B) you still need $10 million of income to deduct
C) this isn't making money. You can't directly deduct a collectible or security you donate. You can give it away without realizing any capital gains however.
(B) Replace $10 mill with any figure up to 30% of your actual income. The figures are illustrative, not binding.
(C) Consider not doing the fraud vs the fraud. If you and your buddy both do the fraud, you only expend the purchase price but deduct the higher price. As a result you have generated a deduction from thin air. As long as the higher price multiplied by your marginal tax rate is greater than the lower purchase price, you've made money. So at, say, a hypothetical 50% bracket, you need to inflate it by 100% to break even. At a 25% bracket, you'd need to inflate it by 300% to break even.
It's a profit, but it's definitely fraud and seems pretty obvious. It's essentially a pump and dump scheme, but instead of selling the inflated asset, you donate it while it's still inflated and deduct the difference against income.
Are you sure? What about something like this:
1. Buy art for $1M
2. Get your friends to bid up the price of the art by selling other works from the artist to each other at inflated valuations
3. Donate art to art gallery with a valuation of $10M
4. Deduct $10M donation from your taxes