Bookseller Addresses Appraisal Requirements in Guidance on Valuing Charitable Contributions

From: Bruce Barnett [blockbook@thebookblock.com]

Please feel free to contact me should you care to discuss this matter.

Internal Revenue Service

I write in response to Section 4 of Notice 2006-96 seeking comments on qualified appraisals and qualified appraisers within the meaning of Code Section 170(f)(11) and potential impacts upon small business. Please note that my remarks represent my views only and I do not purport to speak on behalf of others.

Background

I am a member of The Book Block LLC, a dealer in fine and rare books that sometimes are described collectively as antiquarian books. Please note that "antiquarian" is a vague term that implies antiquities but is commonly employed to describe collectible books of all sorts regardless of age. Since antiquarian is a useful way to describe collectible books, I employ it frequently in the discussion that follows.

We define fine books as high quality books printed in very small quantities by private presses that often are operated by just one person and rarely by more than a handful. For example, many high quality books were produced by private presses in quantities of less than one hundred copies. By contrast, common books are mass produced by commercial presses in very large quantities that generally run into the thousands and are available from national chains and many independent bookstores. Rare books are extremely scarce and often are extraordinarily difficult, if not impossible, to find on the market. Our rare book business typically involves those published between the 15^th and 19^th centuries.

Our business has both a goods and a services component. The goods portion entails acquiring rare and fine books and selling them to individual collectors and institutions such as universities and libraries. Our services business consists of book advisory activities and appraising books for a variety of purposes including tax and insurance.

We belong to the Antiquarian Booksellers Association of America ("ABAA"), the best known, most highly respected and reputable association of antiquarian booksellers in the US. The ABAA is the US chapter of the International League of Antiquarian Booksellers, the leading global antiquarian booksellers' organization with chapters in many developed nations and some developing countries. Members of the ABAA must meet stringent standards for admission including a requirement of four years of full time experience in the antiquarian book trade. Although I do not have the statistics available, I estimate that the average ABAA member is 55 years old with 25 years of antiquarian book experience. Importantly, the ABAA has a code of ethics to which members must subscribe and those members who fail to comply risk expulsion or other discipline.

The antiquarian book trade is a fractured industry that operates entirely through small businesses. To illustrate, few antiquarian booksellers have more than one location and I believe that only a handful of US antiquarian booksellers have annual revenues in excess of $25 million. Further, there has been an accelerating trend of "used bookstores" shutting their doors forever as consumers increasingly rely upon the internet for their book acquisition needs. While some of the owners of these closed stores leave the trade entirely, many others move their operations to a home office from which they continue their business.

Most of the business of an antiquarian bookseller consists of trading based upon acquiring books that are undervalued and selling them to collectors and institutions willing to pay more. The antiquarian book market is illiquid and therefore a thorough understanding of book valuation is a critical component of bookseller success. As in most markets, antiquarian book value is a function of supply and demand. Important elements that influence value include rarity, condition and importance, e.g., an important book in very good condition that is hard to come by will be more valuable than other less important and more readily available books in poor condition.

Another important factor in antiquarian bookseller success, and one that separates the amateurs from the professionals, is knowledge. Thus, for example, understanding whether a 16^th century book is complete, knowing the indications that distinguish a first edition from a later edition and understanding relevant auction results represent knowledge that is second nature to bookselling professionals but bewildering to the amateur. To illustrate, I have seen numerous remarkable and occasionally humorous cases of collectible books misidentified on internet auction sites, e.g., books erroneously described as first editions, and, books described as signed by the author who in fact died years before the publication date. As in other fields, however, the internet has brought more antiquarian book information, most of it accurate, to more people with the consequence that the information advantage of the "middleman" bookseller has narrowed.

There is no organization in the antiquarian book trade that confers credentials attesting to an individual's competence as a book appraiser. Nonetheless, collectors and institutions routinely rely upon the valuation opinions of experienced antiquarian booksellers to serve their appraisal needs. The selection of booksellers to provide appraisal services to collectors and institutions undoubtedly is a function of perceived experience, competence and reputation. Again lacking statistics, I nevertheless am comfortable suggesting that most substantial book appraisals in the US are performed by ABAA members who are perceived as the most knowledgeable and ethical valuation experts available to appraise antiquarian books.

As I hope the above discussion suggests, the antiquarian book trade is a truly free marketplace of small professional and amateur booksellers competing on the basis of price and knowledge and where long term success is awarded to those demonstrating competence and the ability to establish enduring relationships with collectors and institutions. Note that "one-off opportunistic trades are executed on a daily basis via internet transactions where knowledge, competence and ethics yield to price considerations. Such sales, however, generally involve common books that change hands at relatively low prices. Finally, substantial appraisals generally are conducted by professional booksellers whom the marketplace has identified as ethical, competent and experienced. Membership in the ABAA is an important indication to virtually all institutions and significant collectors that a bookseller possesses those critical characteristics.

