…Good intentions do not guarantee a
charitable contribution deduction. By failing to properly account and document
the contribution, however, the IRS and Tax Court [could] disallow the
deduction.
You may think that being
eligible for the charitable tax deduction is as simple as making your gift and
then claiming the deduction. Not so. In
order to qualify, there are important steps to take regarding documentation and
valuation of your gift.
Fundamentally, you need to prove
the value of what you have given, but that can get complicated when you are
giving in the form of things. You
need an appraisal of any thing you
give (e.g., art, a house, an easement, or a service), and you need that
appraisal to answer all the tax man’s questions even before he asks them. In
short, appraisals can get tricky.
For example, if you give art you
need an art appraiser, and if you give real estate you need a real estate
professional. However, what if you give interest or stock in a company? Then
the appraisal becomes even trickier.
When you are giving less than
obviously valued interest, then you might want to consider the advice given in
a recent Forbes article titled “It's Hard To Satisfy The Qualified Appraisal
Requirement For A Charitable Contribution If You Appraise The Wrong Property.” The problem with interest or stock in
a company is that the interest or stock is different than the things the company owns. So, 10% of the
stock in a company with $5 million in assets is not (necessarily) equivalent to
10% of $5 million. Such is the case, even when the sole purpose of the company
is to hold well-documented and appraised assets worth $5 million.
In a “simple case,” the IRS
likely will provide leniency and determine that such and such an appraisal was
“substantially compliant” if not fully so. Nevertheless, the greater the
business complexity, the greater the risk of misstep and attending (and costly)
determination of insubstantial compliance.
To avoid any questions being
raised about your gift, obtaining an appraisal is an essential step when
recognizing the tax implications of any transfer of property that is more than
simply money itself. Contact your estate attorney or tax advisor for further
assistance.
Reference: Forbes
(February 5, 2013) “It's Hard To Satisfy The Qualified Appraisal
Requirement For A Charitable Contribution If You Appraise The Wrong Property”