Publication 561 |
2001 Tax Year |
Appraisals
Appraisals are not necessary for items of property for which you
claim a deduction of $5,000 or less, or for which the value can easily
be determined, such as securities whose prices are reported daily in
the newspapers. However, you generally will need an appraisal for
donated property for which you claim a deduction of more than $5,000.
See Deductions of More Than $5,000, later.
The weight given an appraisal depends on the completeness of the
report, the qualifications of the appraiser, and the appraiser's
demonstrated knowledge of the donated property. An appraisal must give
all the facts on which to base an intelligent judgment of the value of
the property.
The appraisal will not be given much weight if:
- All the factors that apply are not considered,
- The opinion is not supported with facts, such as purchase
price and comparable sales, or
- The opinion is not consistent with known facts.
The appraiser's opinion is never more valid than the facts on which
it is based; without these facts it is simply a guess.
Membership in professional appraisal or dealer organizations does
not automatically establish the appraiser's competency. Nor does the
lack of certificates, memberships, etc., automatically disprove the
competency of the appraiser.
The opinion of a person claiming to be an expert is not binding on
the Internal Revenue Service. All facts associated with the donation
must be considered.
Cost of appraisals.
You may not take a charitable contribution deduction for fees you
pay for appraisals of your donated property. However, these fees may
qualify as a miscellaneous deduction, subject to the 2% limit, on
Schedule A (Form 1040) if paid to determine the amount allowable as a
charitable contribution.
Deductions of More
Than $5,000
Generally, if the claimed deduction for an item or group of similar
items of donated property is more than $5,000, other than money and
publicly traded securities, you must get a qualified appraisal made by
a qualified appraiser, and you must attach an appraisal summary
(Section B of Form 8283) to your tax return. You should keep the
appraiser's report with your written records. Records are discussed in
Publication 526.
For special rules that apply to publicly traded
securities and nonpublicly traded stock, see the discussions later in
this section.
The phrase similar items means property of the same
generic category or type (whether or not donated to the same donee),
such as stamps, coins, lithographs, paintings, photographs, books,
nonpublicly traded stock, nonpublicly traded securities other than
nonpublicly traded stock, land, buildings, clothing, jewelry,
furniture, electronic equipment, household appliances, toys, everyday
kitchenware, china, crystal, or silver. For example, if you give books
to three schools and you deduct $2,000, $2,500, and $900,
respectively, your claimed deduction is more than $5,000 for these
books. You must get a qualified appraisal of the books and for each
school you must attach a fully completed appraisal summary (Section B
of Form 8283) to your tax return.
Publicly traded securities.
Even if your claimed deduction is more than $5,000, neither a
qualified appraisal nor an appraisal summary is required for publicly
traded securities that are:
- Listed on a stock exchange in which quotations are published
on a daily basis,
- Regularly traded in a national or regional over-the-counter
market for which published quotations are available, or
- Shares of an open-end investment company (mutual fund) for
which quotations are published on a daily basis in a newspaper of
general circulation throughout the United States.
Publicly traded securities that meet these requirements must be
reported in Section A, Form 8283.
A partially completed appraisal summary (Parts I and IV of Section
B, Form 8283) signed by the donee, but not a qualified appraisal, is
required for publicly traded securities that do not meet these
requirements, but do have readily available market quotations. Market
quotations are readily available if:
- The issue is regularly traded during the computation period
(defined later) in a market for which there is an "interdealer
quotation system" (defined later),
- The issuer or agent computes the "average trading price"
(defined later) for the same issue for the computation period,
- The average trading price and total volume of the issue
during the computation period are published in a newspaper of general
circulation throughout the United States, not later than the last day
of the month following the end of the calendar quarter in which the
computation period ends,
- The issuer or agent keeps books and records that list for
each transaction during the computation period the date of settlement
of the transaction, the name and address of the broker or dealer
making the market in which the transaction occurred, and the trading
price and volume, and
- The issuer or agent permits the Internal Revenue Service to
review the books and records described in paragraph (4) with respect
to transactions during the computation period upon receiving
reasonable notice.
An interdealer quotation system is any system of general
circulation to brokers and dealers that regularly disseminates
quotations of obligations by two or more identified brokers or dealers
who are not related to either the issuer or agent who computes the
average trading price of the security. A quotation sheet prepared and
distributed by a broker or dealer in the regular course of business
and containing only quotations of that broker or dealer is not an
interdealer quotation system.
The average trading price is the average price of all
transactions (weighted by volume), other than original issue or
redemption transactions, conducted through a United States office of a
broker or dealer who maintains a market in the issue of the security
during the computation period. Bid and asked quotations are not taken
into account.
The computation period is weekly during October through
December and monthly during January through September. The weekly
computation periods during October through December begin with the
first Monday in October and end with the first Sunday following the
last Monday in December.
