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Friday, April 25, 2008

Can Winning Bidder of $175k David Ortiz Jersey Claim $174k Charitable Deduction?

Ortiz_2A construction worker secretly buried a #34 David Ortiz Red Sox jersey in the concrete of the new Yankee Stadium in hopes of "cursing" the new ballpark. The Yankees unearthed the jersey and agreed to auction it off, with the proceeds to benefit the Red Sox' Jimmy Fund charity.  The auction closed yesterday on eBay for $175,100.  Along with the jersey, the winning bidder also received two tickets to a 2008 Red Sox home game at which he/she will be presented with the jersey; a new Ortiz road jersey; and a New York Yankees t-shirt.

The tax angle:  the auction listing asserts that "amounts in excess of $715 are tax deductible. ... The FMV listed above is not negotiable and will be used for tax purposes. Income and other taxes, if any, are the sole responsibility of the winner."

Is this tax advice correct?  Doesn't the winning bidder have "reason to know" the $715 does not represent the true fmv of the jersey?  Like other collectibles such as record-setting home run balls, this jersey clearly has a fmv in excess of an off-the-shelf Ortiz jersey.  See Reg. § 1.170A-1(h)(4):

(4) Donee estimates of the value of goods or services may be treated as fair market value—

(i) In general. For purposes of section 170(a), a taxpayer may rely on either a contemporaneous written acknowledgment provided under section 170(f)(8) and §1.170A–13(f) or a written disclosure statement provided under section 6115 for the fair market value of any goods or services provided to the taxpayer by the donee organization.

(ii) Exception. A taxpayer may not treat an estimate of the value of goods or services as their fair market value if the taxpayer knows, or has reason to know, that such treatment is unreasonable. For example, if a taxpayer knows, or has reason to know, that there is an error in an estimate provided by an organization described in section 170(c) pertaining to goods or services that have a readily ascertainable value, it is unreasonable for the taxpayer to treat the estimate as the fair market value of the goods or services.

Press and blogosphere coverage:

http://taxprof.typepad.com/taxprof_blog/2008/04/can-winning-bid.html

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» Tax issues surrounding Ortiz/Yankees curse jersey from Don't Mess With Taxes
Even non-baseball fans know the story. Gino Castignoli, a Red Sox fan and construction worker from the Bronx, dropped a David Ortiz Red Sox jersey in wet concrete during construction of the new Yankees Stadium. Castignoli's hope was that the hidden app... [Read More]

Tracked on Apr 26, 2008 3:12:55 PM

Comments

Can the Yankees/Red Sox really sell or transfer title on an item that they do not own? An individual purchased the shirt and can arguably still be the owner. Should he not get a nice deduction?

Posted by: Rocky | Apr 25, 2008 8:55:35 AM

I would think that the original owner of the jersey abandoned it when he placed it in the concrete. Nevertheless, at that time, it was simply an ordinary jersey, with an FMV of a few hundred dollars (if that). Thus, any charitable contribution deduction would be limited to that FMV (unless the owner recently purchased it for the purpose of burying it, in which case his deduction would be limited to his cost-basis, since his holding period is not more than one year). See § 170(e).

Additionally, and more importantly with respect to the original owner's charitable contribution deduction, it appears as though he did not intend to make a gift to or for the use of any charitable organization listed in § 170(c).

Posted by: Manny | Apr 25, 2008 9:56:42 AM

Look at the winning bidder's quote in the NY Times: "But what I was doing was donating that money to a great cause. And IN RETURN I pick up this piece of memorabilia." (Emphasis added.)

Interesting.

Posted by: Manny | Apr 25, 2008 10:06:11 AM

I'm not sure, and maybe you have to have an LLM to see the complication here, but the purchaser paid $175,000 for an item in which he now has a cost basis of $175,000. This was a purchase, not a donation, so he gets no tax deduction at all.

The owner could receive a deduction for the amount donated to the charity, but will have ordinary income from the sale of the jersey.

What am I missing?

Posted by: John Jenkins | Apr 25, 2008 12:34:02 PM

It is more of a quid pro quo charitable deduction analysis.

The complication here, is that the fact the jersey was auctioned off. The FMV here, I believe, is what the market was willing to pay for it. The price was $175,100. So, the way I see the analysis is that he made a charitable contribution of $175,100, but then received goods worth $175,100, so his charitable deduction is 0.

Posted by: Erica | Apr 25, 2008 4:08:13 PM

John -

I believe the issue is whether $715 is the true FMV of the item because only the excess of the purchase price above the FMV is deductible. So the buyer would have a cost basis of FMV ($715, maybe) and the rest of his purchase price is a deductible donation. I think the question is whether the jersey's FMV is, in fact, much more than $715 because the jersey has value as memorabilia.

Posted by: adam | Apr 25, 2008 7:09:46 PM

would the deduction cause a reduction in basis?

Posted by: Probably Has No Idea What He's Talking About | Apr 25, 2008 7:13:49 PM

No, I believe, I of course could be wrong, that the transaction is viewed in two parts, the purchase for FMV and the donation which leads to the deduction. The deduction therefore should not affect basis in the jersey, which is FMV, because that is what is allocated towards the cost of the jersey.

Posted by: adam | Apr 25, 2008 7:23:13 PM

I agree that the buyer would have a basis in the jersey equal to the FMV. But what is the FMV? The charity says that it's a few hundred dollars (remember, $715 is the "FMV" of the whole package).

The question is, thus, whether this valuation is reasonable. How is the buyer's tax preparer going to react when preparing the buyer's 2008 tax return? Does a $174K charitable contribution deduction pass the straight-face test? Is a disclosure required? I don't see how he could possibly sign the buyer's return without disclosing this.

Posted by: Manny | Apr 26, 2008 11:00:41 AM