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Monday September 23, 2019

Article of the Month

Substantiation Requirements for Charitable Contributions, Part V


Introduction


The Internal Revenue Service requires donors who claim charitable income tax deductions to substantiate the value of their charitable contributions. Some donors may not understand the specific substantiation requirements when making charitable donations. The Service's substantiation rules are strict, and if these rules are not closely followed, a donor may lose his or her entire charitable deduction. Advisors should be prepared to explain these requirements, guide their clients through the process of substantiating charitable gifts and work with charities to meet the Service's requirements.

This article series explores the substantiation requirements for charitable contributions. Part V will explore the final regulations for requirements for qualified appraisers. This article will detail the qualifications necessary for an individual to be considered a qualified appraiser. Advisors can provide an additional benefit to their clients by understanding the requirements for qualified appraisers under the final regulations.

Qualified Appraiser Definition


Generally, charitable gifts of noncash assets valued in excess of $5,000 require a qualified appraisal. In order to be considered a qualified appraisal, the valuation must be conducted by a qualified appraiser. For a discussion on when a qualified appraisal is required, see Parts II and III of this series. For a review of the contents and requirements of a qualified appraisal, see Part IV of this series.

The Service defines a qualified appraiser as an individual with "verifiable education and experience in valuing the type of property for which the appraisal is performed." Reg. 1.170A-17(b)(1). The effective date of these regulations was January 1, 2019. Reg. 1.170A-17(c). The delayed effective date permitted a transitional period for appraisers to obtain the requisite education and experience standards.

Education and Experience Requirements

As discussed in Part IV of this series, the qualified appraisal must be signed and dated by a qualified appraiser. The appraiser must have the requisite qualifications, as of the signature date of the appraisal, to be considered a qualified appraiser. Reg. 1.170A-17(b)(2).

An appraiser may satisfy the education and experience requirements in one of two ways. The first route to satisfy the education and experience requirements is by successfully completing course work in valuing the type of property being appraised and having two or more years of experience in valuing that type of property. Reg. 1.170A-17(b)(2)(i)(A). The coursework may be either professional-level or college-level. Successful completion may be demonstrated by receiving a passing score for the course.

The coursework must be obtained from an educational organization, a generally recognized professional trade or appraiser organization or through employer education programs. Reg. 1.170A-17(b)(2)(ii). The Service further defines each of the organizations. In order to be considered an educational organization, an organization must be a professional or college-level educational organization, as defined in Sec. 170(b)(1)(A)(ii). Reg. 1.170A-17(b)(2)(ii)(A). A generally recognized professional trade or appraiser organization must regularly offer educational programs on the topic of the type of property being valued. Reg. 1.170A-17(b)(2)(ii)(B). If an employer provides education, it must be part of an apprenticeship or educational program that is "substantially similar" to the aforementioned programs. Reg. 1.170A-17(b)(2)(ii)(C).
Example 1

Rory is an ambitious lifelong student. She is very excited to have completed a rigorous educational course from a generally recognized appraiser organization. The course taught Rory how to value dollhouse furniture. Rory is particularly pleased that she passed the course because she has received her first request to appraise a set of dollhouse furniture that is being donated to charity. Rory is dismayed to find out that because she has only been valuing dollhouse furniture for the past 6 months, she will not be considered a qualified appraiser and cannot complete the qualified appraisal for the charitable contribution.
The alternative route to satisfy the education and experience requirements is by earning a "recognized appraiser designation" for the type of property that is being valued. Reg. 1.170A-17(b)(2)(i)(B). This designation must be obtained from a generally recognized professional appraiser organization and the individual must earn the designation through demonstrated competency. Reg. 1.170A-17(b)(2)(iii).

The Service requires the education and experience to be verifiable. Reg. 1.170A-17(b)(4). In order to meet the threshold of "verifiable," the appraiser must include a description of his or her education and experience in valuing the type of property in the appraisal. The appraiser must also make a declaration in the appraisal stating he or she is qualified to create appraisals in the type of property being valued.
Example 2

Dean holds a recognized appraisal designation from a generally recognized professional appraiser organization in commercial real estate. Because Dean holds a recognized appraisal designation in the type of property, he would be considered a qualified appraiser for real property. Dean's appraisal designation is proudly displayed on his office wall. In his qualified appraisals, Dean includes a statement as to his designation, the type of property his designation is for and a declaration stating he is qualified to provide appraisals for the type of property being valued.
Type of Property Definition

Appraisers must have the required education and experience for the type of property being appraised. The type of property is defined as the "category of property customary in the appraisal field" in which the appraiser has education and experience. Reg. 1.170A-17(b)(2)(iii). While the regulations provide a broad definition, the Service provides examples to further illustrate the concept of the type of property.

