The Green Mission Inc. and Probity Appraisal Group executives Jessica I. Marschall, CPA, ISA AM, AAA Associate Member, and Mayur Dankhara, ISA AM, LEED AP attended the ASA annual conference and left with boatloads knowledge! From the emergence of NFTs to luxury fashion value, the conference was an intellectual feast. Be on the lookout for more updates from our team.
IRS Counsel Theresa Melchoire presented important lessons learned from the following Tax Court Case:
Chiarelli v. Commissioner of IRS, T.C. Memo 2021-27 (2021)
Facts of the case: A taxpayer inherited a household full of personal property and donated much of the property to charity over three years with deductions of $89,110 in 2012, $93,087 in 2013, and $77,300 in 2015. What went so wrong and left the taxpayer without valuable tax deductions and with fines and penalties?
DEFECTIVE APPRAISALS
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1.Like Loube v. Commissioner, 2020, Form 8283 was not filled out completely and signed by the taxpayer, nonprofit and appraiser. (See link for full case text: https://casetext.com/case/loube-v-commr)
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2.One of the appraisals grouped items into general categories without specifically describing them. As appraisers, one of our primary functions is to observe and identify what we are appraising. Accurate and detailed descriptions do just that. The case notes that the taxpayer did “not otherwise provide reliable written records credibly identifying the individual items donated, their values or condition, the manner of acquisition, the donation dates, or his bases in the property.”
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3.The condition was also not specified, with a general category of “excellent” noted. Again, the appraiser did not back-up their work.
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4.The Contemporaneous Written Acknowledgement letter (CWA), receipts, and accompanying substantiation were found lacking.
The details for separating property are as follows:
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1.A separate qualified appraisal is required for each item of property that is not included in a group of similar items.
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2.Only one qualified appraisal is required for grouping property together. There can be multiple IRS Forms 8283 from each of the recipient charities.
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3.You can aggregate items with a value of $100 or less like kitchen baking equipment or a sewing kit.
HOW MUCH RESEARCH IS ENOUGH?
Research and documentation must be commensurate with the value of the individual item or the grouping of items. Appraising a 19th century Sarouk oriental rug requires a heck of a lot more research and writing than appraising a Pyrex baking pan! Common sense dictates the differences.
APPRAISER QUALIFICATIONS MATTER!
Per Ms. Melchoire and from the IRS, an appraiser must be qualified. This means they must:
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1.Hold an appraiser designation from a recognized appraiser organization for the type of property being appraised, appraisal designation must be based on demonstrated competency 1.170A-17(b)(2)(iii) (-13 was the old rules in) OR
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2.Successfully completed course work on the valuation of the type of property being appraised, and have a minimum of 2 years’ experience valuing the type of property being appraised.
Who does not qualify as an IRS Qualified Appraiser?
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1.Appraiser is the donor or donee.
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2.Appraiser is the person who sold, exchanged or gave the property to the donor unless the appraised value does not exceed the acquisition price and the property.
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3.Appraiser is a related party
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4.The appraiser is a Captive Appraiser—an appraiser who completes most appraisals only for one charity.
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5.An appraiser charging a fee based on value conclusion
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6.31 USC Section 330 © needs to be followed within 3-years of the appraisal completion. Office of Professional Responsibility provides guidelines on those who can and cannot prepare documents for the IRS. These rules are about conduct and behavior. Just like Registered Agents or CPAs, an appraiser must follow these rules. They must be a good actor completing honest work. They cannot have been convicted of a felony. If an appraiser has been disqualified, they cannot present anything to the IRS.
10.51 Incompetence and disreputable conduct:
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1.Conviction of any criminal offense under the Federal tax laws.
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2.Conviction of any criminal offense involving dishonesty or breach of trust.
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3.Conviction of any felony under Federal or State law for which the conduct involved renders the practitioner unfit to practice before the IRS.
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4.Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury…
The list goes on!
Additionally, a Qualified Appraisal includes:
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1.The appraisal can be completed no earlier than 60 days before the date of contribution and no later than due date of the return on which the property was first claimed.
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2.The appraisal must be prepared, signed, and dated.
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3.All contributing appraisers must sign the report and USPAP statement.
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4.Description of the property.
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5.Description of the condition.
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6.Disclose any terms and agreements between donor and donee.
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7.Appraiser must be identified by name, address, and identifying number.
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8.The appraisal must list the appraiser’s education and experience that qualifies them to value the property. The appraiser should brag away on their CV! However, including false credentials does not slide.
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9.State the date or expected date of contribution.
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10.State the concluded Fair Market Value of the donation.
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11.State the method of value—it is almost always the market-based Sales Comparison Approach for personal property. It is not the cost approach or a derivation of it as found in Tax Court cases Mann v. US (2019), or Loube v. Commissioner (2020).
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12.Basis of valuation.
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13.Must follow USPAP or the substance and principles of USPAP. These are Generally Accepted Appraisal Standards and stands for Uniform Standards of Professional Appraisal Practice.
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14.Signing of USPAP declaration.
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15.Section 6695A must be referenced, which says the appraiser is not prohibited from practicing and delineates the gross valuation misstatement penalty.
WHO LOSES WHEN AN APPRAISER IS UNQUALIFIED?
THE TAXPAYER!!!
The taxpayer loses the following:
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1.Value of the tax deduction
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2.Underpayment fines and penalties
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a.If the appraisal valuation claimed is 150% or more but not more than 200% of the correct valuation, the penalty is 10% of the underpayment attributable to the overstatement.
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b.If over 200% but not more than 250%, 20% penalty.
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c.Greater than 250% overstated? 30% penalty.
The penalty is paid by the taxpayer. The appraiser has their own penalties applied. Keep in mind, this usually happens 2-3 years after the return has been filed.
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PROTECTING OUR CLIENTS
At The Green Mission Inc. and Probity Appraisal Group, our goal is to protect our clients by providing excruciatingly well-researched and detailed appraisals. We ensure our appraisers meet the IRS Qualified Appraiser experience and education requirements and our appraisals meet all IRS Qualified Appraisal requirements.
We will continue moving the needle away from demolition and towards deconstruction by providing clients with the assurance they need in a compliant appraisal. We are overjoyed to see clients choosing to donate furnishings, fine art, antiques, and collectibles to charity—helping to promote and support their missions. Our clients deserve the best. We deliver.
