Academic journal article Journal of Accountancy

The Importance of Appraisals When Gifting Art

Academic journal article Journal of Accountancy

The Importance of Appraisals When Gifting Art

Article excerpt

Carefully choosing an appraiser is one key to successful charitable giving of appreciated artwork. Cutting corners on this step can cause the disallowance of the entire value of the contribution. The Pension Protection Act of 2006 (PPA), P.L. 109-280, added Sec. 170(f)(11)(E), which codified the definition of a qualified appraiser and what it means to have a qualified appraisal. The PPA changes strengthened the professional requirements that a qualified appraiser must meet, including having certifications, experience, and formal professional-level coursework.

The PPA changes require that an appraiser be someone who regularly performs appraisals of the type of property being valued. Thus, the qualified appraiser must have some specialty in the fine of property being appraised. That is, an art appraiser could be qualified to appraise a Van Gogh but not qualified to appraise ancient Egyptian pottery. By definition in Regs. Sec. 1.170A-17(b)(5), certain individuals cannot render a qualified appraisal. The list is detailed but generally excludes individuals who would have a conflict of interest in the appraisal's outcome or who would not be considered independent with respect to the value. The appraiser must be independent of the donor and the charitable institution receiving the donated artwork. Appraisers can also be subject to civil penalties for incorrect appraisals.

THE APPRAISAL

Ensuring a proper valuation of the artwork is a foundational step in the overall charitable giving plan. The IRS has a long history of challenging and litigating appraisal conclusions in court. While not exempt from challenge, if prepared by a qualified appraiser and thoroughly documented with solid facts and conclusions, an appraisal can go a long way toward a sustainable contribution deduction. The PPA added detail regarding the content and timing of appraisals and the professional standards, as developed by the Uniform Standards of Professional Appraisal Practice, that appraisals must meet. …

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