The final regulations provide the same examples from the 2008 proposed regulations. These examples clarify the types of property an appraiser is qualified to appraise. First, an individual with coursework in a general field may be qualified to appraise items if those items customarily fall within that general field. Second, a person with experience in appraising antiques will usually be qualified to appraise most antique items. In the third example, the Service indicates that an appraiser with expertise in appraising antique items may not be qualified to appraise new items. The factual inquiry may also vary if the property is in a unique or unusual category.
Example 3

Emily has a recognized appraisal designation in valuing mid-century glass. A donor requested that Emily appraise hobnail milk glass cake stands created in the mid-1950s. The cake stands were being donated to charity for use at its annual bake sale. Because hobnail milk glass falls within the general category of mid-century glass, Emily may be deemed a qualified appraiser for this type of property.
Excluded Individuals

Prohibited Fee

The Service expressly states that certain categories of individuals are "not qualified appraisers." Reg. 1.170A-17(b)(5). If an individual charges an appraisal fee that is "based to any extent" on the appraised item's value, the individual is not a qualified appraiser. Reg. 1.170A-17(b)(5)(i). The Service does not allow the donor or the donee to act as a qualified appraiser. Reg. 1.170A-17(b)(5)(ii). Reg. 1.170A-17(b)(5)(iv).

Party to the Acquisition

If the appraiser is a party to the donor's acquisition of the item, the item must be contributed within two months of its acquisition and the appraised value must not exceed the acquisition price paid. If the item is not donated to charity within two months or the appraised value exceeds the acquisition cost, the appraiser will not be considered a qualified appraiser. The Service defines a party to the transaction as an individual who sold, exchanged or gifted the item; or any individual who acted "as an agent" for the transferring individual or the donor in the sale, exchange or gift transaction. Reg. 1.170A-17(b)(5)(iii).

Related Individuals

An individual who is related to or is an employee of the donor, a party to the transaction or the donee are not considered qualified appraisers. Reg. 1.170A-17(b)(5)(v)(A). If the individual is married to a relative or an employee of the donor, a party to the transaction or the donee, he or she will not be considered a qualified appraiser. Reg. 1.170A-17(b)(5)(v)(B).

The definition of "related to" is found in Sec. 267(b) and includes a long list of potential relationships between the parties. A few of the defined relationships are as follows: siblings, spouse, ancestors, lineal descendants and any individual and corporation owned by such individual that owns more than half the value of the outstanding stock, directly or indirectly. Sec. 267(b)(1), (2).

Majority of Appraisals

If an individual is an independent contractor who is "regularly used" for appraisal purposes by the donor, a party to the transaction or the donee and does not perform a majority of appraisals for individuals other than the donor, he or she will not be considered a qualified appraiser. Reg. 1.170A-17(b)(5)(v)(C). For a cautionary tale, see James Tarpey v. United States; No. 2:17-cv-00094 (2019).
Example 4

Kirk works as an independent contractor and has an appropriate appraisal designation. A very large, philanthropic family at a particular charity consistently retains his services for appraisal valuations. The family refers other relatives to Kirk for his appraisal services. Kirk begins to struggle to keep up with the family's different charitable contribution appraisals. Kirk realizes that if he does not also appraise items for other individuals outside of this philanthropic family, he may not be considered a qualified appraiser. Kirk ensures that through his workload, the majority of his appraisals are for other individuals outside the relation of this family to safeguard his qualified appraisal recognition.
Prohibited by IRS

If, at any time during the three-year period ending on the appraisal signature date, an individual was prohibited from practicing before the Service under 31 U.S.C. Sec. 3330(c), he or she will not be considered a qualified appraiser. Reg. 1.170A-17(b)(5)(vi).

Conclusion


It is imperative that professional advisors understand the Service's qualified appraiser requirements. The qualifications of a qualified appraiser are strictly construed and the Service expressly excludes certain individuals. Donors may need assistance finding a qualified appraiser to provide an appraisal that meets the Service's strict standards. In order to safeguard charitable income tax deductions, it is necessary to obtain the proper documentation, which includes a qualified appraisal from a qualified appraiser.

Published September 1, 2019
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Previous Articles

Substantiation Requirements for Charitable Contributions, Part IV

Substantiation Requirements for Charitable Contributions, Part III

Substantiation Requirements for Charitable Contributions, Part II

Substantiation Requirements for Charitable Contributions, Part I

The Impact of TCJA UBTI Rules on Nonprofits' Employee Parking

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Shelby Harder, 2018
Dr. Irving Auld and Dorothy
Roher Auld Scholarship

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Juliana E. Olsen-Valdez, 2018
Carroll Family Scholarship

"Lawrence University is a great place for students looking to embrace their multi-interested approach to learning. As a Geology major, I have spent many long hours in laboratories. But, I have also had the opportunity to organize and lead students on outdoor backpacking trips, help build a stronger community for International students, participate in dialogues on campus initiatives, attend dozens of musical events, and study abroad in a field-based geology program, all while taking classes in a variety of academic spheres on campus. Lawrence, as an institution and student body, creates a collective of learners, listeners, and leaders who are continuously evolving their understanding of the world around them. I am fortunate to have the support of the Carroll Family Scholarship, so that I can say I am a part of this exceptional community too!"

