Page 151 - Virtual Currencies

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Table 1. Factors That Affect FMV Opinions of Experts
IF the factor you are Generally, the weight given to an expert's opin-
considering is... THEN you should ask these questions... ion on matters such as the authenticity of a coin
or a work of art, or the most profitable and best
cost or selling price Was the purchase or sale of the property reasonably close to the date of contribution? use of a piece of real estate, depends on the
Was any increase or decrease in value, as compared to your cost, at a reasonable knowledge and competence of the expert and
rate? the thoroughness with which the opinion is sup-
Do the terms of purchase or sale limit what can be done with the property? ported by experience and facts. For an expert's
Was there an arm's-length offer to buy the property close to the valuation date? opinion to deserve much weight, the facts must
support the opinion. For additional information,
sales of comparable How similar is the property sold to the property donated? see Appraisal, later.
properties How close is the date of sale to the valuation date?
Was the sale at arm's-length? Problems in Determining
What was the condition of the market at the time of sale? FMV
replacement cost What would it cost to replace the donated property? There are a number of problems in determining
Is there a reasonable relationship between replacement cost and FMV? the FMV of donated property.
Is the supply of the donated property more or less than the demand for it?
Unusual Market Conditions
opinions of experts Is the expert knowledgeable and competent?
Is the opinion thorough and supported by facts and experience?
The sale price of the property itself in an
to show proof of the offer and the specific said that if Quinn wanted a charitable deduction arm's-length transaction in an open market is
amount to be paid. Offers to buy property other within 1 year of the purchase, Quinn could buy often the best evidence of its value. When you
rely on sales of comparable property, the sales
than the donated item will help to determine the 500 books at the “retail” price of $30,000,
value if the other property is reasonably similar paying only $10,000 in cash and giving a prom- must have been made in an open market. If
those sales were made in a market that was ar-
to the donated property. issory note for the remaining $20,000. The prin-
cipal and interest on the note would not be due tificially supported or stimulated so as not to be
truly representative, the prices at which the
Sales of Comparable Properties for 12 years. According to the promoter, Quinn sales were made will not indicate the FMV.
could then, within 1 year of the purchase, give
The sales prices of properties similar to the do- the books to a qualified organization and claim For example, liquidation sale prices usually
the full $30,000 retail price as a charitable con-
nated property are often important in determin- tribution. Quinn purchased the books under the do not indicate the FMV. Also, sales of stock
ing the FMV. The weight to be given to each second option and, 3 months later, gave them under unusual circumstances, such as sales of
sale depends on the following. to a house of worship, which will use the books small lots, forced sales, and sales in a restricted
• The degree of similarity between the prop- for religious purposes. market, may not represent the FMV.
erty sold and the donated property. At the time of the gift, the promoter was sell-
• The time of the sale—whether it was close ing similar lots of books for either $10,000 or Selection of Comparable Sales
to the valuation date. $30,000. The difference between the two prices
• The circumstances of the sale—whether it was solely at the discretion of the buyer. The Using sales of comparable property is an impor-
was at arm's-length with a knowledgeable promoter was a willing seller for $10,000. tant method for determining the FMV of dona-
buyer and seller, with neither having to act. Therefore, the value of Quinn’s contribution of ted property. However, the amount of weight
• The conditions of the market in which the the books is $10,000, the amount at which simi- given to a sale depends on the degree of simi-
sale was made—whether unusually infla- lar lots of books could be purchased from the larity between the comparable and the donated
ted or deflated. promoter by members of the general public. properties. The degree of similarity must be
The comparable sales method of valuing real close enough so that this selling price would
estate is explained later under Valuation of Vari- Replacement Cost have been given consideration by reasonably
ous Kinds of Property. well-informed buyers or sellers of the property.
Example 1. Quinn Black, who is not a book The cost of buying, building, or manufacturing Example. You give a rare, old book to your
dealer, paid a promoter $10,000 for 500 copies property similar to the donated item should be former college. The book is a third edition and is
of a single edition of a modern translation of a considered in determining FMV. However, there in poor condition because of a missing back
religious book. The promoter had claimed that must be a reasonable relationship between the cover. You discover that there was a sale for
the price was considerably less than the “retail” replacement cost and the FMV. $300, near the valuation date, of a first edition
price and gave Quinn a statement that the of the book that was in good condition. Al-
books had a total retail value of $30,000. The The replacement cost is the amount it would though the contents are the same, the books
promoter advised that if Quinn kept the books cost to replace the donated item on the valua- are not at all similar because of the different edi-
for more than 1 year and then gave them to a tion date. Often, there is no relationship be- tions and their physical condition. Little consid-
qualified organization, Quinn could claim a tween the replacement cost and the FMV. If the eration would be given to the selling price of the
charitable deduction for the “retail” price of supply of the donated property is more or less $300 property by knowledgeable buyers or sell-
$30,000. Thirteen months later, all the books than the demand for it, the replacement cost ers.
were given to a house of worship from a list pro- becomes less important.
vided by the promoter. At the time of the dona- Future Events
tion, wholesale dealers were selling similar To determine the replacement cost of the
quantities of books to the general public for donated property, find the “estimated replace- You may not consider unexpected events hap-
$10,000. ment cost new.” Then subtract from this figure pening after your donation of property in making
The FMV of the books is $10,000, the price an amount for depreciation due to the physical the valuation. You may consider only the facts
at which similar quantities of books were being condition and obsolescence of the donated known at the time of the gift, and those that
sold to others at the time of the contribution. property. You should be able to show the rela- could reasonably be expected at the time of the
tionship between the depreciated replacement gift.
Example 2. The facts are the same as in cost and the FMV, as well as how you arrived at
Example 1, except that the promoter gave the “estimated replacement cost new.” Example. You give farmland to a qualified
Quinn Black a second option. The promoter charity. The transfer provides that your mother
Publication 561 (January 2023) Page 3