Ralph E. Lerner’s “Valuation and Tax Issues”
Summary: In this article, Ralph E. Lerner discusses evaluating certain pieces, as well as potential tax issues one can encounter with valuation.
I. PENSION PROTECTION ACT OF 2006 – ART WORLD PROVISIONS
The Pension Protection Act of 2006 (hereafter the “PPA”) added new section 170(e)(7)(A) that provides if a charitable organization receives appreciated tangible personal property as a charitable contribution and disposes of the property within three years of receiving it, the donor may not derive any tax benefit beyond a deduction in the amount of the property’s basis. However, this rule will not apply if the donee provides a “certification” from the donee charity that the property was intended to be used or was put to a use related to the donee’s exempt purpose.
A. RELATED USE RULE
The related use rule applies to capital gain property that is tangible personal property contributed to a public charity. The term “tangible personal property” includes paintings and art objects not produced by the donor. The related use rule requires that the use of the tangible personal property by the donee organization be related to the purpose or the function constituting the basis for the donee’s exemption under section 501. If the use of the collection by the donee organization is unrelated to the purpose or the function constituting the basis for the donee’s exemption, the amount of the charitable deduction must be reduced by 100% of the appreciation in value of the collection. In that instance, after the 100% appreciation reduction, the remainder may be deducted up to 50% of the taxpayer’s contribution base.
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