Appraisals And Revenooers

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Iam writing about a subject which in the past has not ordinarily been discussed in public, but the time has come for a public airing of it. Many librarians, collectors, curators, and dealers are called upon in the normal course of day-to-day activities to place a value on a letter, a manuscript, or a book, or on a collection of such items. And on occasion they are required to prepare a document to satisfy the whims of Internal Revenue Service examiners.

This is simply “appraising,” but of late the word seems to indicate to many not the science of placing a true, current, acceptable value on an object, but part of a complex game of wits whose ultimate objective is to confuse, baffle, or outwit one or several exceedingly curious individuals in the Treasury Department. I shall cite a few dangerous examples.

John Smith, a collector, donates an item for sale to an accredited organization accepted by the Revenue Service as qualified to receive gifts on a tax-exempt basis. The institution or organization runs an auction at which the item is sold for f 1,000. Mr. Smith, therefore, takes a deduction from his income tax in that year of $ 1,000 as a gift to an educational, charitable, or religious institution. The buyer, Tom Brown, makes his check out to the institution as a cash gift, assuming that the item he receives is merely a token; or, if you have a suspicious mind, he assumes the government won’t know the difference. Deduction No. 2 for $1,000. Mr. Brown then turns around and makes a gift of the item to another institution, taking another f 1,000 deduction, since there now exists a record that the item sold for this amount.

Three deductions of $ 1,000 each, and all involving a single item! Now what’s wrong, even if the Revenue Service doesn’t find out? Deduction No. 1, that of the donor, John Smith, is legitimate. He gave his property, and the sale of the item brought $1,000 to the receiving institution. Deduction No. 2, that of the buyer, Tom Brown, is not legitimate. He received something for his money. He could, however, have elected not to accept the item, in which case his check would have been a gift and his deduction legitimate. If he did accept the item, his first deduction was not legal, but the deduction for his gift of the item to another institution was. So that while three deductions for the same transaction cannot be allowed, apparently two are legal. Some of our friends in the Revenue Service are going quietly mad in an effort to discover how legally to cut the deductions to one.

The example just cited was a quasi-legal operation. Now contemplate this one: John Smith has a collection of papers. Let us say they are his own, accumulated during seven less-than-earthshaking months as ambassador to Mali and consisting in the main of carbons of letters to his political sponsor asking him, “For heaven’s sake, get me out of this place!” He arranges for a friendly institution to buy a fraction (probably five per cent) of his collection for $5,000 (and chances are that he donates the $5,000 to the institution). The following year he donates the balance—ninety-five per cent—of his collection to the institution and takes as his tax deduction nineteen times $5,000, or $95,000. This may seem legitimate, but in actuality it is fraud perpetrated by the donor and a friendly official of the institution.

Another example: the benefactor goes to his favorite and very friendly bookseller and makes a very sizable purchase; perhaps the amount is $35,000. He asks the dealer to bill a certain school or college for perhaps one-fifth of the items, but at the full purchase price of the collection. He then advises the school that he has located several items he knows the library would like to own. He would like to buy them for the institution, even though the price is admittedly high. He has, therefore, asked the dealer to send them to the school, but he is sending his personal check to the school so that they can pay the bill. Now what has happened in this literary version of the union “sweetheart contract”? The collector gets a tax deduction for the entire amount of his purchase and ends up with eighty per cent of the items in his own collection. The school is the innocent “dupe,” though a knowledgeable librarian or curator might suspect something was wrong by virtue of the high price of the items received. The collector and the dealer, however, are not innocent individuals trapped in a maze of tax law; on the contrary, they are highly sophisticated sharpies who are trying to defraud the government.

Congress has passed certain laws affecting the collector and the institution. These laws are designed to encourage the collector to give materials to institutions so that they may be studied by the many instead of the few and so that the collector may receive some financial benefit from his generosity. Congress never intended that the main motive for the gift would be tax avoidance.