In December, one of your clients, Tim Huffman, donated a valuable piece of art to a local charity to be auctioned at its annual fundraising auction. When Mr. Huffman donated the art, it was appraised for $20,000. However, at the auction held on January 20, 2014, it sold for $35,000. Mr. Huffman claims that the appraisal was obviously wrong and that the value of what he donated was obviously $35,000. Consequently, he wants to deduct $35,000 on his tax return.
In this question, a professional is required to provide advice to the client regarding the tax implications. This advice is given by the professional by the way of letter, this letter is business letter hence it must be concise and formal.
The letter is as follows:
11 July 20XX
T
Sir,
After completing my observations regarding the tax deductions, certain conclusions have been made. As per rules, value of piece of art donated by you is $20,000. As donation by the client was done on December 2013, and value on that day was $20,000. Although the art was resold for $35,000 but the client cannot demand tax deduction of $35,000. Hence, the suggestion is that do not make wrong claim and do not waste the time and resources.
Thank you for giving such an opportunity and feel free to contact in case of any further queries.
Sincerely
X CPA.
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