Valuation of Collector Cars - Lessons from the Dodge Daytona #71

In the past, I’ve commented about the importance of a well-documented valuation for donated collector cars. So now let’s turn our attention to probably one of the most famous stock cars ever to run on the NASCAR circuit – and the lessons to be learned from its valuation.

 Introducing the Dodge Daytona # 71  - - -



Use of this photo courtesy of legendarycollectorcars.com



A little background about #71. It's a 1969 Dodge Charger Daytona with a 426 CID hemi engine. In 1969, Bobby Isaac, together with crew chief Harry Hyde (both NASCAR legends), won 17 out of 40 races with #71. In 1970 the feat was repeated, along with winning the Grand National championship (the forerunner of today’s Sprint Cup Series) and setting a world record of 199.653 mph for a stock car on a qualifying lap. #71 also held the record for the fastest lap around a closed course of 201.104 mph. After 1971 it also set several land speed records at the Bonneville Salt Flats in Utah.

There’s an interesting story associated with the life and times of this legendary racecar. And – yes – part of if involves a Tax Court case[1] that centered on the valuation of #71 when it was donated to the National Motor Sports Hall of Fame in 1977.

In 1957 Nord Krauskopf organized the K & K Insurance Agency, Inc. Its primary purpose was to sell auto racing insurance. Krauskopf had a background both as an insurance agent and a racing driver.

K & K became very successful, due in part that there were only two other firms engaged in selling this type of insurance at that time. One of K & K’s major accounts was the IHRA, and K & K insured over 700 tracks across the country.

In 1966 K & K began acquiring stock cars and started to compete on NASCAR’s Grand National Circuit. Initially, K & K competed in only 11 races each year, but by 1970, they were involved in 30 to 40 races annually. K & K hired a crew chief, racing crew (including mechanics and pitmen), and acquired a truck and trailer for transport purposes. Chrysler, Goodyear, STP, Monroe Shocks, Union 76, and Perfect Circle Piston Rings were some of the major sponsors who contributed both parts and money to K & Ks racing campaign. K & K also received money from toy companies that manufactured and sold kits for constructing a model of #71.

K & K became quite successful in stock car racing. Goodyear alone paid K & K between $40,000 and $120,000 for advertising. K & K placed in the top ten in points in seven of the ten years in which it was involved with racing. In 1970 K & K stood atop the leader board in points by virtue of  #71’s performance.

In 1971 NASCAR changed the rules. It limited the size of the engines to 305 CID and mandated the use of a restrictor plate for large engines. So, after 1971, rather than selling the car to teams that were less successful or who raced in smaller, less prestigious circuits, K & K decided to keep # 71 because of its speed records and, perhaps, for sentimental reasons. In 1972 the car was not raced, but instead exhibited around the country on a “farewell tour.” After the tour, the car was partially dismantled and ultimately came to rest in an open, fenced lot behind K & K’s garage.

In 1973 K & K, together with its racing business and assets, merged with another insurance agency and Krauskopf received 50 percent ownership in the new company.

In June 1976, Krauskopf entered into an agreement with his partner to transfer all the racing assets from K & K to a new company, except for #71 (transferred to Krauskopf personally) and another car (transferred to Krauskopf’s partner.)

By this time, #71 was badly rusted, partially due to the salt from the Bonneville Salt Flats. The front fenders, trunk deck, and hood had been removed and the vehicle had been exposed to the weather for several years.

In the fall of 1977, the National Motor Sports Hall of Fame, near Talladega, Alabama contacted Krauskopf about contributing #71 as its first exhibition racecar. Krauskopf agreed and contacted Robert Gee about restoring #71. Gee had worked as a mechanic on #71 during the “glory” years of 1969 to 1971 when #71 was setting all its records.  The restoration to original racing condition cost about $10,000 (How times have changed!) and in December 1977 Krauskopf donated #71 to the Hall of Fame.

At this point, the “tax tango” begins. Krauskopf took a charitable deduction for the car because the Hall of Fame is an organization qualified under the tax code to receive charitable contributions. (The donor receives a deduction on his or her tax return.) Krauskopf attached an appraisal by the curator of the Museum of Speed in Daytona Beach to his 1977 tax return, which stated that the value of #71 was $165,000. Krauskopf took a deduction of half that amount ($82,500) because the car was a long-term capital asset and, had it been sold, half of the value would have been taxable.

