Reflections on Deductibility of Contribution of Items of Tangible Personal Property to Museums

Reflections on Deductibility of Contribution of Items of Tangible Personal Property to Museums

Article posted in Tangible Personal Property on 15 February 2007| 2 comments
audience: National Publication | last updated: 18 May 2011
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Summary

The tax law surrounding charitable contributions of tangible personal property such as artwork to museums has long been subject to vigorous debate among taxwriters. In this article, Connecticut attorney James B. Lyon reviews the evolution of these rules with emphasis on the newest and most restrictive provisions as imposed by the Pension Protection Act of 2006.
by James B. Lyon
Murtha Cullina LLP Hartford, Connecticut

The press and tax advisers for many years have been counseling that gifts of appreciated personal property to public charities are tax advantageous. Now the result is especially favorable, because under current law the long-term capital gains rate on profits on the sale of personal property is 28 percent, whereas the rate applicable to sales of securities is 15 percent. If the donated personal property would produce long-term capital gain if sold by the donor, fair market value deductibility by the donor may reward the donation.

There is little question that gifts and bequests of artwork are absolutely essential to the museum world, as most museums lack significant acquisition funds, and the recent stunning increases in the selling prices of coveted art objects, whether by private sale or by auction, have made the acquisition of such objects almost impossible to any but the wealthiest institutions. Most museum directors will confirm that a very large portion of the most desirable works of art entering their collections has been by lifetime donation or by bequest.

Relevant examples of the problem faced by museums are the inability of museums in New York City to raise the $35 million necessary to purchase Asher B. Durand's Hudson River School painting "Kindred Spirits," which was de-accessioned by the New York Public Library; and the apparently successful effort of a group of Philadelphia philanthropists, foundations, and museums to raise -- through urgent appeals -- the $68 million necessary to retain in that area Thomas Eakins's 1875 masterpiece, "The Gross Clinic."1

This paper focuses on the special problem faced by donors making gifts of tangible personal property to museums. However, the conclusions reached could apply to donors of such property to any type of 501(c)(3) public charity.

For years controversy has surrounded the basic concept that donations of appreciated items of personal property to a charity, which would be taxed at long-term capital gains rates if sold by the donor, should be deductible at full fair market value. In an early proposal in the planning of the epochal Tax Reform Act of 1969, the donor of such property would have had to elect either to reduce the deduction to his/her tax basis or to take the full fair market value deduction but include appreciation as ordinary income. Effective lobbying by the museum and library world ensued, and in 1969 Edwin S. Cohen, Treasury assistant secretary for Tax Policy, remarked:

The bill prohibits deduction of the value of ordinary income property unless the appreciation is included in ordinary income. But the extension of this rule to gifts of all works of art, even though not created by the donor, appears unduly severe. Our finest museums and art galleries are dependent on such gifts, and their contribution to the good of our society is universally acknowledged. We see no sufficient reason to distinguish such gifts from gifts of appreciated securities to other charities. The problems of valuation of tangible personal property have been substantially resolved by changes in the income tax form, by improved audit programs, and by the creation of a special advisory group to the Commissioner of Internal Revenue on valuation of art objects.2

It appeared that the House-Senate conference committee in 1969 had accepted the proposition of full deductibility of those gifts of such property at fair market value, when out of the blue emerged the concept of "related use."3 That concept apparently resulted from the opinion that objects so favored should be donated to museum collections for the benefit of the public, whereas if donated for purposes not consistent with the museum's mission (that is, not donated for a "related use"), the public might not appropriately benefit, and further, if donated for sale, the donor would obtain an unfair advantage of avoiding tax on the sale with a full fair market value deduction. The concept was espoused by the House and approved by the Senate with no discussion. The general explanation of the Tax Reform Act of 1969 says that regarding the "related use rule . . . a clear example of where property is not being used for an organization's exempt purpose is where it is intended at the time of the donation that the exempt organization will sell the property."4

The IRS's definition of fair market value has remained consistently that "fair market value is the price at which property would 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." The IRS has also provided the following definition of tangible personal property for these purposes:5

The term tangible personal property means . . . any property, other than land or buildings, that can be seen or touched. It includes furniture, books, jewelry, paintings, and cars.

The regulations state that a fixture that is intended to be severed from real property shall be treated as tangible personal property.6

The regulations7 confirm that the related-use test may be met if the object donated is used in the donee museum's office and buildings in the course of carrying out its functions.

