Related Use and Charitable Donations

Here is a good explanation of the Related Use doctrine from the Planned Giving Design Center . Within the Related Use section there are some interesting links to some IRS Private Letter Rulings regarding Related Use and the acceptability of the donated items as ruled by the IRS. The last paragraph is important, noting the need for the donor to get a letter from the donee institution on how the institution plans to use the gift. On charitable donation appraisals, this statement should be included within the appraisal.

Related Use. To obtain a full market value deduction for a gift of art, the use by the donee institution must be related to its charitable purposes or functions. If not, the deduction is for cost basis only (or, if less, fair market value).

A gift of a painting to a museum should clearly be a related use gift. A gift of a work of art to a school with a museum, or which uses it for art instruction, should also be a related use gift. However, if the work of art is contributed, for example, to The American Red Cross, which is a public charity, but which from the outset intends to sell and in fact promptly does sell the work of art, the deduction will be for cost basis only and subject to the 50% ceiling.

The regulations provide that a donor may treat a contribution of a work of art as meeting the related use rule if:

1. The donor establishes that the work of art is not in fact put to an unrelated use by the donee institution, or
   
   
2. At the time of the gift, it is reasonable to anticipate that the work of art would not be put to an unrelated use by the donee organization.

A number of situations are not so black and white. And, there have been few litigated cases but some private letter rulings:

For example, Ltr. Rul. 7751044 where the Service held that the rule was met when lithographs were displayed in a camping center devoted to handicapped and retarded children because the lithographs were used in connection with an art appreciation program. Also see Ltr. Ruls. 7911109Ltr. Rul. 8208059, the Service held that the related use rule was met when a donor gave his stamp collection to a college because the college would exhibit the collection and had, as part of its curriculum, a course in engraving skills. and 7934082. In

These matters are fact specific. It is important that a donor obtain from the donee institution a clear indication of how it intends to use the gift property.