## Facts

- Heriberto A. Ferrari and Noemi O. Ferrari donated 21 pieces of pre-Columbian art to the Duke University Museum of Art (1978–1980) and to The Mint Museum of Art (1981).
- The parties stipulated that the donee institutions were qualified charitable organizations under I.R.C. § 170(c) and that the contributions were made in the years the Ferraris claimed deductions.
- The Ferraris claimed noncash charitable contribution deductions on their federal income tax returns for 1978–1981 based on their reported values for each donated object.
- The IRS partially disallowed the claimed deductions because it disagreed with the Ferraris’ valuations of the donated objects.
- In a notice of deficiency dated August 7, 1987, the IRS determined deficiencies for tax years 1978–1981 tied to the partial disallowance of the charitable contribution deductions.
- The case proceeded to trial in the United States Tax Court, where the parties agreed that valuation was the only matter in dispute.
- Two items (museum numbers 79.10.4 and 79.10.6) were valued by agreement at $3,000 each; the values of the remaining 19 items were contested.
- The Ferraris presented testimony from Ronald W. Dammann, an art dealer and appraiser who valued each object using comparable retail gallery sales for similar pre-Columbian works and described gallery pricing as variable due to judgment and markups.
- The IRS presented testimony from Claudia Giangola, an art dealer and IRS Art Advisory Panel member, who described market pricing differently and testified that comparable retail prices in this setting were far below the highest retail levels (on the order of a fraction of the high end).
- Aside from the two agreed items, the experts’ valuation ranges differed substantially across the donated objects.
- The Ferraris argued that the Tax Court was required to choose between the two appraisers’ opinions and could not substitute its own judgment to fix fair market value.

## Issues

1. For purposes of the I.R.C. § 170 charitable contribution deduction, what were the fair market values of the 19 disputed pre-Columbian art objects at the times of contribution, and may the Tax Court determine values that do not match either appraiser’s figures?

## Decision

- The Tax Court held that the dispute turned solely on fair market value of the 19 contested objects (two objects having agreed values).
- The court accepted that both witnesses were qualified and credited their testimony as evidence, but it did not adopt either side’s valuations in full.
- The court rejected the Ferraris’ contention that it had to select one appraiser’s values wholesale; instead, it determined fair market value from the full record.
- The court set values for the disputed items on an item-by-item basis, frequently selecting amounts between the parties’ proposed values and, for some items, giving more weight to one witness than the other.
- The Ferraris’ allowable charitable contribution deductions were reduced to the extent their claimed values exceeded the court’s determinations.
- Decision was entered under Rule 155 for computations consistent with the court’s valuations.

## Legal Principles

- For noncash charitable contributions, the deductible amount is generally the property’s fair market value at the time of contribution. I.R.C. § 170; Treas. Reg. § 1.170A-1(c).
- Fair market value is the price at which property would change hands between a willing buyer and willing seller, neither under compulsion and both having reasonable knowledge of relevant facts.
- In a deficiency case, the taxpayer bears the burden to show the IRS’s determination is wrong and to establish the correct value with credible evidence.
- Valuation of unique art often requires judgment because exact comparables may be limited; the court weighs all evidence, including comparable sales information, market testimony, and the object’s characteristics.
- The Tax Court may accept or reject opinion testimony in whole or in part and may reach a value different from either side’s proposed figure when supported by the record.
- Reliance on retail gallery comparables and reliance on other market indicators (including auction-related information) can both be relevant; the weight given depends on how well the data reflect the market in which the property would actually sell.

## Conclusion

Ferrari v. Commissioner is a charitable deduction valuation case in which the Tax Court determined the fair market values of donated pre-Columbian art by weighing competing appraiser testimony and the record as a whole, rejecting the taxpayers’ argument that the court had to pick one appraiser’s values and reducing the deductions to the amounts the court found supported.


Ferrari v. Commissioner, 58 T.C.M. (CCH) 221 (1989)