The Consequences of Ignoring IRS Form 8283

The Tax Court issues a warning.

Hewitt v. Commissioner, 109 T.C. 12 (1997)

Background. Most churches will receive gifts of noncash property during 1998. If a donor claims a charitable contribution deduction of more than $5,000 for such a gift, he or she must comply with specific substantiation rules. These rules were adopted for one reason—to make it harder for donors to inflate the value of donated property and claim an excessive charitable contribution deduction.

Donors who contribute property valued at more than $5,000 to a church or other charity must satisfy each of the following requirements in order to claim a charitable contribution deduction:

(1) obtain a qualified appraisal

A donor’s first obligation is to obtain a qualified appraisal. The income tax regulations define a qualified appraisal as an appraisal made by a “qualified appraiser” no earlier than sixty days prior to the date of a contribution, and containing the following information: (1) a description of the donated property; (2) the physical condition of the property; (3) the date of the contribution; (4) the terms of any agreement regarding the use of the donated property; (5) the name, address, and social security number of the qualified appraiser; (6) the qualifications of the qualified appraiser; (7) a statement that the appraisal was prepared for income tax purposes; (8) the date of the appraisal; (9) the appraised fair market value of the property on the date (or expected date) of the contribution; (10) the method used to determine the fair market value; and (11) the fee arrangement between the donor and appraiser.

Only a “qualified appraiser” can perform a qualified appraisal. A qualified appraiser is anyone who: (1) holds himself or herself out to the public as an appraiser; (2) is qualified to perform appraisals because of his or her education, experience, background, and membership, if any, in professional appraisal associations; (3) is not the donor, the person from whom the donor obtained the property, the donee, any person employed by one of the foregoing persons, or any person whose relationship with any of the foregoing persons would cause a reasonable person to question his or her independence; and (4) understands that a false or fraudulent overvaluation of property may subject the appraiser to civil penalties. The income tax regulations also provide that qualified appraisers cannot base their fee on a percentage of the appraised value.

The qualified appraisal must be received by the donor before the due date (including extensions) of the federal income tax return on which the deduction is claimed. A qualified appraisal must be obtained for each item of contributed property valued by the donor in excess of $5,000.

(2) prepare a qualified appraisal summary

A donor must also complete an appraisal summary and enclose it with the tax return on which the charitable contribution deduction is claimed. The appraisal summary is a summary of the qualified appraisal and is made on Section B (side 2) of IRS Form 8283. Section A (side 1) of Form 8283 is completed by donors who contribute property valued between $500 and $5,000.

Section B of Form 8283 contains four parts. Part I is completed by the donor or appraiser, and sets forth information from the qualified appraisal regarding the donated property, including its appraised value. Part II is completed by the donor and identifies individual items in groups of similar items having an appraised value of not more than $500. Part III contains the appraiser’s certification that he or she satisfies the definition of a qualified appraiser. Part IV is a donee acknowledgment, which must be completed by the church. The church simply indicates the date on which it received the contribution, and agrees to file an information return (Form 8282) with the IRS if it disposes of the donated property within two years. The regulations specify that the church’s acknowledgment “does not represent concurrence in the appraised value of the contributed property. Rather, it represents acknowledgment of receipt of the property described in the appraisal summary on the date specified in the appraisal summary ….”

The instructions to Form 8283 permit a church to complete part IV before the qualified appraisal is completed. They instruct the donor to “complete at least your name, identification number, and description of the donated property,” along with Part II if applicable, before submitting the Form 8283 to the church (or other donee). In other words, the donor should fill in his or her name and social security number on the lines provided at the top of page 1 of the form, and also complete line 5(a) of Section B, Part I (on the back page of the form), before submitting the form to the church. After completing Section B, Part IV, the church returns the form to the donor, who then completes the remaining information required in Part I. The donor should also arrange to have the qualified appraiser complete Part III at this time.

(3) maintain records

The donor’s third obligation is to maintain records containing the following information: (1) the name and address of the church; (2) the date and location of the contribution; (3) a description of the property; (4) the fair market value of the property at the time of the contribution, including a description of how the value was determined; (5) the cost or other basis of the property; (6) if less than the donor’s entire interest in the property was given, an explanation of the total amount claimed as a deduction in the current year; and (7) the terms of any agreement regarding the use of the property. Most of these items will be contained in the qualified appraisal, which should be retained by the donor.

