World Trade Center knife auction

fracmeister

fracmeister

Petroleum Engineer
Joined
May 26, 1999
Messages
1,686
:cool:
I thought I'd toss this up for those of you with comments and/or observations regarding the auction of the seven custom knives from the WTC steel. The starting bid is 25,000$

The auction is here.

I had hoped to start the bidding off at 10,000, but that looks like it will elude me. That works out to 3571 oer knife, but the case is probably worth enough to lower that to just over 3000$ per knife. It will be interesting to see who wins. Pre-approved bidders only.

Now we'll see who want to make a donation.
 
Less than 24 hours and no bids yet. 25k is a lot of dough for seven knives of course.
 
One of the things you need to do is figure out the fair market value of these knives. The difference between that and what some pays for them is a tax-deductible donation (for most people. Consult your tax professional for specific advice about your unique sitation. Some assembly required. Not sold in stores. Offer expires at midnight tonight, etc., etc., etc.). For most people, deducting something from your tax is like getting a 33% rebate (approximately).

For talking purposes, let's say these seven knives are worth $7000. That means that the buyer will be buying $7000 worth of knives and making a $18,000 contribution to your charity. But, the tax deduction of that $18,000 will be worth about $5950. So, your buyer can get $7,000 worth of fine knives and make an $18,000 donation to your charity for only about $19,000.

Hopefully, there's a snipper dialing in his sights right now waiting to take this auction in the last seconds.
 
Originally posted by Gollnick
One of the things you need to do is figure out the fair market value of these knives. The difference between that and what some pays for them is a tax-deductible donation. (
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Actually, the IRS requires the contribution be made to a "qualified" organization before a deduction is allowed. To find out if this organization is qualified, you can call the Tax Exempt/Government Entities Customer Service number.

Your allowed an annual deduction no greater than 50% of your Adjusted Gross Income(for the most part) plus you have to itemize your deductions on form 1040.

Also, when a contribution is made for which a donator receives something in return (like knives), the organization that is donated to is required to give the donator a letter/document. This written statement has to tell the donator that they can deduct only the amount donated that is greater than the knives value. That letter/document must also provide a good faith estimate of the value of those knives in the body of that written document.:D

Edited To Add:
I just found this in the Q&A area of the above auction. So getting a letter from them stating a lower market value than what is paid for the knives may be difficult, IMO.

"Q: Is this purchase tax deductible?
A: Only amounts paid over and above the fair market value of an item received from a charitable organization would constitute a charitable contribution and therefore be tax deductible. Generally, the amount paid for an item in an auction is equivalent to the fair market value and therefore no tax deduction is allowable. Please consult your personal tax advisor for more information on this issue. The New York Firefighters Burn Foundation is a 501(c)(3) organization."
 
As I said, "Consult your tax professional for specific advice about your unique sitation."

The point is that I think they should emphasise the tax implications more.
 
I think they have done that with the Q&A area of the auction. They are telling the potential buyer that whatever he's paying will be considered market value. There will be no deductible portion of this purchase.
 
Generally, the amount paid for an item in an auction is equivalent to the fair market value and therefore no tax deduction is allowable.
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I'd question that. A lot of charities including my own St. Paul Lutheran Schools raise money through auctions. When businesses donate items to our auction, we specifically ask them to give the market value of the item. That's printed in the catalog and on the receipt. Subject to other restrictions such as the 50% AGI limit, the amount paid above the market value of the item is a tax-deductible donation to our school. At our last auction, we sold a $35 bottle of wine for $800. The $765 above the market value is a donation to our school... no doubt about it. And if you think that one brought the house down, our 1st graders took a "finish-it-yourself" wooden kitchen chair that's worth maybe $100, and finger painted on it. That went for over $1600 in fierce bidding! When the auctioner said, "Sold for $1600-whatever!" someone turned to me and asked, "What do you think of that?"

My response was, "Somebody get me my pills!"

When I later ran into the buyer's husband, his only response was, "At least I can deduct it from my taxes."

These charitable auctions can be great fund raisers. But you do have to emphasise the charitiable aspects of it, that you're not just buying a chair or a set of knives, but you're also helping out a great cause. And, you also have to explain and emphasise the tax implications.
 
They are telling the potential buyer that whatever he's paying will be considered market value.
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That's a mistake, then.

They should get each maker to put a market value on each knife. What would he normally ask for a knife of this nature? Then, the extra above that could be a deductible donation.
 
By the way, that $35 bottle of wine was given to us by the winery. So, they can deduct that from their taxes too subject to any other restrictions that apply to them.


Other items can't be valued. We sold our principal. Actually, we sold having her come to your house and read a bedtime story to your child. Margrette is a wonderful lady, a great principal, and beloved by every child in that school. There's not one child who wouldn't love to have her come and read a bedtime story. $480, as I recall. But, none of that is deductible because you can't place a market value on having Margrette come to your home and read to your child. The market value is whatever it's sold for at the auction, by definition.

The wine is an easy case. You can buy the same bottle at the local grocery store for $35. Other stores sell it for about the same.

Custom knives are a bit different, but I still think that all of these makers have sold enough knives over the years to say, "If I tossed that on my table at Bladeshow, I could get $X for it."
 
The only thing the buyer will need is a letter or document from them giving the estimated market value of those knives and a receipt for the purchase price.

Due to their own published literature claiming that the sales price equals market value, it may be foolish of them now to contradict themselves in a letter to the buyer giving him a tax benefit at this point.
 
Also, these knives were made from metal from the WTC buildings. There is probably no way to value this other than sales price, just like the principal you sold.
 
