Benefit Auctions, Fair Market Value and the IRS Ever been to a benefit auction? They're different from a typical commercial auction, where the goal is to buy an item at the lowest possible price. At a benefit auction, the spirit of giving pervades.
see how this issue is capable of stirring up controversy and it has.
There's a saying in the auction business: Don't give legal advice and don't give accounting advice. It's really up to the charity to defer to their attorneys and accountants in such matters, and to be aware of the IRS rules before a benefit auction is held. That way, no one gets in trouble. Ideally, a fair market value figure should appear in the catalog, on the bid form and on the receipt all three.
That said, and especially now with fundraising auctions becoming more popular, the folks in my industry the auctioneers have an incumbent responsibility to enlighten and inform, right from the podium. We are aware of such a sale's tax implications, and we are bound by the principles of full disclosure to dispense what we know. It's a matter of respecting the audience and it only makes sense.
Keep in mind that many of the folks who attend benefit auctions are people of means. Like I said earlier, the whole event has been staged in the spirit of giving. For some, it's an ego thing. To know the fair market value of an item, and to soar way past that amount, is a way of saying, Look at me. I'm wealthy, I'm generous and I'm helping this charity. And that's fine. The objective was met.
So, in the final analysis, it is backward for an auctioneer to think that by hiding the fair market value of an item, a person will tend to bid low. That just isn't the case, unless you're holding an auction at the Cheapskate's Convention. People want to know the fair market value. From that, they can gauge how generous they wish to be. And from an IRS standpoint, regarding deductions it's the law.