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§ 9.1 WORKS OF ART3. The work of art may be put to an unrelated use by the charitable recipient,in which case the deduction is confined to the donor’s basis in the property. 3Of these elements, the third situation is the most likely to occur. A work ofart, being an item of tangible personal property, is subject to a special rule: Whena gift of tangible personal property is made to a charitable organization and thedonee’s use is unrelated to its tax-exempt purposes, the amount of the charitablededuction that would otherwise be determined must be reduced by the amountof gain that would have been long-term capital gain if the property contributedhad been sold by the donor at its fair market value, determined at the time of thecontribution. 4The greatest controversy surrounding the charitable deduction of a work ofart is likely to be the value of the item. Not infrequently, there is a disputebetween the IRS and a donor as to the fair market value of a work of art. Usually,these disputes are settled; sometimes they are resolved by a court. The appropriatevalue of an item of property is a question of fact, not law; thus, the testimonyof one or more expert witnesses can be significant. A trial court’s valuation of anitem of property will be set aside on appeal only if the finding of value is clearlyerroneous. 5Examples of the court opinions concerning valuation of works of art forcharitable deduction purposes include:• A promoter designed a plan to dispose of excess inventories of reprintbooks (republication of books in the public domain). Having located publiclibraries interested in receiving the books, the promoter solicited individualsto invest in the plan. Persons executed documents evidencing thepurchase of the books at a cost equal to one-third of the catalog list price,waited out the capital gain holding period, then executed additional documentsevidencing the gift of the books to the libraries. The charitablededuction was claimed to be an amount equal to the full publishers’ listprices. The government argued that the transactions were shams, in thatthe donors neither really owned nor contributed the books, whichremained in warehouses. Nonetheless, the court gave substantive effect tothe documentation (including “bills of sale” and “warehouse receipts”)and the role of the promoter as the investors’ “agent,” holding that title tothe books and risk of loss passed to them. Having given economic effectto the transaction, the court then disemboweled the plan on the basis ofvaluation. In determining the fair market value of the books, the courtsaid that the retail market must be used. Focusing on the immense numberof books involved and the weak market for scholarly reprints, thecourt found the market price for them to have been substantiallydepressed. The court concluded that the fair market value of the bookswas 20 percent of the catalog retail list prices for the books, and allowed a3 See § 4.6. A former limitation on the actual charitable contribution deduction was application of the alternativeminimum tax; this is, however, no longer the case (see § 2.18).4 IRC § 170(e)(1)(B)(i); Reg. § 1.170A-4(b)(2)(ii).5 See, e.g., Anselmo v. Commissioner, 757 F.2d 1208 (11th Cir. 1985). 269