Current regulations8 state regarding related use that a donor who contributes tangible personal property to a "museum may treat such property as not being put to an unrelated use by the donee if -- (a) he establishes that the property is not in fact put to an unrelated use by the donee or (b) at the time of the contribution it is reasonable to anticipate that the property will not be put to an unrelated use by the donee. In the case of a contribution of tangible personal property to or for the use of a museum, if the object donated is of a general type normally retained by such museum for museum purposes, it will be reasonable for the donor to anticipate, unless he has actual notice to the contrary, that the object will not be put to an unrelated use by the donee, whether or not the object is later sold or exchanged by the donee."9

The portion of the regulations quoted immediately above, which states that a related use may be found "whether or not the object is later sold or exchanged," recognizes that the original intent of a museum to add the object to its collection may change. Many museums regularly de-accession surplus or duplicative items, with the general requirement (under the principles of the American Association of Museums) that the proceeds be invested in acquiring new works of art. 10 That should be contrasted with a museum accepting an art donation with the specific intent that it be sold either immediately or after a specified delay as requested by the donor, to provide funds that will fulfill a capital campaign pledge.

To qualify for a tax deduction, a donor must file IRS Form 8283 ("Noncash Charitable Contribution") with the donor's tax return for the year of the gift, completed in detail if the gift (including a group of similar items) exceeds $5,000 in value. This form must be signed by the donor and by the appraiser of the property. The form also must be completed by the donee museum, which must acknowledge receipt of the object described on the form and has to answer the following question: "Does the organization plan to use the property for an unrelated use? ___ Yes ___ No." If the donee museum checks the Yes box, the donor may deduct only tax basis. If the donee museum checks the No box, the donor may deduct full fair market value.11 The donee museum must also affirm that it will file Form 8282, "Donee Information Return," as required within 125 days of the date of disposition of the object. The form specifically states that the donee's acknowledgment of the gift "does not represent agreement with the claimed fair market value."

Before the Pension Protection Act of 2006 (pension act), the only specific information that the IRS generally would receive as to the actual disposition12 of the donated property was through the requirement that the donee museum file Form 8282, stating some details of the disposition, if the property was disposed of by the donee museum within two years of the date of donation. There was no required disclosure regarding whether the donee museum had actually held the property for a related use. If the IRS noticed a significant discrepancy between the donor's claimed fair market value donation and the disposition price, it would have had to move against the donor and the appraiser. It could of course also investigate the related use, although there was no provision for automatically imposing tax or penalties.13

It has been reported to Congress that some donors of appreciated personal property to museums and other charities have been obtaining inflated appraisals, in some cases with the cooperation of the donee charity. For example, several years ago the New Jersey Symphony allegedly accepted a bargain sale of a greatly overvalued group of violins, as did the Smithsonian Institution. Also, some donors allegedly were donating items and retaining possession for years, in some cases until the death of the donor.14 Reminiscent of the discussion in 1969, such concerns resulted in recommendations for reducing the deductibility of "applicable property"15 to the donor's tax basis for income tax purposes, along with proposals (fortunately not adopted) that the donee charity, in effect, stand behind the donor's claimed valuation.16 One prominent Senate Finance Committee attorney at a tax conference remarked (when verbally challenged by the author of this article) "Let the donor sell the property, give the proceeds to the museum, and have the museum purchase the item," which obviously would put the donor at a potential tax disadvantage.

Reacting to these reports, but not wishing to discourage such donations entirely, Congress enacted the provisions described below as part of the pension act.

In general, the new provisions17 are intended to recover the income tax benefits for charitable contributions of applicable property through which a fair market value deduction of $5,000 or more was claimed and that was not used for the donee charity's exempt purposes. Under the new law, if a donee museum disposes of applicable property in the year the property is donated, the donor may deduct only tax basis. If the disposition occurs within the three-year period after donation, the donor must include as ordinary income (plus interest) (subject to the paragraph following) for the donor's tax year in which the disposition occurs, an amount equal to the excess (if any) of (i) the amount of the deduction previously claimed by the donor as a charitable contribution from donating the property, over (ii) the donor's tax basis in the property at the time of the donation. In the years after the year of donation, the donor's income tax bracket for the year in which the income must be reported might be higher or lower than for the deduction year. Form 8282 must be filed by the donee with the IRS within 125 days after the disposition if the disposition is within three years of the date of donation and, if possible, should contain the certification discussed below. The donee must state on the form whether it has held the applicable property for a related use, exactly what that use was, and how the use furthered the donee's purpose or function (information not required to be provided on Form 8282 under the former law). 18 Thus, the donee must take actual possession of the donated property.