§ 170(f)(11)(E)(ii)(I) Designation from Recognized Professional Appraisal Organization

As previously mentioned, there is no recognized professional appraisal organization that deals with antiquarian books. Instead, free market forces establish those booksellers best able to conduct appraisals. Knowledge, adherence to ethical principles and experience are necessary to competently value antiquarian books. Members of the ABAA must (1) meet the strictest competence standards in the trade, (2) subscribe to a strong code of ethics, (3) be sponsored by at least four existing members including one who must visit the applicant's place of business to assess its standing and (4) have no less than four years of bookselling experience that, by the nature of the business, demands a thorough understanding of the marketplace and the process for ascertaining antiquarian book value.

In the absence of another existing appraisal organization, the ABAA should be considered to be a recognized professional appraisal organization for the book trade and admission to membership into this select, well known and highly respected association should constitute a designation for purposes of section 170(f)(11)(E)(ii)(I). This approach would protect the US Treasury since the ABAA's rigorous screening process also ensures that members possess the necessary credentials to achieve qualified appraiser status.

Any other solution would create a small industry to provide antiquarian booksellers with professional designations as qualified appraisers. Individual collectors and institutions are not likely to benefit from such a development nor would professional booksellers. But, additional costs would be imposed upon antiquarian booksellers who almost universally work in their own small businesses and who generally struggle to be financially successful. While some or all of these costs may be recoverable through higher appraisal fees, there is no certainty that they could be passed on or that appraisal activity would not diminish as appraisals are put off to future periods to offset increased appraisal fees.

§ 170(f)(11)(E)(ii)(I) Minimum Education and Experience Requirements

Education requirements are very tricky in the antiquarian book world. Thus, for example, do I meet education requirements by having studied American literature and history in college if my antiquarian book trade includes modern literature, e.g., Melville's Moby Dick, and books about the Civil War? What if I did not attend college but studied those subjects in high school?

Mandating continuing education in the antiquarian book field seems like an answer in search of a question since daily dealing in antiquarian books provides the best education. Of course, there are a very small number of rare book classes available commercially but requiring antiquarian booksellers to attend them would distract small businessmen and women from their day to day activities and would impose substantial, new costs in the form of course fees, travel and meal expense since, given the small size of the industry, classes could not be held in convenient locations all over the country but undoubtedly would meet in just a few city venues. Further, antiquarian booksellers would be forced to attend classes for which they otherwise may have no need given the nature of their business, e.g., the number of classes on 20^th century literature that would be useful to specialists in this field would be limited.

Education, of course, is not acquired solely in the classroom. In the case of antiquarian bookselling, some of the best education comes from working in the field on a daily basis in a position responsible for pricing decisions. Without a thorough understanding of pricing, an antiquarian bookseller cannot be successful since books will be priced too high in which case they will not sell or too low in which case inventory soon will be depleted. On the other hand, the bookseller not well versed in value will consistently overpay for inventory. "Bargains' are increasingly rare in the marketplace owing in large measure to easy access to information via the internet and therefore people wishing to dispose of antiquarian books, now more than ever before, have the means to understand the fair market value of their assets.

Based upon the above discussion, I urge consideration of extending the concept of education to include "on the job training" and to provide rules that permit satisfaction of the education requirements via appropriate job activity such as responsibility for pricing decisions. While verifying the scope of job responsibility may seem difficult in concept, it generally should be relatively easy in practice since most antiquarian book businesses are sole proprietorships, and those that are not employ a handful of people at most. The economic impact of adopting such standards would be nominal.

Unlike minimum education requirements, experience requirements would be relatively easy to define. In fact, the ABAA already requires four years of active antiquarian bookselling for admission. This requirement is a useful benchmark and, in fact, may well be the appropriate standard for the regulations to adopt. Four years is an eternity in one's own business where the difference between success and failure depends in large measure upon the antiquarian bookseller's understanding of valuation. Similarly, employees working for four years in responsible positions requiring pricing decisions also should satisfy the experience requirements since there is "no place to hide" in this world of small business where owners cannot afford to carry incompetent people.

§ 170(f)(11)(E)(iii)(I) Verifiable Education and Experience

The education and experience requirements here should be identical to those described in section 170(f)(11)(E)(ii)(I). Verification should be satisfied by requiring the appraiser to maintain and to produce upon IRS demand records that demonstrate satisfaction of the education and experience requirements. The costs associated with this suggestion are nominal and therefore can be absorbed by these small businesses.

Thank you for considering these comments. I am available during business hours at (847) 482-0098 should you care to speak with me.