What
makes an appraisal “qualified,” says the Tax Court, is whether it provides
sufficient information to enable the Internal Revenue Service to evaluate an
appraiser’s methodology.
When you give cash to charity,
it is a pretty straightforward offering that holds a specific value. Easy
enough. But what about non-cash items? Well, those must be appraised to
determine (and justify) the value claimed by the donor. And furthermore, the
appraisal must be a “qualified appraisal.”
The issue of valuation and
taxation is an entirely opaque matter, to the tax court and taxpayers alike. WealthManagement.com recently attempted
to provide some clarity in an article titled ““Qualified Appraisal” of Façade Easement and
Development Rights.”
The article hinges on a fairly
recent tax court matter known as Friedman
v. Commissioner, but the issue of what qualifies as a “qualified appraisal”
is age old. As you may well know, to give an asset that does not have a readily
ascertainable monetary value requires a valuation for IRS purposes. This
valuation, in turn, requires an independent expert to issue their “qualified
appraisal.”
Unfortunately, it is not always
a simple matter. For instance, the qualified appraisal of stock in a privately
held business is entirely different than the qualified appraisal of a unique
piece of art. Moreover, neither the stock nor the art bear any resemblance to
the fairly simple qualified valuation of a house.
According to the WealthManagement.com article and the
underlying tax case cited involving a façade easement (a fairly intangible
asset, you could say), what makes a “qualified” valuation is the clarity of the
underlying methodology. Translation: the tax court must at least understand how
a value was determined and that a relevant method was used to get there.
Understandably, the tax court is not an expert on any given asset valuation,
just the tax law. That said, the tax court may engage their own experts for
their own appraisals, especially with items like artwork.
Whatever basis the tax court
uses, it just goes to show how intractable the problem of value is to the law.
As for you, one planning for your assets and estate, it also goes to show the
absolutely essential need to engage a qualified expert to produce a “qualified
appraisal” regarding the value of your assets.
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Reference: WealthManagement.com
(September 26, 2013) ““Qualified Appraisal” of Façade Easement and
Development Rights”