Qualified Appraisers are a Must for Gifts of Stock

Business Advisors|Business Valuation

By Jennifer Doering

Taxpayers that might make a charitable contribution of stock should be familiar with the decision made in the Ninth Circuit U.S. Court of Appeals in Rhett Rance Smith et al v. Commissioner.

Three couples created FLP’s to hold stock in an Arizona C-Corporation. From 1995 to 2001, the three couples gifted FLP interests to charity and claimed charitable deductions for gifts of noncash assets totaling more than one million dollars.

The IRS denied the deductions for the FLP charitable gifts for failure to comply with the requirements ofSec. 170 Reg. 1.170A-13(c)(i) which generally requires that a property gift charitable deduction over $5,000 must be substantiated by a qualified appraisal, by attachment of Form 8283 appraisal summary and by the maintenance of proper records. The appraisal must not be earlier than 60 days before the contribution and be completed by the due date of return, including extensions. The appraiser must be qualified, hold himself or herself out to the public as an appraiser for that type of property and describe “in sufficient detail” the characteristics of the property, the date of the gift, the fair market value and the method of evaluation.

Although most of the Forms 8283 were filed by their CPA, some of the forms did not have the required signature of an appraiser. The family’s CPA conducted the appraisals, except for a 2001 valuation completed by Management Planning, Inc.

The valuations were not accepted by the IRS or the Tax Court. Because the appraisals were insufficient and the appraisal summaries were not signed and dated by qualified appraisers, the FLP charitable deductions were denied.

The United States Tax Court stated:

Petitioners, in each year under consideration, did not attach to their returns qualified summary appraisal reports as required by the statute and the regulations. In addition, it has not been shown that petitioners’ C.P.A. was a qualified appraiser within the meaning of the regulatory requirements. Moreover, certain of the reports that were referenced on the returns were not shown to exist, and none of the purported reports or documentation submitted met the time requirements for their preparation and submission. The contributed property interests were not fully or adequately described so as to permit respondent to understand the valuation methodology, and the documentation submitted was terse and did not adequately explain the bases for the values claimed….

Petitioners’ failure to substantially comply or otherwise provide respondent with sufficient information to accomplish the statutory purpose compels our conclusion that respondent properly disallowed petitioners’ claimed noncash charitable contribution deductions.

If you are planning to make a gift of stock, it is crucial to engage a qualified appraiser to meet IRS requirements. Consider discussing your needs with Schneider Downs’ appraisal specialists who perform business valuations for various purposes, including gifting and estate tax, among others. Please contact Joel Rosenthal of the Schneider Downs Business Advisory Group at 412-697-5387 or email him at jrosenthal@schneiderdowns.com for assistance.

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Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.

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