@Anonymous wrote:
unfortunately, the IRS is not sympathetic to people in your position. for example, people that win a car are taxed based on the sticker price which is usually far higher than what a person would actually pay. if you report $3,500 you'll get a matching notice from the IRS and likely will not prevail because the reporting agency said the FMV was $4500. pub 525 says use FMV. so it's your decision as to what to do
I disagree. If you can legitimately document the value, you should win your case. I suppose a nasty auditor could force you to appeal to tax court, but you can represent yourself if you do proper preparation.
I read a tax court case once where the plaintiff won a necklace at Macy's valued at $5000 but a jeweler would only appraise it for $1200. The auditor denied, plaintiff went to tax court, and was able to prove that $5000 was the "comparable value" price and that over the course of a year, Macy's selling price was never higher than $1499, it was always "on sale." The tax court allowed him to value it at $1499 and pay tax on that basis.
You have to be thorough and you have to have proof. It's not just enough that you think it's worth less, or that it is usually on sale. If at least some people pay full list price (which is probably true with cars, for example, because there are always a few people who hate to haggle or get taken by clever salespeople) then you probably won't win your case.
