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YEAR-END GIVING: WHY APPRAISALS MATTER

December 18, 2007

Yesterday we mentioned the need to get "qualified appraisals" for charitable donations of property other than publicly-traded securities. The Tax Court issued a decision yesterday that illustrated our point.

The Smith family of Scottsdale, Arizona ran an employee benefits firm called Beneco. They transferred the firm to family partnerships they owned for estate planning purposes. They later donated part of their interests to a charity, claiming all together over $2 million in charitable contributions.

The taxpayers filed the required form 8283, Noncash Charitable Contribtuions, with their returns. And the trouble began.

First, they described the donated property as "FLP Beneco Stk," rather than the name of the actual partnership. They failed to attach the required appraisal summary reports to their tax returns. For some years the appraisals were prepared by their CPA tax preparer, who wasn't a "qualified appraiser." For other years, the appraisal information attached to the return fell short of the tax law's requirements.

The taxpayers said that they should still get their deductions on the grounds that they "substantially complied" with the tax law rules on contributions. The Tax Court held otherwise:

We hold that petitioners did not provide sufficient information and/or submit the documents required to have substantially complied and they are, therefore, not entitled to deductions for noncash charitable contributions of FLP interests, as determined by respondent. 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.

Bottom line? The loss of the entire deduction for all years before the Tax Court.

The Moral? If you are giving year-end gifts other than public securities, don't skimp on the appraisal. If you don't give the IRS the information they want, your deduction may disappear.

Additional tip: If you ARE making year-end gifts of publicly traded securities, get on it - sometimes charities and brokers get behind on their paperwork, and if it isn't done this year, your deduction will have to wait until 2008.

Cite: Smith, T.C. Memo 2007-368

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Tags: year-end tax planning.

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