Mike Gable of Build Reuse provided his comments on Mann v United States a Fourth Circuit appellate decision concerning charitable deduction of material salvaged from a tear-down.

As the Chairman of the Board of Build Reuse, I appreciate the opportunity you have provided for the reuse community to comment on the recent Mann decision. I am submitting my thoughts on the decision specifically to comment on best practices by Reuse Retail nonprofits when dealing with donations of building material and our obligations to protect donors.  My comments do not recommend appraisal methodology practices as I believe there are appraisers commenting. I have been the Executive Director of a building material reuse nonprofit called Construction Junction for 20 years and below is my understanding of how we best protect our donors who wish to deduct their building material donations. 

Build Reuse is committed to empowering communities to turn construction and demolition waste into local resources. In pursuit of that mission, we believe it is critically important to use all the tools in the reuse community’s tool box to keep useable building material from the landfill and into productive reuse. Building material waste generates 2 times the amount of waste that every resident in the US lugs out to the curb every year. Building material reuse nonprofits (and for profits), green building and circular economy advocates are steadily working to build an infrastructure that offers an alternative to the take, make, use and waste system that generates 548 million tons of C&D waste per year. To build that alternative, reuse advocates need tools that help capture building material supply and promote demand. In our operations we invest in infrastructure and labor that promotes convenience for the public to choose reuse while we support and pursue incentives that help level the playing field in terms of the expense of reuse and deconstruction as an alternative to demolition. One important tool in the reuse tool box is the federal tax deduction for donations of used building materials to nonprofits.  

While most Americans are familiar with the part of the tax code that incentivizes financial contributions to nonprofit mission-driven organizations, they may be less familiar with the part of the tax code that also incentivizes donations of materials. Materials donations have the extra step that a donor must take and that is determining the fair market value. When the fair market value of a material donation is estimated to be over $5,000 a certified appraiser is required by the IRS to independently assign the value. 

The process works for the donor when the IRS rules are followed. The parties in this activity include: the donor (building owner), the nonprofit (receiver of building components), the deconstruction contractor (sometimes the contractor is also the nonprofit as well), and the material appraiser (this is a specialized skill). All of these parties are responsible for protecting the integrity, transparency and independence of the process. 

The donor: she/he is the driver of the process. He/she needs to choose if it makes sense to deconstruct, who is going to perform the deconstruction, what nonprofit will accept the building components, and hire a reuse appraiser to value the material for tax purposes. 

The deconstruction contractor: this needs to be an experienced contractor in deconstruction as the reuse value as a donation is dependent on the condition of the removed material. There are times the nonprofit receiving the donation and the deconstruction contractor are the same. 

The nonprofit: this is generally a building material reuse retail nonprofit or a Habitat for Humanity Restore. The role of the nonprofit is to communicate with the donor the building components it will accept for donation. This is often performed by a walkthrough of the property. If the nonprofit is providing the deconstruction services, the deconstruction bid should be independent of the appraisal value. To keep the “independent” in “independent appraisal” means the deconstruction bid should not be influenced by the appraisal value. The last responsibility of the nonprofit in this process is to provide the donor with a detailed inventory list of the materials it has received at its facility or taken possession of. A detailed inventory ideally should include item, item description, size, quantity, and indication of condition-several of these details can be captured by a photo of the item. The donor then shares the final received inventory list with the appraiser and a final appraisal value is reached and presented to the donor to use for tax purposes. The more detailed the inventory list the better position the donor will be in if she/he is audited. 

The recommendations that Build Reuse would make for nonprofits working with donors that differ from the donation process referenced in the appeal include the following: 

• Nonprofits generally play an advisory role to donors of a building material component donation they believe exceeds the $5000 threshold which triggers the need for an independent appraisal. Many donors do not know when it makes sense for them to contact an appraiser. 

• Appraisers will provide “material value estimates” based on the material list the nonprofit agrees to accept when the material is deconstructed in reusable condition. This donation value estimate is meant to help the donor decide if she/he wants to move forward with deconstruction. 

• It is not advisable for a nonprofit to place a total dollar value on a donation or tie a fee for service/request for a financial contribution on an estimated donation value. The deconstruction bid or financial donation to cover costs should be independent of the appraisal estimate or final appraisal. 

• Nonprofits are not permitted to provide a specific dollar value on a donation receipt (IRS rules) the donor uses for tax purposes.

• Donation values are determined by a certified appraiser using fair market value criteria.

• Nonprofits should always encourage every donor to consult an accountant to make certain the donation is tax deductible even if we feel certain it is! 

• Finally a “complete inventory” encompasses the building components the nonprofit receives at its physical location or takes possession of and not what it may have inventoried before deconstruction or stated an intention to accept as a donation. The “complete inventory” is material to which the appraiser assigns the value that will be used by the donor on her/his taxes. 

Regards 

Mike Gable

For great value continuing professional education. Your Tax Matters Partner recommends the Boston Tax Institute

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