Charitable Gifts of Artworks

 Xiliary Twil, ASA of Art Asset Management Group sent me an excellent article from WealthManagement.Com and its Philanthropy Tax E-Letter.  Conrad Teitell is writing a multi part article on charitable gifts of artworks.

The posts consists of current info, such as the importance of the date of delivery, use of the gift, undivided interests, fractional gifts, physical possession, related use, penalties, and binding pledges.

I have already printed out this portion of the article, and I am already looking forward to the next installment. I recommend appraisers also print out the article and review and refresh your knowledge base.

Wealthmanagement.com reports

“Date of delivery” of an artwork and other tangible personal property can be important for a number of reasons: (1) the year of deductibility; (2) the gift’s value; (3) long or short term holding period; and (4) whether the charity has ownership and the gift meets the related use requirements.

The Pension Protection Act of 2006 (PPA ‘06), overriding some earlier case law, clarifies that the charity must take actual (not constructive) possession of the gift.

The date the property is actually (not constructively) received by the charity—together with a “deed of gift” meeting state law requirements for transferring personal property—is the delivery date.

The deductibility rules for appreciated gifts of artworks, antiques, books and other tangible personal property held long-term depend on how the public charity uses the gift. Reg. Section 1.170A-4.

Related-use gifts. When the charity’s use of the property is related to its exempt function (for example, a painting given to an art museum or to a school for its art gallery), the donor can deduct the full present fair market value. Internal Revenue Code Section 170(e)(1)(B)(i).

Deductibility ceilings. These gifts are deductible up to 30 percent of adjusted gross income (AGI), with a five-year carryover for any “excess.” IRC Sections 170(b)(1)(D)(i) and 170(d)(1). The ceiling can be raised to 50 percent of AGI, with a five-year carryover for any “excess,” if the donor makes an election to deduct the gift at its cost basis. That election will then also apply to all gifts of long-term appreciated tangible personal property, securities and real estate. IRC Section 170(b)(1)(C)(iii).

Proof of use. A donor may treat a gift as put to a related use by the donee if: (1) the donor establishes that the property is not, in fact, put to an unrelated use by the donee (pure poetry); or (2) at the time of the contribution, it's reasonable to anticipate that the property will not be put to an unrelated use by the donee (more poetry). Reg. Section 1.170A-4(b)(3)(ii). A letter from the donee stating its intended use can help a donor show that he or she reasonably anticipates that the charity’s use will be related.

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 or other museums for museum purposes, it will be reasonable for the donor to anticipate, unless he has actual knowledge 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. Reg. Section 1.170A-4(b)(3)(ii)(b).

“De minimis” rule. The regulations say that a charity’s sale of donated property can turn what would otherwise be a related use into an unrelated one. Reg. Section 1.170A-4(b)(3)(i). However, if a collection of tangible personal property is contributed to a charity that sells or otherwise disposes of only an insubstantial portion of the collection, the use is not unrelated.

For how an exempt religious community center’s innovative program assured full fair market deductibility for appreciated gifts of art, see Letter Ruling 9833011.

Unrelated gifts. If the gift is unrelated to the donee’s exempt function (for example, the charity sells the property), the deduction is for cost basis or fair market value, whichever is lower. IRC Section 170(e)(1)(B). In that case, the gift is deductible up to 50 percent of AGI, with a five-year carryover for any “excess.” IRC Sections 170(b)(1)(A) and 170(d)(1).

Source: WealthManagement.com