Larry asks:

> I've always wondered how game show contestants would be taxed when they win
>  something.  Say they won a car that has a MSRP of $35,000.00  The
contestant
>  immediately puts an add in the paper wanting to sell the vehicle and states
>  the price is $35,000.00 or 'best offer'.  Since msrp is always an inflated
>  price, if the vehicle sells for $26,500 would the IRS tax at the msrp or
the
>  $26,500.00 ?

In this case, the answer's easy. If you sold the $35,000 car you won in a
game show for $26,500, you must report its value as $35,000. The game show
turned in a form 8283 to the IRS when you took possession of the car,
reporting the car as as $35,000 equivalent income to you. You must therefore
report the same income value. Income and expenses must balance. The fact that
you sold the car for $26,500 isn't relevant except for the fact that you were
willing to take a loss on the transaction as a whole.

If you wish the rules for calculating FMV from the horse's mouth, please see:

     http://www.irs.gov/pub/irs-pdf/i8283.pdf

This the instruction booklet on how to judge FMV. It goes on at length about
the things that are hard to judge (privately held stock, authorship values,
etc.) and thus it hardly talks about more concrete items such as cars,
computers, and so on. The bottom line rules are these:

     o For all donations over $5000 in value, you must obtain at least one
written appraisal of the current sales value of item within 60 days prior to
its donation. The 60-day rule is simply to keep old appraisals for now highly
depreciated equipment out of the equation.

Here's what one web site says about the appraisal process for circumstances
where appraisers are common (houses, cars, etc.):

=======================================

If you donation is valued under $5000, see determining fair market value. If
your donation is valued over $5000, you must obtain a qualified appraisal
within 60 days prior to donation. Multiple donations of similar items within
a calendar year totaling over $5000 will also require a qualified appraisal.
To substantiate a tax deduction over $5000, you will need to obtain a
qualified appraisal within 60 days prior to donating your gift.

The validity given an appraisal depends on the completeness of the report,
the qualifications of the appraiser, and the appraiser's demonstrated
knowledge of the donated property.  An appraisal must give all the facts on
which to base an intelligent judgment of the value of the property.  A
qualified appraisal must include:

A description of the property in sufficient detail for a person who is not
generally familiar with the type of property to determine that the property
appraised is the property that was (or will be) contributed.

    The physical condition of any tangible property.

    The date (or expected date) of contribution.

    The terms of any agreement of understanding entered into (or expected to
be entered into) by or on behalf of the donor.

    The name, address, and taxpayer identification number of the qualified
appraiser and, if the appraiser is a partner, an employee, or an independent
contractor engaged by a person other than the donor, the name, address, and
taxpayer identification number of the partnership of the person who employs
or engages the appraiser.

    The qualifications of the qualified appraiser who signs the appraisal,
including the appraiser's background, experience, education, and any
membership in a professional appraisal association.  A qualified appraiser
cannot be a party to the transaction in which the donor acquired the
property, a relative, or a person employed by the donor.

    A statement that the appraisal was prepared for income tax purposes.

    The date (or dates) on which the property was valued.

    The appraised Fair Market Value on the date (or expected date) of
contribution.

    The method of valuation used to determine Fair Market Value, such as the
comparable sales or market data approach, or the replacement cost less
depreciation approach.

    The specific basis for valuation, such as any specific comparable sales
transaction.

    A description of the fee arrangement between the donor and appraiser.

In order to ensure compliance with IRS requirements as they apply to your
specific donation and circumstances, always confer with a qualified tax
professional.

-- http://www.rawhide.org/vehicle/qualified-appraisal.shtml

=======================================

Wirt Atmar

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