Tax Tips
When are appraisals required for charitable contributions? - January 2004
Richard Scrivanich - Partner
When you as an individual donate property to charity you may be required to get an appraisal. The pertinent rules are as follows.
IRS requires donors and donee organizations to supply certain information to prove a taxpayer’s right to deduct charitable contributions. In addition to certain substantiation requirements, if you donate an item (or a group of similar items) of property worth more than $5,000, you must get an appraisal. To comply, you must get a “qualified appraisal,” attach an “an appraisal summary” to the first tax return on which the deduction is claimed, include other information with the return, and maintain certain records.
Also, the qualified appraisal must be received by the donor before the tax return due date. While a court has allowed taxpayers some latitude in meeting the “qualified appraisal,” I think you should aim for exact compliance.
The qualified appraisal isn’t submitted to IRS. In contrast, the appraisal summary, which is a separate statement prepared on an IRS form, is attached to the donor’s tax return.
Failure to comply with the appraisal requirements. Although there’s no specific penalty in the statute for failure to get a qualified appraisal or to attach an appraisal summary to the taxpayer’s return, a charitable deduction is allowed only if the contribution is verified according to IRS regs. Thus, where no appraisal was obtained for nonpublicly-traded stock that was donated, the Tax Court refused to allow a full deduction even though the parties agreed that the claimed value represented the fair market value of the stock.
Property for which qualified appraisal is required. A qualified appraisal isn’t required for publicly-traded securities. Also, only a partially completed appraisal summary need be attached to the tax return for contributions of:
- Nonpublicly-traded stock for which the claimed deduction is greater than $5,000 and doesn’t exceed $10,000; and
- Publicly-traded securities that aren’t “readily available.”
Inventory and scientific equipment. A special rule applies for deductions claimed for certain “related use” contributions of inventory or scientific equipment by a corporation. In determining whether the $5,000 threshold has been exceeded, only the excess over cost is considered.
Application of rules where two or more gifts are made. If you make gifts of two or more properties during a tax year, even to multiple donees, the claimed values of all similar property (that is, of the same generic category or type, such as stamps, paintings, books, publicly-traded stock, land, jewelry, furniture, or toys) are added together in determining whether the $5,000 or $10,000 limits are exceeded.
A “qualified appraisal” is a complex and detailed document that among other things is prepared and signed by a qualified appraiser.
An “appraisal summary” is a summary of a qualified appraisal that, among other things is made on Form 8283, and attached to the donor’s return.
In summary, you must be careful to comply with the appraisal requirements or risk disallowance of your charitable deduction. If you have any questions concerning any aspect of your contribution planning, or any other tax matter, please give me a call at (562) 698-9891.
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