Our President & CEO Jessica Irving Marschall had the opportunity to attend the Appraisers Association of America (AAA) annual personal property appraiser’s conference in New York City this month. She has completed the general appraisal education courses from all three of the personal property appraisal organizations sponsoring The Appraisal Foundation and is an accredited appraiser along with having a MS degree in Accounting and a CPA of 21 years.
The IRS presenters at the conference were IRS Counsel and Expert of Charitable Contributions, Karin Gross and Kelly Grimm, an Art Appraiser currently serving the federal government on the Art Appraisal Services panel.
Here is a recap of some critical updates from the conference as well as our latest updates from the Deconstruction Appraisal industry.
First, there is an updated tax form 8283 as of November 2022.
Following the Law
26 USC Section 170 is law. Ensuring a client hires a Qualified Appraiser to produce a Qualified Appraisal is law. USPAP is more critical than ever. As of 2019, all appraisers must follow the substance and principles of USPAP. See below for more regarding USPAP.
One: Requisite Education
Does the appraiser have a college degree in a subject commensurate with understanding and applying valuation theory and methodology? Review the appraiser’s CV. Did the appraiser complete appraisal education courses and do they stay current with continuing education?
Two: Experience
Does the appraiser have relevant valuation experience? This certainly does not mean producing error-ridden appraisals for a prolonged duration.
Three: Accreditation
Is the appraiser accredited with one of the three personal property appraisal organizations sponsoring The Appraisal Foundation: AAA, ASA, or ISA? If not, then why?
Four: Ethics
Circular 230 is a publication by the IRS providing standards of character, reputation and precludes those who are incompetent and disreputable or those who violate Circular 230 regulations from preparing appraisals for income tax purposes.
Five: Ask Questions!
Before engaging an appraiser, ask the above-listed questions. Request a copy of their CV and a sample appraisal.
Six: Vigilant CV Review
Beware of false credentials that do not equate with adequate appraisal education. Beware of potentially unaccredited college degrees, membership in a pay-for-listing “green” groups that do not require rigorous appraisal concept testing or appraisal writing review. The gold standard would be an undergraduate and graduate education in a field lending itself to valuation methodology: business, finance, accounting, math, economics, etc.
Seven: What Is USPAP?
Many appraisers claim to be “USPAP Compliant.” If the appraiser has simply taken the 15-hour course and test, this is a simple step that does not make one an IRS Qualified Appraiser. As of 2019, all personal property appraisers must follow the substance and principles of USPAP. We do not have licensure for personal property appraisers. Ensuring qualifications and compliance with USPAP is critical to the IRS, as it must be for the appraiser and the taxpayer. The 5 USPAP Rules and Standards must be followed. What are these rules?
USPAP or the Uniform Standards of Professional Appraisal Practices was implemented to promote and preserve the public trust. As a starting point, the appraiser must be honest about their education and experience. The appraiser must be impartial, objective, and independent.
One: Conduct Rule: The appraiser must not communicate appraisal results in a grossly negligent or fraudulent manner. As a starting point, the appraiser must have a firm grasp of the property being appraised, the valuation methodology to employ, and the required appraisal writing requirements.
Two: Management Rule: The appraiser must not prepare an appraisal report contingent upon a predetermined opinion, assign a value that favors the client, the amount of value, the attainment of a stipulated result, and the occurrence of a subsequent event related to the appraiser’s opinion.
Three: Confidentiality Rule: The appraiser must keep the client’s identity and valuation confidential.
Four: Record Keeping Rule: This rule is much like a CPAs workpapers, or a file that can be accessed for either five years, or two years after the close of litigation, whichever is longer.
Five: Competency Rule: This may be the most important when it comes to the deconstruction appraisal field. Prior to our entrance in 2019, it is estimated that only a handful of appraisers were producing most deconstruction appraisals nationwide. It is easy to determine if an appraisal and their firm are competent to produce appraisals. Search these websites to determine if the appraisers are accredited:
AAA: https://www.appraisersassociation.org/find-an-appraiser
ASA: https://myaccount.appraisers.org/Directories/Find-An-Appraiser
ISA: https://www.isa-appraisers.org/find-an-appraiser
Check the website for the appraiser’s education and CV. Where did they obtain their education? In what subject? What appraisal education have they received and in what continuing education have they participated? Do they post articles demonstrating their knowledge of appraisal topics?
Ms. Gross presented five precedent setting non-cash charitable contribution cases from the past five years, which resulted in the taxpayer losing their donation. Two of the five were for deconstruction appraisals. Both donations were in Maryland and produced by the same appraisal firm. The client lost their entire donation value. Both appraisals valued the contents of the entire home, regardless of what was constructively donated to the charity, along with a host of other issues.
Mann v. US, 2019 and the lost appeal in 2021
Loube v. Commissioner, 2020
All five of the cases demonstrated how lack of strict compliance with the tax code can result in a complete disallowance of the donation by the IRS. Once property is transferred to a charity, the donor may not request for the donation to be returned by the charity should the donation be disallowed. A Deed of Gift and the rules governing these gifts will not allow for this. The taxpayer gets one shot to get it right.
The presenters stressed the importance of ensuring taxpayers hire competent appraisers and tax professionals with a firm understanding of the tax code and the related and required steps for a donation to pass IRS muster.
What is Strict Compliance?
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1.The appraisal must be obtained at the time of donation. If it is missing critical elements or in any way deemed “unqualified,” the taxpayer loses the donation.
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2.If the taxpayer misses a signature on the 8283, does not fill out the form completely or does not include the appraisal when required ($20k+ for art $500k+ for everything else), or does not strictly confirm with the IRC, the IRS can disallow. We have produced a helpful document for taxpayers and their CPAs to ensure strict compliance with Form 8283 and other Section 170 requirements.
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3.If the appraiser or appraisal is not qualified, the deduction can be disallowed.
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4.The appraisal should include clear pictures of what is being donated, along with a full description written in laymen’s terms.
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5.Valuations should be presented in an organized manner, with inclusion of a summary spreadsheet aggregating values.
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6.Appraisers should provide rationale for the values based upon the comparable sales. Simply listing comparable sales without comparing and contrasting with the appraised item is not adequate.
The IRS has made it clear, through numerous presentations, that they are NOT looking to summarily disallow non-cash charitable contributions. However, their presentations, along with case law continue to point to the need for highly educated and qualified appraisals coupled with a knowledgeable tax professional. This can help to ensure a taxpayer can deduct the full Fair Market Value of the donation.
At The Green Mission Inc and Probity Appraisal Group, we continue to meet these high standards through both management and staff’s education and continuing. We urge industry members to do their homework and ensure taxpayers are protected with a valid appraisal.
