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No Charitable Deduction Without a Proper Appraisal

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Normally, tax payers are required to obtain an independent appraisal for large charitable contributions of property, unless you have reasonable cause such as reliance on the advice of a qualified professional.

Jun 4th 2021
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In a new Tax Court case, (Pankratz, TC Memo 2021-26 3/3/21), charitable deductions were denied because an appraiser didn’t meet the requisite standards.

Background: Generally, a taxpayer may deduct the fair market value (FMV) of property owned longer than a year. For example, if you bought a sculpture for $2,000 five years ago that has a current FMV of $10,000 and you donate it to a museum, you can deduct the full $10,000. There’s no tax due on the $8,000 appreciation in value—ever.

However, a donor making a non-cash charitable contribution exceeding $5,000 must obtain a qualified appraisal of the property. The appraisal, which is summarized on Form 8283 and usually attached to a tax return, must be prepared by an independent appraiser by the return due date, plus any extensions, for the year of the donation. It includes a description of the property, the appraiser's qualifications, the appraisal dates, the valuation method used and the specific basis for the valuation.

If these requirements aren’t met, no deduction is allowed. Exception: A deduction may not be denied if you can show that the failure to obtain a qualified appraisal was due to reasonable cause and not willful neglect.

Facts of the new case: The taxpayer, a resident of South Dakota, was a successful pathologist and a leading authority in his field. In 208 and 2009, he made several large non-cash contributions to charities, including the following three donations:

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