There is no adjustment of the tax benefit if the donee museum makes a qualifying certification19 to the IRS, by written statement signed under the penalties of perjury by an officer of the museum, that either (i) certifies that the actual use of the applicable property by the donee was related to the purposes or function constituting the basis for the museum's exemption, describes how the property was used, and how that use furthered its purpose or function; or (ii) states the intended use of the property by the donee museum at the time of the contribution and certifies that that intended use has become impossible or infeasible to implement. The donee museum must furnish a copy of the certification to the donor (for example, as part of Form 8282, a copy of which is required to be supplied to the donor).

Also consistent with the new recapture rules mentioned above, the new law adds a penalty for the fraudulent identification of applicable property as being donated for a related use -- in addition to a possible criminal penalty. Any person who identifies applicable property as being received for a related use, and who knows that the applicable property is not intended for such use, is subject to a $10,000 penalty20 (penalties for "aiding and abetting the understatement of tax liability" could also apply). An example of a potential penalty situation might be one in which the museum accepts the donation of applicable property, ostensibly for a related use, but with an understanding that it will be sold, the net proceeds to be treated to satisfy a capital campaign pledge of cash by the donor; or sold pursuant to a benefit auction to be conducted by the donee museum.

There are significantly increased penalties for overvaluing donated applicable property, which could be imposed both on the taxpayer and the appraiser. Also, the definition of qualified appraiser has been modified to require additional credentials.21

The previous tax rules continue to apply to any contribution of applicable property for which a deduction of $5,000 or less was claimed.

The new reporting provisions and recapture of charitable deductions apply to contributions of applicable property made and returns filed after September 1, 2006. The increased penalty provisions apply to identifications made after August 17, 2006.

Unanswered Questions and Suggestions Concerning
Related-Use Rule

(i) The Joint Committee on Taxation staff report on the provisions of the pension act relating to contributions of partial interests in items of personal property to museums states:

If for example an art museum described in section 501(c)(3) that is a donee of a fractional interest in a painting includes the painting in an art exhibit sponsored by the museum, such use generally will be treated as satisfying the related use requirement of the provision. (Emphasis added).

I believe that the assumed related-use treatment in the regulations discussed above22 may no longer provide effective protection and that the donated object must actually be "put to a related use" by the donee museum (for example, used for educational purposes, hung on the museum's walls, or included in an exhibition), or its plans must have changed, which will lead to the museum's certification described above. There could be an issue about whether the test is met if the donee museum merely places the donated object in storage during the three-year period for possible future display or use. May the donee museum certify that that such "use" fulfills its charitable purposes?23

(ii) Because of this uncertainty, I recommend that all donors make their gifts under formal deeds of gift that state that the gift is being made on the condition that the donee museum certify that the donated object is accepted and will be put primarily to a use that is related to its purposes or functions as a museum. The deed of gift should be of the object and any copyright interests relating thereto.

The deed of gift may state that the donee museum may dispose of the donated applicable property if the museum determines that retention, because of changed circumstances, is no longer in the museum's best interest.

The solution is for donors and museums to respect the intent of the related-use rule and to act responsibly.24


Fractional Interest Gifts

For tax reasons (to avoid an overly significant charitable contribution deduction in one year) and for aesthetic reasons (the donor desires to retain personal use of donated applicable property for part of the year), many gifts of extremely valuable artwork to museums have been made in installments.25

Applying normal tax law principles, the donee museum would need to have possession of the donated applicable property for the portion of each tax year represented by its fractional share. Otherwise the gift could be considered a future interest gift, not immediately deductible. However, there is authority that the possession test is met if the donee museum has the unrestricted right to take possession of the applicable property even if the donor actually retains possession.26 The regulations27 state:

(2) Section 170(a)(3)28 and this section have no application in respect of a transfer of an undivided present interest in property. For example, a contribution of an undivided one-quarter interest in a painting with respect to which the donee is entitled to possession during three months of each year shall be treated as made upon the receipt by the donee of a formally executed and acknowledged deed of gift. However, the period of initial possession by the donee may not be deferred in time for more than one year.

