Buy Low, Donate High
Last month, the IRS published its annual Dirty Dozen list of what it refers to as “the worst of the worst tax scams.” Number 9 on the list is “Non-cash charitable contribution schemes” involving inflated appraisals of donated property using art or syndicated conservation easements. IRS concerns about valuation, however, are not limited to easements and art.
Donations of tangible property. Over the years, the IRS has challenged taxpayer valuations of all sorts of donated tangible property, including gemstones, books, sheet music, hospital equipment, and eyeglasses. In each case, the IRS looked to the donor’s purchase price as evidence of the contribution deduction amount. Typically, as evidence of value, the IRS looks to see if there is a prior sale of the donated property in the recent past to the donor or a related party.
Fair market value. The relevant value for deduction purposes, however, is fair market value at the time of contribution, and a donor’s contribution deduction claim might not be limited to the donor’s recent purchase price. The leading case in this area, Skripak v. Commissioner, 84 T.C. 285, 321-322 (1985), points out that the regulations under section 170 do not specify whether a wholesale or retail market is to be used in valuing a contribution, and the fair market value test is whether, under the circumstances, the retail market is the market into which the property is ordinarily sold. Thus, in an appropriate case, a charitable contribution deduction could be claimed for the retail market price of a donated item even though it was purchased by the donor at a wholesale price.
Bankruptcy purchase price not controlling. Similarly, the district court in Herman v. United States, 73 F. Supp. 2d 912, 915 (E.D. Tenn. 1999), did not use the purchase price market (bankruptcy sale) to value the contribution. There the court found that hospital equipment purchased by donors at a bankruptcy sale for $40,000 could be donated 26 months later with the court finding that the fair market value at the time of contribution was $1,002,380.
Follow substantiation rules. The key for taxpayers of donated property is to follow all substantiation requirements, including properly filing an accurate and complete Form 8283, obtaining a contemporaneous written acknowledgment, and a qualified appraisal from a qualified appraiser.
June 25, 2026.
Written by Kim Tyson, J.D., LL.M and Karin Gross, J.D., LL.M.
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Tax deductions for charitable contributions have many legal requirements that, if not strictly complied with, can cause a reduced or lost deduction. If you are donating an asset and would like to consult with experienced tax attorneys who specialize in charitable giving, contact the attorneys at K. Tyson Law.