Due to their own published literature claiming that the sales price equals market value, it may be foolish of them now to contradict themselves in a letter to the buyer giving him a tax benefit at this point.
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Yeah, I suspect that you're right on that.

And the IRS doesn't look kindly on changing things ex post facto just to get a tax benefit. They're not big fans of revisionist history.
 
As the bidding deadline approaches, prospective bidders would have to ask what would happen should these knives not sell with an opening 25k minimimum. I am thinking that the answer is they would be relisted with a lower opening bid. I know that the knives would have received a bid of at least 10k and would be bid up from there. How high? potentially over 25k. In principal, bidders will bid more when they know others are willing to pay comparable prices. This provides an assurance that they aren't leaving a lot of money "on the table" as it were and is the only real way of saying that the bid is the fair market value of the items. If I go to buy an item whose value is difficult to determine, the fact that others are willing to pay similar amounts helps me to believe (rightly or wrongly) that I am paying a fair price. But that first step os a doozy.
 
I thought a bit more about the tax issue and hauled out a couple of IRS publications and you're right.

When we do the auction for the school, we are careful to list the retail price on items where it can be established, that bottle of wine for example. It's listed in the auction program so that bidders know upfront what the value of the item is. Why would anyone bit over that price when they could stop at the grocery store on the way home from the auction and buy the same bottle for the retail price? Answer: because they want to make a donation to our school. And that's what makes the additional amount tax-deductible. The $35 bottle of wine is just a way of having fun with the donation.

When we can't fix the value of an item, having our principal come and read a bedtime story for your child, then the value of the item is what "the market" fixed it at via the auction and there is no donation.

Some items, though, are grey. Take that chair I mentioned. You could buy the same chair, unpainted, for less than $100. Wby did this one go for $1600? Was it because the buyer want to make a donation to our school, or was it because the students had finger painted on the chair giving it a special value that could only be determined by the auction? In the past, the IRS has been very generous to us and to other chariites allowing us to assert that it is just a $100 chair and, therefore, the amount paid above $100 is a tax-deductible donation.

Keep in mind that the IRS has its public image to be concerned about. They like "IRS clamps down on Billion-dollar corporate fraud." The don't like, "IRS denies $1500 donation to church school." The same thing could have worked here. If the makers of these knives had stated, "I sell similar knives for $X," as long as the amount was at all reasonable, the IRS would not want to go to bat and risk a headline of "IRS Dickers over donation to 9/11 Firefighers."

But, by declaring in writting that these knives have a special value that can only be fixed by the auction, I suspect they blew that opportunity and the buyer is simply going to have to buy the knives and forget about any tax benefit.

I also agree with you on the price. I've seen many cases on eBay where a seller has listed an item with a high minimum bid, got no bids, relisted it at the same minimum again and again and again with the same result, then finally listed it with no or a considerably lower minimum, and ended up closing the auction above their initial minimum bid.
 
With this special WTC metal in the knife and their literature saying market value is purchase price, it would be tough to argue a different point with an IRS agent.

Also, If you, all of a sudden, take a large contribution deduction above a normal deduction for your income level, you will be audited. That is a certainty.
 
As I am actually an approved bidder I spent some time on the issue. The sellers claim that comparable knives (one of a kind) by these makers with custom box and so forth not made from WTC steel would be worth 10k. Maybe so. Nonetheless, it will be clear that the FMV is less than 25k if they don't sell. The taxable "basis" is almost certainly going to be that FMV (the auction price received) unless clearly determined otherwise.

I think they would have been wise to get an appraisal in advance and say that the value above X$ might be considered a donation but check with your tax advisor. They took the conservative route.
 
I'd be interesting to see how many people actually jumped through all their hoops and got on the qualified list. I've never had to do a "letter of honor" with the bank. It sounds like a pain the behind. It's hard enough getting 'em to do a medallion signature.
 
To start off I think this was a great concept, congratulations need to go to the makers and everone else involved. BUT, a question has been bugging me after reading these posts about how the buyer is not going to get a tax break. With all this money being donated, somebody has got to be eligible for a tax consideration. Is it the makers for donating the knives? Is it the organizer of this? Bottom line is that if they sell, someone is making a major donation, who's going to get the tax break?
 
Originally posted by BurkStar
To start off I think this was a great concept, congratulations need to go to the makers and everone else involved. BUT, a question has been bugging me after reading these posts about how the buyer is not going to get a tax break. With all this money being donated, somebody has got to be eligible for a tax consideration. Is it the makers for donating the knives? Is it the organizer of this? Bottom line is that if they sell, someone is making a major donation, who's going to get the tax break?
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You would think so. The laws get tricky with respect to donations made of property(i.e.,non-cash donations)

Firstly, I'm assuming, the steel used in these knives was given to the makers to make the knives. This WTC steel is where the real value lies. The makers did not pay for this steel and it cannot be deducted by them as part of their contribution.

If someone donates property that they normally sell as part of their business, the property has to be in their beginning inventory at the beginning of the year for which they gave the property to the charity. Otherwise, they may not take a charitable contribution but instead, they must take a normal business tax deduction as they would as part of their business. In other words, through cost of sales.



They are allowed only a deduction to the extent of their basis in the knife. That basis is equal to all costs they incurred to produce that item. Cost of sales include direct labor costs used to actually make the knife, materials used in the making of the knife and manufacturing overhead. :yawn:
 
The steel was given to them and they agreed not to use it for any other purpose. I spoke with one of the knifemakers who said it was sitting in his shop and that if I won the auction he'd give it to me. the knifemakers could only deduct their actual costs of materials... so, that said, somebody deserves to get a deduction for the donation.
 
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