INTERNAL REVENUE SERVICE ISSUES FINAL REGULATIONS FOR THE VALUATION OF NONCASH CHARITABLE CONTRIBUTIONS

September 6, 2018


The Internal Revenue Service has issued final regulations that govern the valuation of noncash charitable contributions, including the valuation of closely held business interests1.  These regulations finalize the use of appraisals for charitable contributions made by the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006.  In general, Sections 1.170A-15 and 1.170A-16 apply to contributions made after July 30, 2018. Section 1.170A-17 applies to contributions made on or after January 1, 2019.

 

The final regulations under § 1.170A-17 address the following issues related to use of qualified appraisals and qualified appraisers:

 

Provisions Related to Qualified Appraisals

 

  • Definition of a qualified appraisal
  • Definition of generally accepted appraisal standards
  • Contents of a qualified appraisal
  • Requirements of a timely appraisal report
  • Exclusion for donor misrepresentations
  • Number of appraisals required
  • Time for submission of the qualified appraisal
  • Prohibited appraisal fees
  • Time period to retain the qualified appraisal
  • Effect if the appraiser has been prohibited from practicing before the Internal Revenue Service
  • Valuation of partial interests

 

Provisions Related to Qualified Appraisers

 

  • Definition of a qualified appraiser
  • Education and experience in valuing the type of property
  • Definition as to the type of property
  • Verification of education and experience in valuing the type of property
  • Individuals who are not qualified appraisers

 

Modifications from Proposed Regulations

 

In large measure, the final regulations parallel the provisions in the proposed regulations.  Modifications to the proposed regulations that have been reflected in the final regulations for appraisals and appraisers are provisions for education provided by trade associations and examples of generally accepted appraiser organizations. Two commenters pointed out that in addition to professional appraiser organizations, a generally recognized professional trade organization may provide course work that satisfies the requirement for verifiable education in valuing the type of property under § 1.170A-17(b)(2)(i)(A) and (ii)(B).  The Treasury Department and the IRS agreed with this comment, and the final regulations are consistent. Other commenters objected to references in the proposed regulations to designations conferred by one particular organization as examples of recognized appraiser designations. The Treasury Department and the IRS do not require or prefer the designation of any particular appraiser organization, and, therefore, the final regulations do not contain examples of any designations.

 

Commentary

 

Notably, a number of parties asked the Treasury Dept and IRS to apply the following regulations for all federal tax purposes, including estate and gift tax.  However, no substantive changes were made as a result of these comments. Although the final regulations apply only to the value of noncash charitable contributions for income tax reporting purposes, it is likely the regulations will continue to be embraced and referenced by those routinely involved with appraisal work.  Accordingly, clients who retain appraisers and use appraisals for charitable contributions as well as other income or transfer tax purposes should have a full understanding of the criteria related to qualified appraisals and qualified appraisers.

 

1 Federal Register, Vol. 83, No. 146/Monday, July 30, 2018 36417.