WHAT CONSTITUTES A QUALIFIED APPRAISAL

© by Margaret Olsen, ASA

Since the IRS has changed the rules, it is wise for all appraisers, donors, CPA's, accountants, tax attorneys, and anyone involved with charitable contributions and estate tax to become aware of the changes and all the implications of the new IRS regulations regarding what constitutes a qualified appraisal.

A charitable contribution is deductible only if it is verified in the manner required by IRS regulations.   IRC Section 170(a)(1).  The additional Tax Reform Act of 1984, Section 155(a)(2); Reg Sections 1.170A-13(c)(1), require that any charitable contribution of an item of property, the claimed value of which exceeds $5,000.00, requires the donating taxpayer to meet the following requirements:

    - Obtain a qualified appraisal for the property contributed;

    - Attach a fully completed appraisal summary to the tax return on which the donor first claims the deduction for the contribution; and

    -  Maintain records containing certain specific information about the contribution.

The Pension Protection Act of 2006 increased the requirements of a qualified appraisal in charitable contributions and as set forth in IRS Publication 561,

A qualified appraisal is an appraisal document that:

    a) Is made, signed, and dated by a qualified appraiser in accordance with generally accepted standard.

For example, is the appraisal  consistent with the substance and principles of USPAP.

    b) Meets relevant requirements of Regulations section 1.170A-13(c)(3) and
         Notice 2006-46 I.R.B. 902.

    c) Relates to an appraisal made not earlier than 60 days prior to the date of contribution of the appraised property.

    d) Does not involve a prohibited appraisal fee, and
             
Generally, no part of the fee for a qualified appraisal can be based on a percentage of the appraised value of the property. Reg 1.170A-13(c)(6)(ii)

    e) Includes certain information.

A qualified appraisal must include the following information:
(IRS Publication 561)

1) 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.

2) The physical condition of any tangible property.

3) The date (or expected date) of contribution.

4) 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, including the terms of any agreement or understanding that:

i) such as restrictions on the right to sell or use the property,
ii) earmarks for a particular use,
iii) any reservation of a right to income from the property or the possession of the property for someone other than the donee.)

5) 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.

6) The qualifications of the qualified appraiser who signs the appraisal, including the appraiser’s background, experience, education, and any membership in professional appraisal associations.

7) A statement that the appraisal was prepared for income tax purposes.

8) The date (or dates) on which the property was valued.

9) The appraised FMV on the date (or expected date) of contribution.

10) The method of valuation used to determine FMV:
i) such as the income approach,
ii) the comparable sales or market data approach,
iii) or the replacement cost less depreciation approach.

11) The specific basis for the valuation, such as
any specific comparable sales transaction(s).


A separate qualified appraisal is required for each item of property that is not included in a group of similar items of property.  A qualified appraisal for a group of similar items must provide all of the required information for each item of similar property.  However, the appraiser may provide a group description for selected items the total value of which does not exceed $100.

Five (5) Tips for hiring a QUALIFIED APPRAISER:

1.  Hire an accredited appraiser from a leading appraisal society such as the American Society of Appraisers, (www.appraisers.org).

2.   Hire an appraiser who can demonstrate competency and experience in appraising the type of property being valued.

3.  Hire an appraiser who is unbiased and does not have a vested interest, (wants to buy or sell), in the object(s) to be appraised.  

4. Hire an appraiser who is knowledgeable and up to date on The Pension Protection Act of 2006 and its requirements.

5. Hire an appraiser who adheres to the Uniform Standards of Professional Appraisal Practice.