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Tax Atty or CPA only: I donated intellectual property to a…

Tax Atty or CPA only...
Tax Atty or CPA only: I donated intellectual property to a charity last year and as it was over $5K, had an IRS -qualified appraiser value the asset. He used the cost-to-replace method (what the charity would pay based on FMV and he audited the pricing of a sampling of industry sources for the same thing (a specific type of mailing list for niche market). He included all of this in his report. The Donee organization's President signed IRS f8283 along with the appraiser. My tax preparer is questioning me on my basis which was mostly swaps for my expertise and other mailing list regards (I am a Sched C filer). I could not begin to reconstruct my "basis" through all the years of accumulating these lists (and they depreciation has never been claimed on my taxes). Is it necesary on any other form or schedule that my basis is stated in order for me to take the deduction I am entitled to for the appraised donation?
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10/16/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,619
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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HI, MY NAME’S LANE - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

If you’ll please bear with me for a minute I’ll type up my initial response, and then we can go from there if you have further questions on this.

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Customer reply replied 9 months ago
Sure

Congressional concern over inflated deductions of corporate patents in particular was addressed by the enactment of Section 170(e)(1)(B)(iii) in October 2004, which added the donation of IP as a situation where the deductible amount of a charitable contribution of property must be reduced by any long-term capital gain that would be realized if the property were sold at its fair market value at the time of the contribution.

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SO yes, basis is crucial here. If you paid for the lists, that is your basis. From IRS: "Basis is generally the amount of your capital investment in property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the property.

In most situations, the basis of an asset is its cost to you. The cost is the amount you pay for it in cash, debt obligations, and other property or services. Cost includes sales tax and other expenses connected with the purchase."

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So sorry. Likely the best you can do is go back through expenditures and write in the statement legend those that were purchases. (to be prepared for any audit). The more you can document, of course, the lower the gain that would reduce the contribution

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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit" – That’s the only way I’ll be credited for the work.

I hope you'll rate me based on accuracy and thoroughness, rather than any good/news/bad news content.

...

But if you need more on this, please let me know.

Lane

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Customer reply replied 9 months ago
As most (but not all) of the lists were gathered from the public record for free, or I swapped other lists for them, am I going to have a whopping capital gains if I report $0 or a small amount (likely not more than $7K-10K cash over the years). The Appraiser set FMV in the valuation letter at $30K. I made the donation because I *BADLY* need the deduction and my returns get filed by 11:59 ppm tonight. If I GUESS that cash basis is $10K, and have no way t value all the list swaps, would I then have to pay cap gain on the remaining $20K? What would that amount to and is there a better way to do this? Or would you recommend I leave the deduction off, file the return, and take the time I would need to go through cancelled checks since 2005 so I can support my cash payments then amend later? If I am going to owe MORE tax than LESS tax by taking the donation, then it doesn't make sense does it?

No no ... there's no capital gain here at all (you didn't sell).

...

BUT you need to reduce FROM Fair market, what that gain would be, to come to the charitable deduction amount

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Customer reply replied 9 months ago
if I paid $10K, the gain is $20K. The appraisal is $30K. So I would need to reduce the value to be deducted on my taxes to $10K. Do I have that right? Should I guesstimate on the $10K and if materially different after I have time to go through archived cancelled checks then file an amended return? Am I correct that my swaps will not be able to be factored in?

So lets say that you can reasonably estimate that the basis is 10,000.

That takes your charitable deduction down to 10,000.

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Capital gain = sales price - basis.

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Your assumption here (a good one becasue of the valuation) is tat the sale would be for 30,000.

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30,000 - 10,000 = 20,000 gain

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So the assumed gain of 20,000 must be deducted from the FMV to get to a charitable deduction of 10,000.

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The only time that you'll need to shoe both sides of the r=equation is upon audit

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Customer reply replied 9 months ago
Thanks!! Got it!!!

Sorry looks like we crossed there, but yes, that's right.

...

The swaps can be factored in IF you had basis in what you gave in swap.

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If this has helped, and you DON’T have other questions … I'd appreciate a positive rating, using the stars on your screen, and then clicking “submit" – That’s the only way I’ll be credited for the work.

The stars are located at the top of the page, but if you are on a mobile device (like a tablet or a phone), you may have to scroll left or right to see them and click on them to leave a positive rating. Thank you!

...

But if you need more on this, please let me know.

Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,619
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 9 months ago
QUICK BUT IMPORTANT: I provided tax preparer with a form 8283 for the in-kind charitable donation of the IP. Both the Donee and the Appraisser had signed the form and filled out their portions. He did not like that there was no place on the form for Appraiser's name (it only requires sig, address and I.D. number) and that his sig was not legible. So he redid the form and typed in the Appraiser's name on the sig line so there is now no sig for the Appraisser on the form. This likewise wiped out the sig and handwritten info the donee had filled in. He just typed in the info for that section leaving the boxes for Signature, Title & Date completely blank.What do you advise? THANKS!

See this from the instructions for form 8323:

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"In some cases, it may be impossible to get the donee's signature on Form 8283. The deduction will not be disallowed for that reason if you attach a detailed explanation of why it was impossible."

...

And for the appraiser, typing it in is fine as long as they have the ID number.

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Customer reply replied 9 months ago
Thank you!!

You're very welcome.

...

Thanks so much for the rating.

If you’d like to work with me again here at JustAnswer, just say "For Lane," at the beginning of your question (OR you can go to your questions page for reviewing questions and choose an option to make me a preferred expert)

..

Thanks again,

Lane

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