Value of Donated Assets

IRS rules that donated computer is worth $800, not $53,000.

Church Law and Tax 1992-09-01 Recent Developments

Charitable Contributions

The Tax Court ruled that the value of a computer donated to a church was $800 rather than the $53,000 claimed by the donor. A computer technician began acquiring scrapped and obsolete parts from his employer, and assembled what appeared to be a “mainframe computer.” He incurred only $800 in out-of-pocket expenses in constructing the computer. The technician donated the computer to a church. Some of the components of the computer were visibly labeled as “scrap”. It took 4 months to complete the process of assembly, low-level diagnostics, and loading the software. The church kept the computer in a 10 by 13-foot room, with an air-conditioning system. A church member responsible for operating the computer encountered frequent problems. He was never able to run the computer for more than 30 to 45 minutes before encountering operating problems. The church kept the computer for approximately 18 months, and then disposed of it by hauling it to a dump. The technician reported a $53,400 charitable contribution deduction on his tax return. At the time of the donation, the technician was not aware of any companies, other than scrap yards, that were purchasing “reconditioned” computers. He ascertained that the list price for a new mainframe computer (of the same type that he constructed) was $89,000. He then discounted the list price by 40 percent to arrive at the value reported on his tax return. The 40 percent discount was based on the technician’s assumption that a 40 percent discount was standard for “used equipment”. The IRS audited the technician’s tax return, and determined that he was limited to a charitable contribution deduction of $800 (his out-of-pocket expenses in constructing the computer). The Tax Court agreed with the IRS. It noted that if a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution. Fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of relevant facts.” The court agreed with the IRS that at the time of the contribution there was no evidence that there was an active market for a computer constructed exclusively from scrapped or obsolete parts. The court concluded that the technician’s computation of market value (40% of the selling price for a new computer) was “totally unsupported”. Rochin v. Commissioner, T.C. Memo. 1992-262 (1992).

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay