax return. Then if the IRS looks at this evidence and decides the FMV was $20,000, the non-profit may now be subject to scrutiny. The officers of the non-profit have a fiduciary responsibility to sell the piano for what it is worth to protect the interests of the non-profit. The tax deduction given to individuals who donate to a non-profit organization are given for the purpose of benefiting the public by doing what the non-profit was set up to do. So, any officer of a non-profit selling a donated property, would need to justify the price they sold that item for, to show that they are acting in the best interest of the non-profit, and thereby acting in the best interest of the public. As the Executive Director of a non-profit organization, I wrote the IRS and asked for an official determination about tax deductions for pianos. They sent me a letter in response and it has guided my transactions when acting on behalf of the non-profit organization as its Executive Director. "Dated January 19, 1999. Dear Sir or Madam: We received your correspondence dated September 11, 1998, which requested written response for two scenarios. The first scenario had to do with the organization receiving a contribution of a piano. The amount of the charitable contribution is generally the fair market value of the item at the time of contribution. Fair market value is the price at which property could change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts." Karen Lile Appraiser Piano Finders -----Original Message----- From: David Love [mailto:davidlovepianos at comcast.net] Sent: Saturday, December 06, 2008 2:40 PM To: pianotech at ptg.org Subject: Re: [pianotech] (no subject) The implication was that the appraisal could be written for an artificially inflated value. IRS requirements for appraisals used for tax purposes have their own set of standards that will vary for each individual piece of tangible property. Whether a person doing an appraisal of a piano needs to be a licensed appraiser is debatable since the trade does not offer a certification (unlike real estate for example) and it may be sufficient that you are able to demonstrate some expertise by virtue of having been in the trade for x number of years, participated in buying and selling, etc. Some information can be gleaned from this website. http://www.irs.gov/pub/irs-drop/n-06-96.pdf I don't know whether the appraiser is criminally liable for a providing information which can't be substantiated (in the case of a piano) but certainly if they willingly and knowingly participate in an act to defraud the government of tax revenue there could be some exposure. Without question the person taking the tax write off needs to be sure that the documentation provided is adequate to survive an audit. A tax attorney or tax accountant can probably provide that information. Additionally, someone who is performing the appraisal should be familiar with the same requirements since that is the service you are selling. You should also be prepared to demonstrate where and how you got the information to come up with the FMV. Typically, copies of these comparable listings would be part of the appraisal package along with photographs of the object in question. The work to prepare such a document is much more involved than a simple phone call to tell the customer "Oh, I'd say about $X", and therefore the fee should reflect that. In general, if you are appraising a piano it is helpful to qualify what it will be used for as the amount of work and the accompanying fee can and should vary accordingly. David Love www.davidlovepianos.com -----Original Message----- From: pianotech-bounces at ptg.org [mailto:pianotech-bounces at ptg.org] On Behalf Of Kendall Ross Bean Sent: Saturday, December 06, 2008 1:00 PM To: pianotech at ptg.org Subject: Re: [pianotech] (no subject) Perhaps I missed something, but it is not at all clear to me why many seem to be automatically assuming that the communication from David Ilvedson's customer below is soliciting some sort of fraudulent behavior. I simply don't have have enough information to make that assessment. I don't know, for instance, what preceded this communication, or if the customer had any basis (like a prior appraisal or valuation of some sort on the piano in question) for the figures he is quoting. Perhaps he also has some figures from his accountant that he is trying to work with. I mean, he does say "If the appraisal was [this figure], or if the appraisal was higher..." which to me seems to acknowledge that he doesn't assume what the appraised value will be. Perhaps David Ilvedson could cast some more light on the circumstances surrounding this "snapshot" he has given us. David Love commented in a recent post on this particular situation, "I do appraisals but I don't fill in numbers on request. The appraisal must be based in some kind of reality." I think most of us here would subscribe to that. But to me it is not at all clear that that is what this customer is trying to do. I can see ways that a person writing this could be legitimately and legally trying to minimize the amount of taxes he has to pay. Don't we all try to do that? If I understood the initial post correctly, David Ilvedson simply commented that he didn't see how a person selling a piano (rather than donating it in its entirety) could also claim a tax deduction on it. It seems some are assuming that that is not possible, but I'm not at all sure that is the case. It also seems that some are assuming, from this limited communication, that the customer is trying to tell the appraiser what they would like the piano appraised at. Like I say, based on the limited "snapshot" we have been given, that is not at all clear to me. I would need more information before deciding "not to touch this with a thirty-nine foot pole". In recent years, I have become a lot more careful about assuming that I know a person's intent. Like I say, maybe I am missing something here that others can plainly see. (Wouldn't be the first time! ;-) ) Perhaps someone could fill me in. Sincerely~ Kendall Ross Bean ~PianoFinders -----Original Message----- From: Ron Nossaman [mailto:rnossaman at cox.net] Sent: Friday, December 05, 2008 1:39 PM To: David Ilvedson; pianotech at ptg.org Subject: Re: [pianotech] (no subject) David Ilvedson wrote: > > > I have a customer who emailed me the following: > > "Thanks for your reply. Because of how taxes work, if we could get a > written appraisal on the piano of $20,000.00-$25,000.00 we could sell > the piano for less and then "write off" the remainder. For example, if > the appraisal was $20,000.00 we would sell the piano for about > $15,000.00 and if the appraisal was higher we would sell it for even less. " > > Does that sound right? I don't see how they can write off a personal > sale...???? > > > David Ilvedson, RPT Why not appraise it at $40k, and offer to haul it off for them? I'd wish them luck with whoever their appraiser finally turns out to be, draw the drapes, turn out the lights, and check the caller ID before answering the phone for a while. Ron N
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