A Goldman Sachs investment banker, who earned $115,000 in 2002, will not be able to take all of the $55,000 charitable contribution deduction she took for that tax year -- $49,000 of which she took for donations of used clothing to a thrift store.

In an opinion issued last week, the U.S. Tax Court said that it had reservations about the valuation methods used by the banker in determining the fair market values she assigned to the donated items. According to court documents, the banker -- who described herself as an impulsive buyer who often only wore an outfit or pair of shoes once or twice before donating them to a high-end thrift store in New York -- testified that she determined the fair market value of an item and then assumed that the cost of the item was at least twice as much.

“We recognize that the determination of the fair market value of an item involves an approximation, and is, at best, an inexact science,” the court wrote. “However, we cannot ignore that [personal items] will be worth far less than their original purchase price immediately after they are purchased. [Furthermore,] the original costs of the donated items shown on the Forms 8283 are themselves not actual costs, but only estimates based upon petitioner’s optimistic estimates of the items’ fair market values.”

After reviewing the average deduction claimed by similarly situated taxpayers, the court said that the banker was entitled to a charitable contribution deduction for property contributions of just under $9,000. The court also said it did not believe the “optimistic” valuation constituted negligence, and ruled that she does not have to pay the nearly $3,000 accuracy-related penalty assessed by the Internal Revenue Service.

The opinion is available online at www.ustaxcourt.gov/InOpHistoric/Stamoulis.SUM.WPD.pdf.

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