Key point. Publicly traded stock is not subject to these requirements since its value is readily ascertainable. Contributions of nonpublicly traded stock (i.e., stock held by most small, family owned corporations) are subject to these requirements but only if the value claimed by the donor exceeds $10,000.

A recent case. In 1990 and 1991 a taxpayer donated noncash property to his church and claimed substantial charitable contribution deductions on his tax returns for each year. In 1991, his deduction was $40,000. No appraisal summary (Part B, Form 8283) was attached to the tax return, since the taxpayer did not obtain a qualified appraisal. Rather, he valued the contributions on the basis of their fair market value on the dates of the contributions. The IRS conceded that the taxpayer made the contributions and that the amounts of the deductions fairly represented the value of the donated property. However, it disallowed the charitable contribution deductions for the sole reason that the taxpayer failed to obtain qualified appraisals and attach qualified appraisal summaries to his tax returns. The taxpayer insisted that the qualified appraisal, and Form 8283, were technicalities that should not bar a charitable contribution deduction if there is no doubt (1) that the contribution was made, and (2) that a deduction was claimed for the fair value of the donated property.

The Tax Court rejected the taxpayer’s argument, and disallowed any deduction for his charitable contributions of noncash property. The Court noted that the income tax regulations require that a qualified appraisal be obtained prior to the filing of the tax return on which the deduction is claimed and that an appraisal summary be submitted with that return. It concluded:

For donations of property as to which the donor appraisal requirements apply, the donor must obtain and retain a qualified written appraisal by a qualified appraiser for the property contributed and must attach a signed appraisal summary to the return on which the deduction is first claimed (with such other information as prescribed by regulations). [The taxpayer in this case] furnished practically none of the information required by either the statute or the regulations ….

Moreover, it is clear that the principal objective of [the qualified appraisal requirement] was to provide a mechanism whereby [the IRS] would obtain sufficient return information in support of the claimed valuation of charitable contributions of property to enable [it] to deal more effectively with the prevalent use of overvaluations. Such need exists even though in a particular case, such as this, it turns out that the taxpayer’s deduction was in fact based on the fair market value of the property. This happenstance is insufficient to constitute substantial compliance with a statutory condition to obtaining the claimed deduction. As we see it, what [the taxpayer] is seeking is not the application of the substantial compliance principle but an exemption from the clear requirement of the statute and regulations in a situation where there is no overvaluation of the charitable contribution. We are not prepared to follow that path to decision.

A limited exception. In another case the Tax Court ruled that a taxpayer was entitled to a deduction for a contribution of noncash property even though he failed to obtain a qualified appraisal. However, the Court pointed out that the taxpayer had a qualified appraiser complete a Form 8283 which was attached to the taxpayer’s tax return, and the Form 8283 contained most of the information that would have appeared in a qualified appraisal. Under these circumstances the Court concluded that the taxpayer had “substantially complied with the requirements of the statute and the regulations even though a separate appraisal had not been obtained and the qualifications of the appraiser were omitted from the appraisal summary attached to the return.” The Court concluded that the substantiation requirements for contributions of noncash property valued at more than $5,000 “could be met by substantial, rather than strict, compliance.” Bond v. Commissioner, 100 T.C. 32 (1993).

However, the Tax Court ruled that this exception did not apply in the present case, since there was not “substantial compliance” with the substantiation requirements.

Relevance to church treasurers. The lesson is clear—persons who claim a charitable contribution deduction of more than $5,000 for contributions of noncash property risk losing their deduction if they do not obtain a qualified appraisal and attach a qualified appraisal summary (Form 8283) to their tax return. To reduce this risk, consider the following steps:

4 Do not assume that donors are familiar with the substantiation rules that apply to gifts of noncash property. We recommend that church treasurers obtain several copies of Form 8283 each January to give to persons who donate noncash property to the church during the year. Many donors will not be familiar with these requirements, and so you will be doing them a big favor. You can order these forms by calling the IRS forms hotline at 1-800-TAX-FORM.

4 Make a note to contact the donor by the end of the year to be sure that a qualified appraisal has been obtained—if you believe the donor may claim a charitable contribution deduction of more than $5,000. Make a written record of your contact, or send the donor a letter and keep a copy for the church’s files.

Remember, these rules do not apply to gifts of publicly traded stock. And, for gifts of nonpublicly traded stock, the qualified appraisal requirement only applies to gifts of more than $10,000.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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