The Internal Revenue Service (IRS) has long been considering what the reporting rules and substantiation requirements should be for cash and noncash gifts. Their recently issued final regulations became effective on July 30, 2018 for cash donations and in the case of noncash donations, the regulations apply to charitable contributions made on or after January 1, 2019. These new rules apply to cash and noncash gifts made by individuals, partnerships, and corporations and are an attempt to curtail the abuses of charitable contribution reporting and subsequent unearned deductions by taxpayers and appraisers.
The new rules for noncash gift reporting kick in for contributions of $5,000 or more. These gifts require a qualified appraisal and completion of Form 8283 (either Section A or Section B depending on the type of property donated.) If the taxpayer is claiming noncash contributions of $500,000 or more, the qualified appraisal must be attached to the filed tax return.
Here’s what you’ll need to protect the deductibility of your noncash gifts:
- A “Qualified Appraisal” for noncash gifts of $5,000 or more
- Qualified Appraisal report must be prepared by a “Qualified Appraiser”
- The Qualified Appraisal report must be completed with appraisal standards that are consistent with the substance and principles of the Uniform Standards of Professional Appraisal Practice (“USPAP”)
- The Qualified Appraisal must be signed and dated by the Qualified Appraiser no earlier than 60 days before the date of the contribution
- The valuation effective date must be no earlier than 60 days before the date for the contribution
The new regulations also carefully define what a “Qualified Appraiser” comprises. This individual must possess “verifiable education and experience in valuing the relevant type of property for which the appraisal is performed”. Only when an appraiser has earned a recognized appraiser designation for the type of property being valued will they be considered a Qualified Appraiser in the eyes of the IRS. Additionally, the “Qualified Appraisal” must be prepared by a Qualified Appraiser following generally accepted appraisal standards.
A Qualified Appraisal report must contain the following elements pertaining to the contributed asset:
- The fair market value of the contributed property as defined in Treasury Regulation Section 1.170A-1(c)(2)
- The effective date of the valuation opinion
- A detailed description of the asset valued
- Disclosure of any agreement or understanding related to the sale or disposition of the asset valued
- The date of the contribution by the donor
- A statement that the appraisal was prepared for income tax purposes
- A detailed description of the methods used to determine the fair market value of the contributed property
- The name, address, taxpayer identification number, qualifications, and signature of the appraiser issuing the fair market value opinion
ICONO Financial Services, Inc. has a team of experienced appraisers and tax professionals fully qualified to handle these types of appraisals. Charitable contribution deductions will continue to be a significant source of tax savings, but new rules regarding gift substantiation and reporting regulations must be carefully followed to ensure these deductions are valid and not disallowed by the IRS. We look forward to the opportunity to discuss your appraisal and tax preparation needs and to guide you through these increasingly complex charitable contribution deduction regulations.