Weiqi "Vicky" Liang, 2019
Marian H. Cuff Endowed Scholarship

"Lawrence is a special institution with nice people around the campus. I better myself by trying out different things and using new ways to think critically. Even though I am a Philosophy major, I have successfully taken classes in Anthropology, Biology, Economics, and Government. In addition, I still find many great extracurricular opportunities to explore, such as singing with Viking Chorale, even though I am not a music major. While having the great experience of volunteering at the elderly center last year, I became an elder advocacy coordinator at the Volunteer Community Service Center. At Lawrence, I've learned to handle difficult academic problems while looking forward to exploring possible opportunities. I am very grateful to be awarded the Marian H. Cuff Endowed Scholarship for every year I have been here, and appreciate that the scholarship has provided this wonderful Lawrence experience to me."

Anthony Cardella, 2018
Ansorge Family Scholarship

"I am so excited that I am able to attend Lawrence University. I know that I will make great progress studying piano with Dr. Michael Mizrahi. Since being at Lawrence I've already made a lot of progress and I really love it here. I am so grateful for the Ansorge Family Scholarship that made it possible for me to come to Lawrence because without it, I might not have been able to afford the cost of attending a school that is a great fit for me and a place where I will learn so much and go so far."

Milwaukee-Downer Scholarships and Professorships

Some of the many recipients of Milwaukee-Downer scholarships gather for a photo with Carolyn King Stephens M-D'62 and Marlene Crupi-Widen M-D'55 in January 2014 at the annual scholarship luncheon.

Rosamund Victoria Bille Adler Scholarship
Dr. Charles E. Albright Scholarship
Helen Daniels Bader Scholarship
James G. and Ethel M. Barber Scholarship
Catharine Beecher Endowed Fund for Downer Women
Bessie A. Bell Scholarship
Berk Scholarship
Frederick C. Best Scholarship
Beta Study Club Scholarship
Lynde Bradley Scholarship
Lucia R. Briggs-Alumnae Scholarship
Edith Lange Brooks Scholarship
Anne Barman Caldwell Scholarship
Alice Miller Chester Scholarship
City of Milwaukee Student Funds Scholarship
Milwaukee-Downer Class of 1940 Fund
Milwaukee-Downer Class of 1942 Fund
College Endowment Association Scholarship
Janet Cope Crawford Scholarship
Jessie Mabbott Daniels Scholarship
F. T. Day Scholarship
Rufus Dodge Scholarship
Julia P. Ely and Hannah R. Vedder Memorial Scholarship
General Endowed Scholarship - M-D College
Dr. Alfred W. and Mrs. Ada F. Gray Scholarship
Berenice E. Hess Scholarship Endowment
Lucille Ray Hibbard Scholarship
Belle Austin Jacobs Scholarship
Helen McDermott Jurack and Ronald J. Mason Scholarship
Marjorie S. Logan Scholarship
Nellie Maxwell Scholarship
S. Annabelle & Paul McGuire Scholarship
Memorial Scholarship Fund - Milwaukee-Downer
Milwaukee-Downer Class of 1953 Scholarship
Milwaukee-Downer Class of 1955 Scholarship
Milwaukee-Downer Class of 1956 Scholarship
Milwaukee-Downer Class of 1957 Scholarship
Milwaukee-Downer Class of 1958 and 1959 50th Reunion Scholarship
Milwaukee-Downer Club Scholarship
Milwaukee-Downer/Lawrence College Consolidation 50th Anniversary Scholarship
Francis Evelyn Kelley Morgan Memorial Scholarship
O'Neill-Anderson Family Scholarship Endowment
Elizabeth A. Olson Scholarship
Gilbert Haven Peirce, Sr. and Emma Elizabeth Manor Peirce Milwaukee-Downer Scholarship
Aleida J. Pieters Scholarship
Matilda Siefert Puelicher Scholarship
Elizabeth Ann Richardson Scholarship
William M. Ross Memorial Scholarship
Elizabeth Rossberg Scholarship
Charles Frederic Sammond Scholarship
Mildred L. Schroeder Scholarship
Sivyer Educational Fund for Women
Marion Merrill Smith Scholarship
Dr. Elizabeth A. Steffen Scholarship
W. Mead and Elizabeth McKone Stillman Scholarship
Strzelczyk Family Scholarship
Clare Scherf Sweetman Scholarship
Raymond H. and Jane K. Taylor Scholarship
Jerline E. Walfoort Memorial Scholarship
Barbara E. Wehr Fund
Harmony Weissbach Scholarship
Martha and Frances Wheelock Scholarship
James G. and Ethel M. Barber Professorship of Theatre and Drama
T. A. Chapman Professorship in Music
Alice G. Chapman Professorship in Physics
Alice G. Chapman Librarianship
Milwaukee-Downer College and College Endowment Association Professorship

Angela Small Fry Intia, 2019
Maurine Campbell Scholarship

"Thanks to the Maurine Campbell scholarship, I have been able to attend the amazing school that is Lawrence University. With the help from this scholarship, I have been able to pursue my dream career in chemistry working with the outstanding and extremely helpful faculty here. Even outside of chemistry I take the time for exploration into my interests and want to give back through my work as a resident life advisor, stock room assistant, and student supervisor at Bon Appetit. Everything I have learned here, academically or not has forever molded the person I am today."

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