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Nonprofit Law/Accepting a donation of a boat for auction

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QUESTION: I am the volunteer president of a small 501c3. We are hosting an annual fundraiser and an individual has offered to donate a boat and trailer for auction. He has asked for a letter from us stating the value is $5600.00 If I understand the law correctly because it is a donation for auction we are obligated to give the purchaser a "Fair Market Value" so they can determine their possible charitable deduction. Here is my questions:
What do we owe the donor of the boat? Do we owe him a letter stating the value he requested or the fair market value we determine, does he need to get an appraisal for himself? What if the fair market value is different than what he is asking from us?
How do we determine Fair Market Value for our purchaser?
Are there other questions or concerns I am not considering?
Thank you for your prompt reply. This donation has been published and I would like to address it as soon as possible just in case the donor of the boat changes his mind if we are not able to provide him with a letter stating the price he suggest. Once again thank you for your response.

ANSWER: IRS Publication 561 has on page 15 right column for donors:
--- Start of Excerpt ---
Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. This rule applies if the claimed value of the donated vehicle is more than $500. In certain cases, you can deduct the
vehicle’s FMV. For details, see Publication 526.
--- End of Excerpt ---
www.irs.gov/pub/irs-pdf/p561.pdf

Your organization may certainly give the donor a letter with your organization's estimation of the value, if that is what he wants and, if you believe that value to be $5600, then you can put in that value into the letter.  However, the donor will not be able to use that letter with the IRS if they audit his return years later.  You do not "owe" him a letter, unless you contractually agreed to give him such a letter, though.

Your organization would need to comply with the IRS procedures explained in their Publication 4302. http://www.irs.gov/pub/irs-pdf/p4302.pdf - specifically we see on page 6:
--- Start of Excerpt ---
If a donor contributes a vehicle and claims the value of
the vehicle is more than $500, the charity is required to
provide a contemporaneous written acknowledgment to
the donor, such as Form 1098-C, Contributions of Motor
Vehicles, Boats, and Airplanes. All acknowledgments must
include the following information, plus information on
what the charity did or intends to do with the vehicle
--- End of Excerpt ---

That Form 1098-C is available at http://www.irs.gov/pub/irs-pdf/f1098c.pdf

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as  legal advice and does not create an attorney/client relationship.    






---------- FOLLOW-UP ----------

QUESTION: Thank you that is very helpful-just a quick follow up:

1.if we do not believe it is worth $5600 but he wants that letter can we give it to him and avoid a confrontation or are we obligated to put what our estimate of the Fair Market Value is?
2. Do we need to determine the fair Market Value for purposes of the purchaser and if so is there a specific regulation around making that determination?
3. Finally, the gross proceeds how is that determined on what bases?

Answer
1.  As I explained the IRS does not have any regulation relating to your estimation of value.  The mandated acknowledgement only includes other information that your organization is required to give.  The letter would stand on its own and I can't imagine who would have a cause of action against your organization if you over-estimate the value of the boat.  It is only a question of your integrity in relation to the donor and that is not a legal issue.

2. No, as I explained above, the sales proceeds is what will be the value

3. Gross proceeds means the amount received for the sale.  I don't understand why you would be confused as to that amount, as the auction will determine that amount.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S.This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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