Approval requirement when donating large amount of clothes

[Pacun]

I think tax court disallowed large amounts of cloth donation to Goodwill and salvation army because it required approval.  Can someone elaborate on that?

[Lee B]

Tax Court cases are one off, they do not set precedent. See IRS Pub 526.

[mcb39]

In the past, I have had clients who took pictures of the large amounts of clothing and household items donated. One had every item documented.  She was never questioned on the donation.

[Sara EA]

If FMV is over $5k, the client needs an appraisal.  Is that what you meant by "approval"?

[Lee B]

"You can't take an income tax charitable contribution deduction for an item of clothing unless it is in good used condition or better. An item of clothing that is not in good used condition or better for which you claim an income tax charitable contribution deduction of more than $500 requires a qualified appraisal and a completed Form 8283. See Deduction over $500 for certain clothing or household items, later."

[Pacun]

I only read the headings before posting.  I guess they were talking about appraisals. (I wouldn't defend a return like this one not even in front of a revenue officer... for sure not in tax court).

"Tax Court Says No to $25,500 Deduction for Clothing Donations

MAR. 27, 2023

Duncan Bass v. Commissioner

DUNCAN BASS,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

United States Tax Court

Filed March 27, 2023..."

[Sara EA]

21 hours ago, cbslee said:

"You can't take an income tax charitable contribution deduction for an item of clothing unless it is in good used condition or better. An item of clothing that is not in good used condition or better for which you claim an income tax charitable contribution deduction of more than $500 requires a qualified appraisal and a completed Form 8283. See Deduction over $500 for certain clothing or household items, later."

Over $500 requires Form 8283. Over $5,000 requires an appraisal.  The $5k applies to like-kind items, so if you donate clothes all year long and the total FMV is over $5k you have to get the whole lot appraised.  Same with furniture.

[Max W]

I looked up this case and could only find the results of an appeal.  The appeal said that the the Tax Court had found in part for Bass and in part for the IRS.

The appeal was denied as everything had been covered in the original case.  My guess that the 'in part' to Bass was $5K.

[TexTaxToo]

16 hours ago, Sara EA said:

Over $500 requires Form 8283. Over $5,000 requires an appraisal.  The $5k applies to like-kind items, so if you donate clothes all year long and the total FMV is over $5k you have to get the whole lot appraised.  Same with furniture.

cbslee refers to a very specific exception where over $500 requires an appraisal if an item of clothing/furniture is NOT in "good used condition" or better.  See tax code section 170(f)(16)(C).   Without an appraisal value over $500, you cannot deduct such clothing/furniture at all.  It's hard to imagine one item in poor condition being worth more than $500, but anything's possible, and you can deduct such items with an appraisal.

[TexTaxToo]

16 hours ago, Max W said:

I looked up this case and could only find the results of an appeal.  The appeal said that the the Tax Court had found in part for Bass and in part for the IRS.

The appeal was denied as everything had been covered in the original case.  My guess that the 'in part' to Bass was $5K.

The clothing donated throughout the year totaled more than $5000, was not appraised and the deduction was denied.  Other items donated (furniture, toys, etc), when aggregated by like type, did not total more than $5000 each, so those deductions were allowed.

[TexTaxToo]

Interesting case.  In the original correspondence audit, the IRS only challenged Schedule C, where the taxpayer reported no income and a large loss.  The audit determined a deficiency and penalty of about $7500.  When the taxpayer went to court, the IRS responded by challenging the Schedule A charitable deductions as well.  Since they were not in the original audit, the IRS had the burden of proof for those, but mostly prevailed, substantially increasing the deficiency (the court ruled they could not increase the penalty).

A footnote in the findings (problems adding as well???):

Quote

Petitioner reported noncash charitable gifts totaling $30,686 and carryover charitable gifts of $22,204, despite reporting gifts to charity totaling $18,899. The record is silent as to this discrepancy.

 

[Sara EA]

TexTaxToo, antiques, artwork, and rare coins and stamps are examples of items that may not be in good condition but may be very valuable.  Cleaning old coins to make them look better reduces their value, and antique furniture that looks its age is the reason it's worth money.  I remember tables at a Yale hangout where a century of students had carved various messages, names, etc.  On sight, they were hardly in good condition, but I bet they'd sell for tens of thousands each.  Also think about some famous paintings that have been stolen and stored in not ideal conditions.  They're not in great shape when recovered but are still worth millions.

Please give us a cite that says clothing/furniture over $500 must be appraised.  Did the law change?

 

 

[TexTaxToo]

13 hours ago, Sara EA said:

TexTaxToo, antiques, artwork, and rare coins and stamps are examples of items that may not be in good condition but may be very valuable.  ....

Please give us a cite that says clothing/furniture over $500 must be appraised.  Did the law change?

Again, it is only clothing and household items that are NOT in good used condition that must be appraised.   I did give a cite:

On 9/21/2023 at 1:24 PM, TexTaxToo said:

See tax code section 170(f)(16)(C). 

And antiques, artwork, jewelry, collectibles are specifically excluded.  Here's all of the relevant paragraph for those who don't follow links.

Quote

(16)Contributions of clothing and household items

(A)In general

In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.

(B)Items of minimal value

Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.

(C)Exception for certain property

Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $500 is claimed if the taxpayer includes with the taxpayer’s return a qualified appraisal with respect to the property.

(D)Household items  For purposes of this paragraph—

  (i) In general

    The term “household items” includes furniture, furnishings, electronics, appliances, linens, and other similar items.

  (ii) Excluded items -  Such term does not include—

   (I) food,

   (II) paintings, antiques, and other objects of art,

   (III) jewelry and gems, and

   (IV)collections.