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Valuing Donated Property for IRS Review / Charitable Contributions

by Administrator on Dec 13, 2018 IRS Appraisal 64 Views

The Internal Revenue Service (IRS) details their expectations for an appraisal of the fair market value (FMV) of donated property, including donated real property, in Publication 561.  Appraisers must review the definitions and concerns detailed in the Publication or face the possibility of being significantly fined. 

Most of the FMV “problems” that the IRS lists in the Publication related to donated property are, for most appraisers, common sense in nature.  The IRS discusses things like; the date of the contribution, unusual market conditions, sales price, the selection of comparable sales, future events, arm’s-length offers, the sales approach, the capitalization of income, replacement cost, business interests, predicting future earnings, property description, undivided interests and amenities.

The IRS discusses their definition of a “qualified appraisal” and they provide a link to an appraiser’s “relevant requirements” in IRS Notice 2006-96.  They note that “qualified appraiser” means an individual who;

(1) Has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,

(2) Regularly performs appraisals for which the individual receives compensation, and

(3) Meets such other requirements as may be prescribed by the Secretary in regulations or other guidance. Section 170(f)(11)(E)(iii) further provides that an individual will not be treated as a qualified appraiser unless that individual (1) demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and (2) has not been prohibited from practicing before the Internal Revenue Service by the Secretary under § 330(c) of Title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.

Many licensed / certified and designated appraisers likely meet these “qualified appraiser” requirements although many appraisers may not want to take on an IRS assignment  related to charitable donations when they find out that it puts them in jeopardy of having to pay a fee / penalty to the IRS if they decide that they want to challenge their report.

The appraisal must be completed 60 days before the date of the contribution of the appraised property.  Appraisal fees cannot be a based on a percentage of the appraised value of a property (or its deemed a “prohibited appraisal fee,” and the report must include specific information. 

The required appraisal information includes; a property description, physical condition, date / expected date of the contribution, understanding / agreement terms, appraiser information (name, address and tax ID) and details regarding any partner / employee or independent contractor engaged by a person other than the donor.

Appraiser qualifications, a statement that the appraisal was prepared for income tax purposes, date of value, the appraised FMV as of contribution date, methods of valuation and the specific basis for the valuation.

Form 8283, Section B, is the appraiser signed form and section of it that must be attached to a client’s tax return.  As discussed the appraiser agrees to pay a penalty if; 1. The appraiser knows or should have known the appraisal would be used in connection with a return to claim for refund, and 2. The appraisal results in the 20% or 40% penalty for a valuation misstatement described later under Penalty.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/IRS-Appraisal/4722-Valuing-Donated-Property-for-IRS-Review-Charitable-Contributions.html

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