10-37 Pedro contributes a painting to an art museum in October of this year.

He has owned the painting for 12 years, and it is worth $130,000 at the time of the donation. Pedros adjusted basis for the painting is $90,000, and his AGI for the year is $250,000. Pedro has asked you whether he should make the reduced deduction election for this contribution. Write a letter to Pedro Valdez at 1289 Greenway Avenue, Foster City, CA 94404 and advise him on this matter.

Willis, Hoffman, Maloney, and Raabe, CPAs 5191 Natorp Boulevard Mason, OH 45040 December 5, 2007 Mr. Pedro Valdez 1289 Greenway Avenue Foster City, CA 94404 Dear Mr. Valdez: I have evaluated the two alternatives for your charitable contribution deduction. Your potential deduction is $130,000, the fair market value of the painting. It is not reduced by the unrealized appreciation since the painting was assumed to be put to a related use by the museum and the holding period is long-term. Your 2007 charitable contribution deduction is limited to $75,000 (30% X $250,000 AGI) if you do not make the reduced deduction election. The remaining $55,000 ($130,000 FMV $75,000 deduction) can be carried forward for five years. If you make the reduced deduction election, you can deduct $90,000 (adjusted basis of the painting) in 2007, because the amount is less than the maximum potential deduction of $125,000 (50% X $250,000 AGI). However, if you make the election, you must forgo deducting the $40,000 appreciation on the painting ($130,000 FMV $90,000 adjusted basis). Based on the facts presented, it does not appear that you should make the reduced deduction election. You would be forgoing an additional deduction of $40,000 in order to increase your 2007 deduction from $75,000 to $90,000. You should plan your contributions carefully over the next five years so that you do not lose any of the $55,000 carryover. I will be pleased to discuss my recommendation in further detail if you wish. Please call me at (510) 555-1234 if you have any questions. Thank you for consulting my firm on this matter. We look forward to serving you in the future. Sincerely, Carol Eckert, CPA Partner