November 19, 2013. Being able to take a charitable deduction on your income taxes requires more than a charitable nature. Ignoring the exploration of gifts masking themselves as donations, there is the rather simple, and occasionally overlooked, requirement of an appraisal. For gifts over $5,000 (and not cash or publically traded securities), a qualified appraisal by an independent appraiser needs to be done and an appraisal summary attached to one’s return under Section 170 of the Code. Court application to the issue is rather rigid and unforgiving. Consider Mohamed v. Commissioner, T.C. Memo 2012-152, where an owner used his own appraisal of property rather than using an independent appraiser. The court would not waive the independent appraiser requirement and denied the deduction.
It should be stressed that a credible appraiser and methodology should be employed in all cases. If a court becomes so interested, they could begin looking at an appraiser’s method of valuation, reliability of the methodology, and general appropriateness—allowing them to reduce the allowed deduction. Scheidelman v. Commissioner, T.C. Memo 2013-18, in return for granting a façade conservation easement to the National Architectural Trust, an individual took a $115,000 price reduction for property located in the Fort Greene Historic District. The court determined that the discount allowed, roughly 11%, was inappropriate since the methodology used to arrive at the figure was just a repeat of reductions previously allowed by the IRS and the courts. The court instead concluded that a facade easement such as the one granted in the historic district, did not materially affect marketability. Final result, an easement with no value.
The lesson here is likely simple, the steps none too difficult, but they need to be done right. To learn more about Goosmann Law Trust Counsel and the services we provide, contact us at info@goosmannlaw.com or call 712.226.4000.