There were reports (consistent with similar reports concerning donations of entire objects) that some donors were retaining total possession of fractional interest donated applicable property, with possession not passing to the donee museum until years later, perhaps on the donor's death, while the donors were claiming full immediate deductibility of the value of the fraction donated.29 As a result, Congress in the pension act enacted restrictions and penalties that make fractional interest gifts almost untenable.

Under the law before the act, if an individual made a charitable contribution of an undivided fractional interest of his/her entire interest in applicable property to a museum that was accepted by the museum for a related use, that individual was entitled to a full fair market value deduction of the value of the fractional interest donated. If subsequent fractional interests in the applicable property should be donated, the object would be reappraised, and the donor's deduction for the fractional interest donated then would rise and fall depending on the revised fair market value at the time of subsequent donation. The rules requiring the donee museum to have actual possession of the donated property for the period represented by its fractional interest were not rigorously enforced.

The pension act makes significant changes in the above-mentioned rules:30

(1) No income or gift tax charitable deduction is allowed for a contribution of a fractional interest31 in applicable property unless immediately before such contribution all interests in the property are owned (1) by the donor or (2) by the donor and the donee organization. Thus if any party other than the donor and the donee museum holds an interest in the property, a contribution of a fractional interest by the donor will be disallowed for both income and gift tax purposes. The Secretary of the Treasury is authorized to make an exception to this rule by regulation in cases where all persons who hold an interest in the property make proportional contributions of undivided interests in their respective shares of such property to the donee museum. For example, if A owns a 40 percent interest in a painting and B owns a 60 percent interest in the same painting, the Secretary may provide that A may take a deduction for a charitable contribution of less than the entire interest held by A, provided that both A and B make proportional contributions of fractional interests in their respective shares of the painting to the same donee museum (e.g., if A contributes 50 percent of A's interest and B contributes 50 percent of B's interest).

(2) The donor's income, estate, and gift tax charitable contribution deduction, assuming that additional fractional interests are donated, is the lesser of the fair market value of the applicable property as appraised for the purpose of the first fractional interest donation, or the fair market value of the property at the date of the subsequent fractional interest transfer.32 For example, if a follow-up fractional interest transfer is valued at $100,000 (frozen value), and the actual full appraised fair market tax value is then $200,000, the donor receives only a $100,000 income tax deduction and makes a potentially taxable gift of $100,000 to the museum, as well as a potentially taxable bequest if he bequeaths his remaining fractional interest to the museum.

(3) If the donor does not contribute all of his/her remaining fractional interests in the applicable property to the donee museum within the earlier of 10 years of the initial fractional interest donation, or the donor's death, or if the donee museum fails to take physical possession of the property for its appropriate time period, or fails to use the property for its exempt purposes during that period,33 all income and gift tax benefits claimed by the donor from the deduction of the value of earlier fractional interest donations made will be recaptured (plus interest). Almost unbelievably, the statute seems to say that the donor will not meet the complete donation test if the donor bequeaths to the museum the donor's remaining fractional interest in the artwork -- if the donor dies before the end of the 10-year period.34 If the donee museum to whom the initial installment was contributed no longer exists during the 10-year period, the donor's remaining interest in the applicable property may be transferred to another museum. 35

(4) In the case of the recapture of tax benefits under the rules as summarized in (3) above, there will be an additional tax of 10 percent of the amount recaptured, plus interest.

(5) A contribution36 occurring before the date of enactment (August 17, 2006) shall not be treated as an initial fractional contribution for purposes of the new provisions. Instead, the first fractional contribution by a taxpayer after the day of enactment would be considered the initial fractional contribution under the provisions, regardless of whether the taxpayer had made a contribution of a fractional interest in the same item of applicable property before the date of enactment.

(6) These provisions apply to contributions, bequests, and gifts made on or after August 17, 2006 (the date of enactment of the pension act).37

Several analysts posit that Congress could not possibly have contemplated such a punishing and draconian result and that Congress may positively address this situation with an appropriate amendment. The museum world is trying to convince Congress to modify these provisions. However, with tax legislation now in chaos, such relief is uncertain.


Conclusion

The new tax provisions summarized above may inhibit gifts of applicable property to museums and almost entirely eliminate gifts of fractional interests in such property. I believe that this is one more example of Congress overreacting to reports of relatively few taxpayers (probably counseled by aggressive advisers) claiming unreasonable tax benefits, by passing onerous legislation to the disadvantage of taxpayers who may claim legitimate charitable contribution deductions for donations of applicable property to museums. It demonstrates that taxpayers should endeavor to satisfy the intent of the law, not only its letter.


