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More Tax Information

The Numismatic Institute

6525 N. Clark St.

Chicago, IL 60626

THE EFFECT OF THE NEW TAX LAWS ON

CHARITABLE DONATIONS OF PROPERTY IN l997

Many questions have been raised as to how the new tax code will apply to charitable donations of property (such as coins and stamps) that are made during the year 1997

In general, the news on this subject Is quite good

1. In regard to deducting the fair market value of the property, the law is about the same as before. A. person can deduct the fair market value of the coins and stamps, valued at the time of the donation.

There are court decisions on record, indicating that in determining fair market value, the proper measure of “market value” is the amount that would be paid for such material a person buying for consumption What a dealer would pay for such material,, buying for resale, is NOT significant. (See: Goldman v. Tax Commissioner, l9 CA-6th, 3 F.2d 476;

R. Ramadell vs. Commissioner, 1976, T.C. Mem. Dec. l976-lO

In other words, the “market value” to be used is a retail market value; not a wholesale market value. This is very favorable to collectors, because retaIl prices are much higher than wholesale prices.

Since the courts have indicated that retail prices are to be used, this no doubt, explains why the tax officials speak of “catalog” prices in their various publications. (See publication No. 561, and see form and see the official instructions to form 2 — all of which speak of “catalog” prices.)

We’ can summarize this by saying that the y JDroCeSs under the new tax code Is about the same as before.

2. The next question is in regard to the “ of property donated. For example, suppose a collector buys a coin or stamp for $ 1 and keeps it ten years. It is then worth $ 10. The collector then donates it, and deducts $ 10 as a charitable donation on his federal income tax return. The appreciation in value for $ 1 to $ 10 — is $ 9. Under the former tax code, the “unrealized appreciation’ was not to be reported as taxable income. This worked out very much In favor of the collector.

Under the new tax code, this is still true in regard to the regular federal income tax.

However, a change has been made in regard to what is called the “...alternative minimum tax...”. The “alternative minimum tax” is a rather complicated subject. However, more than 99 taxpayers out of 100 are probably not subject to the “alternative rninimuni tax” at all.

Less than 1 person out of 100 (on the average) are subject to the alternative minimum tax. In general, it applies only to people:

1. Who have relatively very high incomes.

2. Whose incomes are of a peculiar type, so that they don’t pay much ordinary income tax.

People of that kind are sometimes required to pay the “minimum alternative tax” instead of paying the regular income tax. If they are in that special group, then they are required to include the “unrealized appreciation” in computing the “alternative minimum tax”.

But, for the ordinary typical taxpayer the “minimum alternative tax” does not apply at and so the “unrealized appreciation” is NOT taxable.

Summary and Conclusion

For the ordinary, typical, taxpayer - the tax treatment of charitable gifts of property for the tax year 1997 (donations made during l999 is the same as it was in l997 or l998 There is no significant difference.

Under the new tax code, many of the older tax—savings methods are no longer in effect. However, charitable gifts of property still remains as an effective tax—saving method.

We heard that there was an enormous political battle in Congress over this point, and that many large institutions (large hospitals and universities, etc.) insisted that charitable gifts of property should be kept as a tax-saving method. They won their point. The federal Congress agreed with them.

For further information, do see the tax phamplets issued by the tax department, and speak with your own personal tax advisor.

We hope this general information will be helpful to you. Do keep this letter for future reference.

THE VALUATION OF COINS AND STAMPS DONATED TO CHARITY

When taxpayers are audited by the United States Internal Revenue Service, the question sometimes comes up as to whether catalog values can be used as part of the valuation process.

If this question comes up, there are a number of things that can be pointed out:

Li]. Publication No. 561, issued by the United States Internal Revenue Service, states in part:

“ COLLECTIONS Most libraries have

catalogs or other books that report the

publisher’s estimate of values. ***“

“ COLLECTIONS Numerous catalogs and

other reference materials show the current value of coins. ***“

This statement by the tax officials implies that catalog values may be helpful in determining fair market value.

(2J.. It should be noted that the Federal Rules of Evidence provide that certain documents can be admitted into evidence more easily, including the following:

Rule O3, subparagraph (17):

“ quotations tabulations, lists, directories, and other published compilations, generally used and relied upon by the public or by persons in particular occupations.”

j3J.. The United States Postal Service has issued a 300 page hook entitled “The Postal Service Guide to U.S. Stamps”. This book includes values for almost all U.S. stamps; both for used and unused copies.

The values set forth in this Postal Service book are very similiar to the Scott catalog values. There is very little difference between them.

Since this is an official United States Government publication, it might carry considerable weight as evidence. (See Rule O3, ( of the Federal Rules of Evidence.)

jJ The Federal Internal Revenue Service recently issued a

form (form No. 2 which is used for charitable gifts of

property. (Revised form issued in October of l9

The tax officials recently issued an offical Instruction Sheet that explains how people should use form

One of the parts of the form (Section A, Part 1, column

H) deals with: “Method used to determine the fair market value.”

The instruction sheet states, in regard to that part:

“ hobby collections indicators of fair market value are trade publications, catalo dealer’s price lists, and specialized publications. However, these sources are not always reliable. For example, a dealer may sell an item for much less than shown on a price list. If you are donating a valuable collection, you should get an appraisal. (emphasis added.)

* **

“Examples of entries to make in this column include:

* * *

“Catalog” (for coin or stamp collections, etc.)”

Conclusion

In view of these 4 different matters, it seems apparent that the catalog value does have some relevance in determining fair market values for income tax purposes.

You may want toprint this page, as a convenient record of these matters.