August 24, 2018

New IRS Regulations: What Constitutes A Qualified Appraisal?

New IRS Regulations: What Constitutes A Qualified Appraisal?

The Internal Revenue Service recently finalized regulations for charitable contributions to define the required elements of a qualified appraisal. Many appraisers are not aware of the appraisal requirements the Internal Revenue Service has instituted when making a charitable contributions. If the appraisal is deem to not be a qualified appraisal, then the taxpayer’s gift tax return may be disallowed by the Internal Revenue Service.

A qualified appraisal is an appraisal document prepared by a qualified appraiser in accordance with generally accepted appraisal standards. Generally accepted appraisal standards means the substance and principles of the Uniform Standards of Professional Appraisal Practice (“USPAP”), as developed by the Appraisal Standards Board of the Appraisal Foundation.

A qualified appraisal must include:

    1. Information about the contributed property, including a description in sufficient detail under the circumstances, taking into account the value of the property, that a person not generally familiar with the type of property can ascertain that the appraised property is the contributed property.
    2. In the case of real property or tangible personal property, the condition of the property.
    3. The valuation effective date, which must be no earlier than 60 days before the date of the contribution and no later than the due date, including extensions, of the tax return on which the deduction for the contribution is first claimed.
    4. The date, or expected date, of the contribution, not be earlier than 60 days before the date of the contribution and no later than the date of the contribution.
    5. The fair market value of the contributed property on the valuation effective date. Fair market value is defined in 26 CFR §1.170A-17(a)(5)(i): “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. If the contribution is made in property of a type which the taxpayer sells in the course of his business, the fair market value is the price which the taxpayer would have received if he had sold the contributed property in the usual market in which he customarily sells, at the time and place of the contribution and, in the case of a contribution of goods in quantity, in the quantity contributed. The usual market of a manufacturer or other producer consists of the wholesalers or other distributors to or through whom he customarily sells, but if he sells only at retail the usual market consists of his retail customers.”
    6. The terms of any agreement or understanding by or on behalf of the donor and donee that relates to the use, sale, or other disposition of the contributed property, including, for example, the terms of any agreement or understanding that:
      1. Restricts temporarily or permanently a donee’s right to use or dispose of the contributed property;
      2. Reserves to, or confers upon, anyone, other than a donee or an organization participating with a donee in cooperative fundraising, any right to the income from the contributed property or to the possession of the property, including the right to vote contributed securities, to acquire the property by purchase or otherwise, or to designate the person having income, possession, or right to acquire; or
      3. Earmarks contributed property for a particular use.


  1. The appraiser must include the following declaration in his or her appraisal report: “I understand that my appraisal will be used in connection with a return or claim for refund. I also understand that, if there is a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund that is based on my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties. I affirm that I have not been at any time in the three-year period ending on the date of the appraisal barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. 330(c).”
  2. A statement that the appraisal was prepared for income tax purposes.
  3. The method of valuation used to determine the fair market value, such as the income approach, the market-data approach, or the replacement-cost-less-depreciation approach.
  4. The specific basis for the valuation, such as specific comparable sales transactions or statistical sampling, including a justification for using sampling and an explanation of the sampling procedure employed.

An appraisal is not a qualified appraisal for a particular contribution, even if the requirements of a qualified appraisal are met, if the donor either failed to disclose or misrepresented facts, and a reasonable person would expect that this failure or misrepresentation would cause the appraiser to misstate the value of the contributed property.

The appraisal reporting requirements apply to any contributions made after January 1, 2019, but contribution requirements (not covered by this article) went into effect on July 30, 2018.

Contributors should be aware of the new appraisal reporting requirements and question their potential appraisers to make sure they comply with the qualified appraisal regulations.