Terrie on Nonprofits
January 2005
FAIR MARKET VALUE CAN BE AMBIGUOUS
AT AUCTION TIME
Q: Our
organization recently held an auction. We
were told that whatever someone was willing
to pay for an item is the “fair market value” to
that buyer for that item so people cannot
claim any portion of their purchases as a
donation. Can this be true? If it is, it
will certainly put a damper on buying as
word gets out.
A: It
is true for some items, but not for others. The
IRS regulations state that a claim for a
charitable deduction may be made for monies
paid in excess of the fair market value of
an item purchased at an auction if the
buyer can show that he or she knew prior
to bidding that the value of the item
was less than his or her eventual bid for
it. Conceivably, then, if at the beginning
of an auction the charity provides each participant
with a catalog listing the fair market value
of all the items, or the auctioneer announces
the fair market value of each item prior
to accepting bids, and someone bids more
than this amount, he or she could claim a
deduction for the amount paid over the publicized
value. However, this only works where there
is a good idea of the value of each item – say
for a cruise, tickets to a sporting event
or the theater, or a piece of jewelry.
Where
this becomes dicey is when the auction features
items for which there is no way to determine
fair market value. The opportunity to meet
a celebrity is an example of one such item. In
such cases the person who purchases the item
is determining the fair market value by deciding
how much he or she is willing to pay for
it. This means that regardless of how much
is bid for an item that may have little “real” value
there would still be no allowable claim for
a deduction.
Obviously,
too, if the charity has not provided a list
of values for its items prior to accepting
bids the prices paid will be assumed to be
their fair market value. The exception here
would be if the winner of any given bid is
an acknowledged expert on the type of item
on which he or she bid. In such a case he
or she could legitimately claim awareness
of its fair market value.
Terrie
Temkin, Ph.D. is an internationally recognized
governance and planning expert. She is president
of NonProfit Management Solutions, Inc. a
principal in CoreStrategies for Nonprofits,
Inc., and a longtime member of AFP. Contact
her at terriet@nonprofitmanagementsolutions.com, 954-985-9489 or 866-985-9489.
|