FOOTNOTES

1 In both cases the bidder (successful in one case, a loser in the other) was the very-well funded, emerging Chrystal Bridges Museum in Bentonville, Arkansas, created by the Walton family. See "An Emergency Response Succeeds in Philly" by Julia M. Moore, The Wall Street Journal, Dec. 26, 2006, D8.

2 The discussion in Congress concerning the enactment of this provision (and the legislative history) is summarized in Anthoine, "Deductions for Charitable Contributions of Appreciated Property, the Art World," 35 Tax L Rev 239 at 240 (1980). The 1969 Tax Reform Act also introduced the concept of "public charities" and "private foundations." Full fair market value deductibility is available only for donations to public charities and private operating foundations.

3 IRC section 170(e)(1)(B)(i)(I) states the "related use" rule for income tax purposes.

4 In my experience, museums occasionally accept contributions of tangible personal property for immediate auction, and advise the donors (specifically or by inference) that they may deduct full fair market value.

5 IRS Publication 526, Charitable Contributions, 9.

6 Treas. reg. section 1.170 A-5(a)(3).

7 Treas. reg. section 1.170A-(4)(b)(3)(i).

8 See Treas. reg. section 1.170A-4(b)(3)(ii)(b).

9 Except as described below regarding the donation of tangible personal property in installments for income and gift tax purposes, the related-use rule does not apply to tax deductibility for gift tax or estate tax purposes.

10 An article by Tom L. Freudenheim (a former museum director) in The Wall Street Journal criticized the Albright-Knox Gallery in Buffalo, New York, for planning to auction 200 items from its permanent collection for an estimated $15 million. The museum's justification was that the items sold "fall outside the institution's core mission of acquiring and exhibiting art of the present" and that the proceeds will be used solely to enhance the museum's collection. Fruedenheim chastised that museum (and by inference, other museums) as being irresponsible, believing that it is important for a museum to obtain and maintain diversified collections. The Wall Street Journal, Nov. 15, 2006, at D14.

11 I have long felt that the latter question was misleading, as a donee charity could easily check Yes, when it actually meant No.

12 The instruction to Form 8282 states that the form must be filed "if they (that is, donee institution) sell, exchange, consume or otherwise dispose of (with or without consideration) the donated property" within the two-year period.

13 Formal determination of fair market value in some cases is provided by the Art Advisory Panel of the IRS, made up of experts in the art appraisal field, which in closed session reviews the valuation in all taxpayer cases suggested for audit that includes artwork or cultural property with a claimed value of $20,000 or more. The valuation established by the panel becomes the position of the IRS. In 2005 the panel reviewed 2,274 items valued at $218,000,000 and recommended adjustments on 24 percent of the reviewed appraisals (75 percent of appraisals were accepted). For the charitable contribution adjusted items, the panel recommended an 86 percent reduction in the value claimed.

If a donor wishes to obtain a determination letter of fair market value binding on the IRS as to the valuation of an object already donated to charity, the donor may proceed under Rev. Proc. 96-15, 1996-1 CB 627 (as subsequently revised).

14 Articles on these general subjects have appeared in, among other newspapers, The Wall Street Journal, The Boston Globe, The Washington Post, and The New York Times.

15 For purposes of this paper, "applicable property" is defined as appreciated tangible personal property, valued in excess of $5,000, which is long-term capital gains property in the hands of the donor, and which has been contributed to a public charity, for a stated related use, resulting in a claimed fair market value charitable contribution deduction. (IRC section 170(e)(7)(C), referring to IRC section 6050L(a)(2)(A).

16 I have long been concerned about this issue, as is demonstrated by my authorship of an article titled "Valuation Abuse in the Contribution Area: The Problem and the Remedy," in the 14 NYU Conference on Charitable Organizations, Chapter 10 (Matthew Bender & Co. 1985). Reprinted in Art Law, by Franklin Feldman and Stephen E. Weill, Little Brown & Company 1986, 576. Before the appraisal requirement, in some cases a donor would "shop" an object among various museums, finally donating to the one that would provide the highest written appraisal.