Nonpublicly traded stock.
If you contribute nonpublicly traded stock, for which you claim a
deduction of $10,000 or less, a qualified appraisal is not required.
However, you must attach to your tax return a partially completed
appraisal summary (Parts I and IV of Section B, Form 8283) signed by
the donee.
Qualified Appraisal
Generally, if the claimed deduction for an item or group of similar
items of donated property is more than $5,000, you must get a
qualified appraisal made by a qualified appraiser and you must attach
an appraisal summary to your tax return. See Deductions of More
Than $5,000, earlier.
A qualified appraisal is an appraisal document that:
- Relates to an appraisal made not earlier than 60 days prior
to the date of contribution of the appraised property,
- Does not involve a prohibited appraisal fee,
- Includes certain information (covered later), and
- Is prepared, signed, and dated by a qualified appraiser
(defined later).
You must receive the qualified appraisal before the due date,
including extensions, of the return on which a charitable contribution
deduction is first claimed for the donated property. If the deduction
is first claimed on an amended return, the qualified appraisal must be
received before the date on which the amended return is filed.
An appraisal summary (discussed later) must be attached to your tax
return. Generally, you do not need to attach the qualified appraisal
itself, but you should keep a copy as long as it may be relevant under
the tax law. If you donated art valued at $20,000 or more, however,
you must attach a complete copy of the signed appraisal. See
Paintings, Antiques, and Other Objects of Art, discussed
earlier under Valuation of Various Kinds of Property.
Prohibited appraisal fee.
Generally, no part of the fee arrangement for a qualified appraisal
can be based on a percentage of the appraised value of the property.
If a fee arrangement is based on what is allowed as a deduction, after
Internal Revenue Service examination or otherwise, it is treated as a
fee based on a percentage of appraised value. However, appraisals are
not disqualified when an otherwise prohibited fee is paid to a
generally recognized association that regulates appraisers if:
- The association is not organized for profit and no part of
its net earnings benefits any private shareholder or
individual,
- The appraiser does not receive any compensation from the
association or any other persons for making the appraisal, and
- The fee arrangement is not based in whole or in part on the
amount of the appraised value that is allowed as a deduction after an
Internal Revenue Service examination or otherwise.
Information included in qualified appraisal.
A qualified appraisal must include the following information:
- A description of the property in sufficient detail for a
person who is not generally familiar with the type of property to
determine that the property appraised is the property that was (or
will be) contributed,
- The physical condition of any tangible property,
- The date (or expected date) of contribution,
- The terms of any agreement or understanding entered into (or
expected to be entered into) by or on behalf of the donor that relates
to the use, sale, or other disposition of the donated property,
- The name, address, and taxpayer identification number of the
qualified appraiser and, if the appraiser is a partner, an employee,
or an independent contractor engaged by a person other than the donor,
the name, address, and taxpayer identification number of the
partnership or the person who employs or engages the appraiser,
- The qualifications of the qualified appraiser who signs the
appraisal, including the appraiser's background, experience,
education, and any membership in professional appraisal
associations,
- A statement that the appraisal was prepared for income tax
purposes,
- The date (or dates) on which the property was valued,
- The appraised FMV on the date (or expected date) of
contribution,
- The method of valuation used to determine FMV, such as the
income approach, the comparable sales or market data approach, or the
replacement cost less depreciation approach, and
- The specific basis for the valuation, such as any specific
comparable sales transaction.
Art objects.
The following are examples of information that should be included
in a description of donated property. These examples are for art
objects. A similar detailed breakdown should be given for other
property. Appraisals of art objects--paintings in
particular--should include:
- A complete description of the object, indicating the:
- Size,
- Subject matter,
- Medium,
- Name of the artist (or culture), and
- Approximate date created.
- The cost, date, and manner of acquisition.
- A history of the item, including proof of
authenticity.
- A photograph of a size and quality fully showing the object,
preferably a 10 × 12 inch print.
- The facts on which the appraisal was based, such as:
- Sales or analyses of similar works by the artist,
particularly on or around the valuation date.
- Quoted prices in dealer's catalogs of the artist's works or
works of other artists of comparable stature.
- A record of any exhibitions at which the specific art object
had been displayed.
- The economic state of the art market at the time of
valuation, particularly with respect to the specific property.
- The standing of the artist in his profession and in the
particular school or time period.
Number of qualified appraisals.
A separate qualified appraisal is required for each item of
property that is not included in a group of similar items of property.
You need only one qualified appraisal for a group of similar items of
property contributed in the same tax year, but you may get separate
appraisals for each item. A qualified appraisal for a group of similar
items must provide all of the required information for each item of
similar property. The appraiser, however, may provide a group
description for selected items, the total value of which is not more
than $100.
