Ensuring the accuracy, documentation, and substantiation of your appraisal is crucial. Here are key steps to protect yourself when seeking an appraisal for non-cash charitable donations
1. Hire an IRS Qualified Appraiser
Choose an appraiser who meets the education and experience requirements outlined in IRS Publication 561: Determining the Value of Donated Property. Ensure they adhere strictly to the Uniform Standards of Professional Appraisal Practice (USPAP) and follow sound valuation methodologies established by personal property organizations. Verify that the appraiser is not a precluded individual, paying special attention to IRS Circular 230, which sets high ethical and professional standards and precludes individuals with certain criminal records.
2. Review Recent Case Law
Familiarize yourself with recent relevant case law, such as Mann v. US (2019) and its appeal (2021), and Loube v. Commissioner (2020). Both cases involved the same appraisal company and nonprofit, and the underlying appraisal report used improper valuation methodologies. The Cost Approach to Value (Cost New Less Depreciation) was incorrectly used instead of basing values on actual market sales data or the Sales Comparison Approach, which should be used in nearly all personal property appraisals. Additionally, the appraiser in these cases valued inventory that was not constructively donated, a critical red flag.
2. Review Recent Case Law
The TAXPAYER’S CPA reviewed the TAXPAYER’S return and could not find the accompanying appraisal to substantiate the donation.
3. Beware of Gimmicks
Be cautious of appraisers claiming zero audits or 100% accuracy guarantees. The IRS audits clients, not appraisal firms. Ask these appraisers if they will cover the total tax deficiency, penalties, and interest if the IRS disallows the non-cash contributions due to an unqualified appraiser or deficient appraisal. Inquire if they will also cover your legal fees, which can be substantial. Typical insurance policies cover negligence, errors, omissions, misrepresentation, and violations of good faith, but not gross negligence or illegal acts.
3. 4. Donate Confidently
Numerous industry seminars have featured IRS Counsel, who emphasize that the IRS does not aim to negate non-cash charitable contributions arbitrarily. However, these contributions must be thoroughly documented and values substantiated based on market sales.
At The Green Mission Inc. and Probity Appraisal Group, our staff includes IRS Qualified Appraisers with the necessary experience and education. We ensure strict adherence to IRS Code, USPAP, and professional appraisal organization standards. For more information, please visit the IRS webpage
