C.3. Appraisal Requirements to Substantiate Deductions for
Noncash Gifts
Spring 1992
Development Policy and Administration Manual
Chapter IV. Gift Administration Procedures
Section C. General Information About Noncash Gifts
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APPRAISAL REQUIREMENTS TO SUBSTANTIATE DEDUCTIONS
FOR NONCASH GIFTS
To substantiate a charitable deduction in excess of $5,000 for a
noncash gift or collection of gifts ($10,000 in the case of
nonpublicly traded securities), it is necessary that donors
obtain a qualified appraisal. A summary of that appraisal is to
be reported using Form 8283 (see Section IV: C.2). The following
summarizes the requirements that must be met for an appraisal to
qualify.
Who Can Appraise?
A qualified appraiser must make a declaration on Form 8283 that:
(1) The individual holds himself or herself out to the
public as an appraiser or performs appraisals on a
regular basis.
(2) Because of the appraiser's qualifications as described
in the appraisal, the appraiser is qualified to make
appraisals of the type of property being valued.
(3) The appraiser is not someone who would be excluded by
the regulations from being a qualified appraiser, i.e.,
the donor, a party to the transaction in which the
donor acquired the property (e.g., an art dealer from
whom a painting was purchased), the recipient
institution, or any person related to or regularly
employed by any of the foregoing; or anyone married to
any person in the above categories. (Note: an
appraiser who is regularly retained by the donor, a
party to the transaction, or the University could be
considered as an employee of that party unless the
appraiser performs a majority of appraisals for other
parties during the taxable year.) Under these
regulations, the value of a life insurance policy
supplied by the insurance carrier is not considered an
independent appraisal, since the carrier is a party to
the transaction; however, another insurance agent can
appraise the value of the policy.
(4) The appraiser understands that a false or fraudulent
overstatement of the value of the property may subject
the appraiser to a civil penalty undersection 6701 for
aiding and abetting an understatement of tax liability,
and consequently the appraiser may have appraisals
disregarded pursuant to 31 U.S.C. 330(C).
Even if the individual makes this declaration, he or she is not a
qualified appraiser if the donor had knowledge that would cause a
reasonable person to expect the appraiser to falsely overstate
the value of the property.
What Must the Appraisal Include?
A qualified appraisal must include the following:
(1) A description of the property in sufficient detail for
a person unfamiliar with the type of property to
determine that the property appraised was the property
donated (in the case of a group of similar items whose
aggregate value exceeds $5,000, this will normally mean
an itemized listing of the value of the individual
items; but note that the appraiser may give a group
description of any items whose aggregate value is
appraised at $100 or less);
(2) For tangible property, the physical condition of the
property;
(3) The date or expected date of donation;
(4) The terms of any prior or anticipated agreement of
understanding by or on behalf of the donor regarding
the use, sale, or other disposition of the property;
(5) The name, address, and taxpayer identification number
of the appraiser and, if the appraiser is a partner in
a partnership, an employee, or an independent
contractor engaged by someone other than the donor, the
name, address, and taxpayer identification number of
the partnership or employer;
(6) The qualifications of the appraiser who signs the
appraisal, including background, experience, education,
and membership, if any, in professional appraisal
associations;
(7) A statement that the appraisal was prepared for income
tax purposes;
(8) The date (or dates) on which the property was valued;
(9) The fair market value of the property on the date (or
expected date) of donation;
(10) The method of valuation used to determine the fair
market value, such as the income approach, the market-
data approach, or the replacement-cost-less-
depreciation approach;
(11) The specific basis for the valuation, if any, such as
any specific comparable sales transactions; and
(12) A declaration from the appraiser that the fee
arrangement between the donor and appraiser is not one
that would disqualify the appraisal (see below).
The appraisal must be made not earlier than sixty days before the
date of contribution of the property and must be received by the
donor before the due date (including any extension) of the tax
return on which the donation is first claimed as a deduction.
Paying for the Appraisal
If the appraiser's fee is based on a percentage of the appraised
value, the appraisal will generally be disqualified. However,
appraisal fees based entirely or in part on a sliding scale do
qualify when the portion of the fee based on a sliding scale is
paid to a generally recognized association that regulates apprai-
sers (and when no parties to the transaction have a beneficial
interest in the association).
If the donor is not willing or able to incur the cost of an
appraisal, it would be appropriate for the University to
reimburse the donor for the cost. However, direct involvement of
the University in securing appraisals could result in their
accuracy and objectivity being challenged by the Internal Revenue
Service. Thus, it is in the donor's best interest that the
University neither provide directly nor become involved in
securing an appraisal. In addition, correspondence with the
donor shall not indicate the value of a nonmonetary gift in any
way that could be construed as endorsement of its value for tax
purposes.
The cost of appraising a nonmonetary gift is not deductible as a
charitable contribution; however, it is included in the so-called
"Second Tier" class of miscellaneous itemized deductions, which
are deductible to the extent that in the aggregate they exceed 2%
of adjusted gross income. Donors are advised to refer to IRS
Publication 529 or consult their tax advisors.
Penalties
If the claimed value is 200% or more of what the IRS allows and,
as a result, the donor underpaid tax by more than $5,000, then
the penalty for the donor is 20% of the resulting tax under-
payment. If the claimed value is 400% or more of what the IRS
allows and, as a result, the donor underpaid tax by more than
$5,000, then the penalty for the donor is 40% of the resulting
tax underpayment. The penalty applies regardless of how long the
donor has owned the property.
The IRS's ability to waive penalties is more limited than under
previous IRS regulations.