Qualified appraiser.
A qualified appraiser is an individual who declares on the
appraisal summary that he or she:
- Holds himself or herself out to the public as an appraiser
or performs appraisals on a regular basis,
- Is qualified to make appraisals of the type of property
being valued because of his or her qualifications described in the
appraisal,
- Is not an excluded individual, and
- Understands that an intentionally false overstatement of the
value of property may subject him or her to the penalty for aiding and
abetting an understatement of tax liability.
An appraiser must complete Part III of Section B (Form 8283) to be
considered a qualified appraiser. More than one appraiser may appraise
the property, provided that each complies with the requirements,
including signing the qualified appraisal and appraisal summary.
Excluded individuals.
The following persons cannot be qualified appraisers with respect
to particular property:
- The donor of the property, or the taxpayer who claims the
deduction.
- The donee of the property.
- A party to the transaction in which the donor acquired the
property being appraised, unless the property is donated within 2
months of the date of acquisition and its appraised value does not
exceed its acquisition price. This applies to the person who sold,
exchanged, or gave the property to the donor, or any person who acted
as an agent for the transferor or donor in the transaction.
- Any person employed by, married to, or related under section
267(b) of the Internal Revenue Code, to any of the above persons. For
example, if the donor acquired a painting from an art dealer, neither
the dealer nor persons employed by the dealer can be qualified
appraisers for that painting.
- An appraiser who appraises regularly for a person in (1),
(2), or (3), and who does not perform a majority of his or her
appraisals made during his or her tax year for other persons.
In addition, a person is not a qualified appraiser for a particular
donation if the donor had knowledge of facts that would cause a
reasonable person to expect the appraiser to falsely overstate the
value of the donated property. For example, if the donor and the
appraiser make an agreement concerning the amount at which the
property will be valued, and the donor knows that such amount exceeds
the FMV of the property, the appraiser is not a qualified appraiser
for the donation.
Penalties.
Any appraiser who falsely or fraudulently overstates the value of
property described in a qualified appraisal or an appraisal summary
that the appraiser has signed may be subject to a civil penalty for
aiding and abetting an understatement of tax liability, and may have
his or her appraisal disregarded.
Appraisal Summary
Generally, if the claimed deduction for an item of donated property
is more than $5,000, you must attach an appraisal summary (Form 8283)
to your tax return. Only a partially completed appraisal summary is
required in some situations. See Deductions of More Than $5,000,
earlier.
Note:
If you deduct $20,000 or more for donated art, you must attach a
complete copy of the signed appraisal. See Paintings, Antiques,
and Other Objects of Art, discussed earlier under Valuation
of Various Kinds of Property.
Form 8283.
Section B of Form 8283 is the appraisal summary. If you do not
attach the form to your return, the deduction will not be allowed
unless your failure to attach it was due to a good faith omission. If
the IRS requests that you submit the form because you did not attach
it to your return, you must comply within 90 days of the request or
the deduction will be disallowed.
You must attach a separate Form 8283 for each item of contributed
property that is not part of a group of similar items. If you
contribute similar items of property to the same donee organization,
you need attach only one Form 8283 for those items. If you contribute
similar items of property to more than one donee organization, you
must attach a separate form for each donee.
Internal Revenue Service
Review of Appraisals
In reviewing an income tax return, the Service may accept the
claimed value of the donated property, based on information or
appraisals sent with the return, or may make its own determination of
FMV. In either case, the Service may:
- Contact the taxpayer to get more information,
- Refer the valuation problem to a Service appraiser or
valuation specialist,
- Refer the issue to the Commissioner's Art Advisory Panel (a
25-member group of dealers and museum directors who review and
recommend acceptance or adjustment of taxpayers' claimed values for
major paintings and sculptures, Far Eastern and Asian art, Primitive
and Pre-Columbian art), or
- Contract with an independent dealer, scholar, or appraiser
to appraise the property when the objects require appraisers of highly
specialized experience and knowledge.
Responsibility of the Service.
The Service is responsible for reviewing appraisals, but it is not
responsible for making them. Supporting the FMV listed on your return
is your responsibility.
The Service does not accept appraisals without question.
Nor does the Service recognize any particular appraiser or
organization of appraisers.
Timing of Service action.
The Service generally does not approve valuations or appraisals
before the actual filing of the tax return to which the appraisal
applies. In addition, the Service generally does not issue advance
rulings approving or disapproving such appraisals.
Exception.
On January 16, 1996, the Service began accepting requests for a
Statement of Value for a donated item of art appraised at
$50,000 or more. For a request submitted as described earlier under
Art valued at $50,000 or more, the Service will issue a
Statement of Value that can be relied on by the donor of the item of
art.
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