Working With Donors and Tax-Deductible Contributions

Tax deductions are an important reason that individuals donate objects & other property to museums. Without these deductions, many people would hesitate to donate items that are essential to our collections. Dealing with the parameters of these types of donations, however, can often be confusing, as most of us who work in museums aren’t tax experts. Below are a few general guidelines for working with tax-deductible donations of property to your organization. These are in no way absolute. Tax guidelines are always changing and just about every donation is different. Always consult a tax expert or lawyer with specific questions or problems.

Museums and their staff should not act as tax advisors to donors or potential donors. However, providing basic guidance and information to your donors about the possibilities of tax-deductible contributions to charitable organizations is a nice idea. The American Association of Museum’s Guide to Museum Giving, is a good example. Two IRS publications are also especially helpful in outlining the specifics of tax deductions: Charitable Contributions (Publication 526) and Determining the Value of Donated Property (Publication 561). Both are available on-line. Another valuable resource for those in the museum field is the book A Legal Primer on Managing Museum Collections by Marie Malaro. It contains an entire chapter on tax-deductible gifts to museums.

Tax deductions for property items are usually based on Fair Market Value (FMV). FMV is defined by the IRS as "the price that property would sell for on the open market." Factors that may influence FMV are:
1. The cost or selling price of the item,
2. Sales of comparable properties,
3. Replacement cost, and
4. Opinions of experts. 1

Donations to museum collections often rely upon the fourth choice, "opinions of experts", also called appraisals. A formal appraisal is necessary for items with a value over $5000.

You should never provide donors with an appraisal or appraised value of donated items. The following persons are specifically excluded from providing appraisals for a donated item or items:
1. The donor of the property or taxpayer claiming deduction
2. The donee of the property (i.e.- the museum)
3. A party to the transaction in which the donor acquired the property (with exceptions)
4. Any person employed by, married to, or related to any of the above
5. An appraiser who appraises regularly for any of the above and who does not perform a majority of their appraisals for other persons.

Museums, in general, should also not recommend a specific appraiser to a donor. It may give the appearance of favoritism and could involve your organization in legal trouble if the appraiser’s opinions or expertise is called into question. You can always direct donors to possible sources of qualified appraisers—such as professional organizations (i.e.- American Society of Appraisers or Appraiser Association of America) or even the phone book (in the Yellow Pages under "Appraisers"). Some museums have a list of appraisers to give to donors—but again, you want to be careful with these types of lists not to show favoritism.

There’s no set amount of time donated property must be kept by the museum, but quick disposal or sale of items may affect donor deductions. The IRS has up to three years to review these types of deductions. It may be prudent to notify donors within that period of time if their items have been sold or otherwise disposed of. Full FMV deductions are usually not available for property donated for immediate sale (i.e.- a donor gives a painting to a museum to sell at an auction). Do not accept property that you know you will be immediately sold unless that is what you and the donor have agreed upon.

In all donor transactions, never accept anything that you are uncomfortable with. Unfortunately, cases of overinflated appraisals & tax dodging are all too common. While it is ultimately the taxpayer’s responsibility to support their deductions, you do not want to get involved in legal tangles, especially with the IRS. Looking the other way when donors bend or break the law may make you culpable and could jeopardize your non-profit status.

Adopting basic donor policies and guidelines can help make everyone aware beforehand of your procedures and limitations regarding donations. A good source to consult about policy making is the AAM’s Guidelines for Museums on Developing and Managing Individual Donor Support (available on-line).