IRS Form 8283: Noncash Charitable Contributions

Deconstruction is the process by which residential or sometimes commercial buildings are carefully dismantled with the goal of salvaging the building materials for reuse or resale. If the building owner donates these materials to a 501(c)(3) nonprofit, charity or governmental entity, they could potentially deduct the Fair Market Value of the deconstructed materials on either the individual income tax return Form 1040 Schedule A (for individuals and pass-through entities) or on Form 1120 (for corporations) as non-monetary charitable contributions. The tax deduction assumes there is adequate basis in the assets for donation—they cannot be fully depreciated and donated as the donation value is limited to the asset’s basis. Deconstruction is being promoted as a waste-diversion tool with the aim to reduce the amount of construction and demolition (C&D) waste entering landfills. Some localities, including Portland, Palo Alto and Milwaukee, have passed deconstruction ordinances mandating the deconstruction of certain building types of a certain age or historicity, and other localities are promoting deconstruction and reuse through other measures and incentives.

The federal tax deduction remains a key motivator for taxpayers—the tax deduction can help offset sometimes higher deconstruction costs as well as the inconvenience of a longer timeline (it typically takes longer to deconstruct than to simply demolish.) For any non-monetary charitable contribution greater than $5,000, the IRS requires a “qualified appraisal” to be produced by a “qualified appraiser.” Please see Treasury Regulation §1.170A-17(a) and -17(b) for the definition of a qualified appraisal and appraiser.

The definitions offered throughout this section coupled with USPAP (Uniform Standards of Professional Appraisal Practice), which provides generally accepted appraisal standards, should be adequately rigorous to ensure appraisers obtain requisite education and experience. However, nationwide, the subset of deconstruction appraisers number only around 17-20 readily identified through google searches and industry knowledge. As deconstruction practices continue to expand, this pool of appraisers must expand to meet the demand and also to ensure appraisers remain impartial and at arms-length with donee organizations. The majority of deconstruction appraisers are top-notch professionals. However, deconstruction industry members nationwide as well as the leading deconstruction industry trade group Build Reuse (formerly BMRA) view inflated deconstruction appraisal valuations to be such a problem that they invited IRS counsel Alexandra Nicholaides to speak at their annual conference two years in a row. During the latest conference she referenced a case, Mann v. US, where a deconstruction appraiser was deemed to have produced three “unqualified” appraisals and the taxpayer lost their entire tax deduction.

It is of critical importance for industry leaders to shore up the deconstruction appraisal industry to protect taxpayers who may have no idea the appraisal produced for their donation could be wildly inflated.

Form 8283 is required to be filed when an appraisal is produced for non-monetary donations and is to be signed by both the appraiser and the receiving nonprofit or government entity. Form 8283 is not part of an appraisal. However, the appraiser is producing an appraisal with the intent of allowing the taxpayer to reduce their tax liability and, hence, their appraisal is held to the highest standards of accuracy.

It is instructive to read the Declaration of Appraiser, which is Section B, Part III of form 8283:

We at The Green Mission, Inc. encourage all nonprofits to ask questions before recommending appraisers to their customers. Even though nonprofits may be used to working with the same appraisers year after year because they are comfortable with them or because they know how they work and do not want to take the time to vet a newer appraisal company, it is important to provide donors with ethical and expert choices for professional appraisal services. In order to provide the donor with the most accurate, conservative and ethical appraisal services, it is worth the time to advise donors responsibly.

Declaration of Appraiser

I declare that I are not the donor, the donee, a party to the transaction in which the donor acquired the property, employed by, or related to any of the foregoing persons, or married to any person who is related to any of the foregoing persons. And, if regularly used by the donor, donee, or party to the transaction, I performed the majority of my appraisals during my tax year for other persons.

Also, I declare that I perform appraisals on a regular basis; and that because of my qualifications as described in the appraisal, I am qualified to make appraisals of the type of property being valued. I certify that the appraisal tees were not based on a percentage of the appraised property value. Furthermore, I understand that a false or fraudulent overstatement of the property value as described in the qualified appraisal or this Form 8283 may subject me to the penalty under section 6701(a) (aiding and abetting the understatement of tax liability). In addition, I understand that I may be subject to a penalty under section 6695A it I know, or reasonably should know, that my appraisal is to be used in connection with a retum or claim for refund and a substantial or gross valuation misstatement results from my appraisal. I affirm that I have not been barred from presenting evidence or testimony by the Office of Professional Responsibility.

Let us examine a few of the attestations the appraiser makes within these paragraphs:

• 1.
  “And, if regularly used by the donor, donee, or party to the transaction, I performed the majority of my appraisals during my tax year for other persons.” Does the appraiser produce the majority of their appraisals for a single nonprofit or charity? There is currently no check on this provision. Without adequate safeguards, hypothetically, nonprofits and appraisers could easily form a system to inflate values to satisfy donors (taxpayers) into believing their valuation is high and will provide substantial tax benefits. This brings future donors to the nonprofit through word-of-mouth and could allow for the nonprofit to revert business back to their chosen appraiser with the implicit understanding the values would be kept artificially high.
• 2.
  “…appraisal fees were not based on a percentage of the appraised property value.” This is another provision through which the unethical appraiser could drive the proverbial truck. Appraisers generally give a quoted appraisal value range at the outset, which allows the taxpayer to check in with their CPA or tax professional to determine if the tax deduction makes sense given their unique tax situation. Hypothetically, an unethical appraiser could provide a grossly inflated value range and claim the higher appraisal fees are only for work performed and not based on a percentage of value. The taxpayer may be more likely to pay the higher fees thinking their tax deduction valuation will be high enough to absorb those higher fees
• 3.
  Appraisers are subjected “under IRC section 6701(a) (aiding and abetting the understatement of tax liability)” to punitive measures should they purposefully manipulate appraisals by artificially inflating valuations. However, only the taxpayer receives notification that their return is under review/audit and receives the notice of deficiency. Additionally, they are responsible for the fines and penalties for underpayment of tax liability and understating their income through the inflated deduction. Appraisers might not even know if their appraisal was deemed unqualified unless the taxpayer notifies them to seek redress. Furthermore, the taxpayer may need to file a complaint against the appraiser and this involves attorney’s fees and a long period of potential litigation and may not be a path a taxpayer can or will choose to take.