17 IRC section 170(e)(7) added by the pension act.

18 Forms 8282 and 8283 appear to be in the process of being modified by Treasury to conform to the new law.

19 IRC section 170(e)(7)(D), added by the pension act.

20 IRC section 6720B, added by the pension act.

21 IRC section 170(f)(11)(E)(ii), as amended by the pension act.

22 See Treas. reg. cited in note 7 above.

23 At the very least, the donated object should be a desirable addition to the museum's collection and should be formally accessioned if possible. The donated object should be appropriate for the museum's purposes (for example, a Wyeth donated to a maritime museum would not be appropriate). Museums that receive regular donations should consider mounting a "New Acquisitions" exhibition at least every two years. It must be realized, however, that most museums have collections of artwork that cannot all be displayed at any one time. A reasonable usage of the donated object should meet the test.

24 The acquisition policy of one museum states: "The (museum) may accept gifts of works of art which are given to be sold for the general benefit of the (museum). The donor of such works must state explicitly that he or she is giving the work for such purposes. The (museum) will reserve the right to refuse the gifts of such works for sale if the sale endangers its good standing as a museum or endangers its tax exempt status." If Congress believes that these new provisions do not sufficiently satisfy the problem of violations of the related-use rule, still more stringent legislation could follow.

25 A Wall Street Journal article on July 6, 2006 (titled "Joint Custody for Your Monet" by Rachel Silverman) states that some museums are urging fractional interest gifts as a way of circumventing the 30 percent-of-adjusted-gross-income limitation with only a five-year carryover. The Wall Street Journal, July 6, 2005, 1.

26 Winokur v. Commissioner 90 T.C. T33 (1988), Acq. 1989-1 CB 1.

27 Treas. reg. section 1.170 A-5(a)(2).

28 The section reads as follows: "(3) FUTURE INTERESTS IN TANGIBLE PESONAL PROPERTY. For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section 267(b) or 707(b). For purposes of the preceding sentence, a fixture which is intended to be severed from the real property shall be treated as tangible personal property."

29 The Wall Street Journal recently focused on these matters with an article by Eric Gibson titled "Having Your Art and Selling It Too." It claims that wealthy people were "taking huge deductions and keeping the art at their homes" (quoting Dean Zerbe, senior counsel for the Senate Finance Committee). The article also criticizes de-accessioning, stating that "museums are trying to have it both ways: benefiting from tax subventions because they supposedly can't survive in the marketplace yet stepping into the marketplace when it suits them." The article's concluding recommendation is that Congress "revisit the fractional interest gift provision . . . as the museum directors are asking but only as part of a full review of all museum business practices." The Wall Street Journal, Nov. 17, 2006, at W15.

30 IRC section 170(o)(3)(A) (income tax) and section 2522(e)(1)(A) (gift tax), added by the pension act; this limitation does not apply to the estate tax.

31 The deed of gift should be of an undivided fractional interest in the object and any copyright interests pertaining thereto. Items such as the exact period of possession for each party, the maintenance of the object, insurance, transportation arrangements, and the like, should be covered in a separate agreement.

32 IRC sections 170(o)(2) (income tax), 2055(g)(1) (estate tax) and 2522(e)(2) (gift tax) added by the pension act.

33 Sale during the 10-year period of the museum's fractional interest, or by the donor of his/her retained fractional interest, could well trigger the penalty tax. The American Association of Museums has pointed out that some objects are too fragile to stand repeated physical transfers, and that others (e.g., a huge statue) may be transported only with great difficulty and expense.

34 IRC sections 170(o)(3) (income tax) and 2522(e)(3) (gift tax), added by the pension act.

35 IRC sections 170(o)(3)(B) (income tax) and 2522(e)(3)(B) (gift tax), added by the pension act.

36 Technical Explanation of Pension Protection Act (JCX-38-06) 307.

37 It will be interesting to observe what mechanisms the IRS will adopt to police developments during the 10-year period. In the past rumor had it that the IRS did not necessarily match Forms 8282 with the Forms 1040 filed by taxpayers claiming the charitable contribution deduction for the gift of an appreciated article of personal property.

END OF FOOTNOTES

Copyright 2007 James B. Lyon. Used by permission.

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Gift of art-copyright issue

From James B. Lyon: Richard, If a donor of a work of art owns both the work and the copyright thereto, he must donate both to qualify for his income tax deduction -- partial interest rule. Since most donors are uninformed in such matters, it is our standard policy to donate the work of art and "the copyright interest therein if any."

Gift of art-copyright issue

I am curious why the copyright-related comment was added to the advice "The deed of gift should be of the object and any copyright interests relating thereto." Could the gift also not include the copyright if the valuation were proper?

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