The IRS audited Krauskopf’s 1977 tax return. One of the main audit points was the deduction of $82,500, the value of #71 listed as a charitable deduction on the return.

Some background at this point would be helpful. The tax code allows a deduction for the “fair market value” of an item donated to an organization approved by the IRS to receive charitable contributions. Both the IRS and Krauskopf agreed that the Hall of Fame was such an organization. The big point of disagreement was the fair market value of #71.

The definition of “fair market value” for tax purposes is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of relevant facts.”

The IRS contended that the value of #71 at the time of the donation was $35,000, which is the total of $25,000 (#71’s value when received by Krauskopf personally in June 1976), plus the $10,000 in restoration costs.

At the trial, the Museum of Speed’s curator did not testify, so the Tax Court did not consider his appraisal. But, testimony of M.H. Gould, better known as “Tiny” Gould, was given. In Gould’s opinion, the value of the car was $25,000 when it was distributed to Krauskopf by K & K in June 1976, and $150,000 when it was donated to the Hall of Fame in December 1977.

The IRS objected to Gould’s testimony because: he seemed to lack familiarity with #71; he would have found it difficult to find a buyer for the property; and he had never taken any formal courses in appraising.

Fortunately for Krauskopf, the Tax Court allowed Gould’s testimony. The Court noted that Mr. Gould was a former stock car driver and had a lot of experience in buying and selling collector cars. Over a twenty-seven year period, Gould had dealt with 30 to 35 racecars. He was a judge at numerous car shows and belonged to a number of car clubs as well as NASCAR. Based on the above, the court accepted Gould as a qualified appraiser.

Gould did not personally inspect #71, but studied photos of it and was aware of its records and background.  He was also aware that the car was placed in a museum and would be viewed by at least 250,000 people annually, as opposed to being sold to an individual collector. It went on a nationwide tour and was given extensive radio and television coverage. Mr. Gould testified that the car had undergone a ground-up restoration and that he knew of no car that was comparable.

The Tax Court decided that the value of #71 for tax purposes was $100,000. We’ll never know why they chose a middle value between Gould’s assessment of $150,000 and the IRS’ valuation of $35,000. What we do understand, however, is the thought process the Tax Court used and the guidelines they employed in valuation of items such as racecars. These are the important lessons for motor sport fans from this case.

• First, merely because there is a limited market for the property (in this case, #71) doesn’t mean it can’t be valued.
• Second, merely because the property is unique doesn’t mean it can’t be valued.
• Third, all relevant facts and circumstances need to be considered in the valuation process.
• Fourth, the use of the property (in this case, exhibition at a museum) needs to be considered when valuing the property.

(We can only wonder why Krauskopf didn’t use the testimony of the curator of the Museum of Speed, the individual whose assessment letter of $165,000 was attached to Krauskopf’s tax return. Certainly two witnesses for the taxpayer would not have harmed Krauskopf’s case, even if their values were not identical.)

The lessons for any car collector or donor are clear. The competence and background of the appraiser is of great importance. In addition, the four principles of valuation mentioned above are valid and useful for anyone facing the challenge of determining the “fair market value” of collector cars – or anything else.

The fate of #71? Today it resides, restored to its former glory, at the Wellborn Muscle Car Museum in Alexander City, Alabama. 

(My thanks to Richard Fleener of legendarycollectorcars.com for his assistance. Visit his website; I know you’ll find it interesting and informative.)

Drop me an email at phil.schurrer.racingprof@gmail.com if you or your group would be interested in a detailed presentation about this topic or other tax and financial aspects of motor sports. I'd also be interested in any comments you have about the blog or suggestions about future topics

Until next time …

Phil Schurrer, CPA

“This posting is intended to provide general information regarding the subject matter covered. It is provided with the understanding that the author is not engaged in rendering legal, accounting, or other professional services. This information should not be used as a substitute for professional advice in specific situations. If legal advice or other expert assistance is required, the services of a professional should be sought.”

     - Adopted from a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers.

Attorneys and other professionals dealing with specific matters and situations should also research original sources of authority.

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[1] Krauskopf, T.C. Memo 1984-386, 48 TCM 620