A construction worker secretly buried a #34 David Ortiz Red Sox jersey in the concrete of the new Yankee Stadium in hopes of "cursing" the new ballpark. The Yankees unearthed the jersey and agreed to auction it off, with the proceeds to benefit the Red Sox’ Jimmy Fund charity. The auction closed yesterday on eBay for $175,100. Along with the jersey, the winning bidder also received two tickets to a 2008 Red Sox home game at which he/she will be presented with the jersey; a new Ortiz road jersey; and a New York Yankees t-shirt.
The tax angle: the auction listing asserts that "amounts in excess of $715 are tax deductible. … The FMV listed above is not negotiable and will be used for tax purposes. Income and other taxes, if any, are the sole responsibility of the winner."
Is this tax advice correct? Doesn’t the winning bidder have "reason to know" the $715 does not represent the true fmv of the jersey? Like other collectibles such as record-setting home run balls, this jersey clearly has a fmv in excess of an off-the-shelf Ortiz jersey. See Reg. § 1.170A-1(h)(4):
(4) Donee estimates of the value of goods or services may be treated as fair market value—
(i) In general. For purposes of section 170(a), a taxpayer may rely on either a contemporaneous written acknowledgment provided under section 170(f)(8) and §1.170A–13(f) or a written disclosure statement provided under section 6115 for the fair market value of any goods or services provided to the taxpayer by the donee organization.
(ii) Exception. A taxpayer may not treat an estimate of the value of goods or services as their fair market value if the taxpayer knows, or has reason to know, that such treatment is unreasonable. For example, if a taxpayer knows, or has reason to know, that there is an error in an estimate provided by an organization described in section 170(c) pertaining to goods or services that have a readily ascertainable value, it is unreasonable for the taxpayer to treat the estimate as the fair market value of the goods or services.
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