Contributions of noncash property might provide a donor an opportunity to receive a fair market value (FMV) tax deduction without being taxed on built-in gains of the contributed assets. However, donors need proper documentation. Recent IRS guidance and court cases such as Keefer et al. v. United States, Lim v. Commissioner of Internal Revenue, Corning Place Ohio LLC v. Commissioner of Internal Revenue, and Brooks v. Commissioner of Internal Revenue serve as reminders to donors that failing to strictly meet the substantiation requirements under IRC Section 170 and the regulations for noncash charitable contributions will result in disallowance of a deduction for the contribution.
Donors are required to obtain contemporaneous written acknowledgment (CWA) from the charity receiving the contribution that includes the description of any noncash property contributed, whether the charity provided any goods or services in exchange for the gift, and, if so, a description and good faith estimate of the value of those goods or services. In addition, donors are required to attach Form 8283, “Noncash Charitable Contributions,” to their income tax return, and complete Section A of the form. In addition, donations of more than $500 for any single item of clothing or household item that is not in at least “good used” condition require donors to also complete Section B and attach an appraisal to their return.
Donors are required to obtain a CWA, attach Form 8283 to their income tax return, and complete Section B of the form. Generally, noncash contributions with an FMV of more than $5,000 also will require a “qualified appraisal” as defined in U.S. Department of the Treasury Regulation Section 1.170A-17. In addition, the Form 8283 will need to be signed by the charity receiving the donation, as well as the qualified appraiser. A qualified appraisal is required to be attached to the donor’s tax return only for donations of art valued at $20,000 or more, a qualified conservation contribution of an easement on the exterior of a building in a registered historic district, or donations with an FMV of more than $500,000.
A qualified appraisal is not required for contributions with an FMV of more than $5,000 for the following types of property:
Although a qualified appraisal is not required in these cases, donors still are required to substantiate the FMV of the charitable contribution.
Other rules might apply for the contributions of certain noncash assets, like motor vehicles, boats, and airplanes, and for contributions of noncash assets to donor-advised funds.
A qualified appraisal is an appraisal that is signed and dated by a qualified appraiser and that is prepared in accordance with generally accepted appraisal standards for the type of contributed property. For an appraisal to be a qualified appraisal, no part of the appraisal fee can be based on a percentage of the appraised value of the property. The appraisal must be dated no earlier than 60 days before the date the property was contributed and no later than the due date, including extensions, of the income tax return on which the tax deduction is claimed. Additionally, the valuation effective date must be no earlier than 60 days before the date of the contribution and no later than the date of the contribution.
For contributions made on or after Jan. 1, 2019, Treasury Regulation Section 1.170A-17 requires a qualified appraisal to contain the following:
A qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed. The individual must have earned an appraisal designation from a generally recognized professional appraiser organization for the type of property being valued or must have met certain minimum education requirements with two or more years of experience in valuing the type of property being valued. The individual also must regularly prepare appraisals for which they are paid and must not be a party related to the contribution transaction.
The charitable contribution deduction substantiation rules are complex. The IRS closely scrutinizes whether documentation is complete and if a qualified appraisal is required as well as whether the strict rules under the regulations have been followed. Donors should consult with their tax advisers to determine if they have the proper documentation to claim a charitable deduction on their income tax return.
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