• 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).

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