Thinking about gifting or donating stock in a privately held business? If you want the transfer to stand up in the face of scrutiny by the Internal Revenue Service (IRS), then it would behoove you to select a qualified appraiser to perform the necessary business valuation.
An opinion from a recent U.S. Tax Court case helps to point the way. The opinion in Estate of Scott M. Hoensheid, Deceased, Anne M. Hoensheid, Personal Representative, and Anne M. Hoensheid v. Commissioner of Internal Revenue, T.C. Memo. 2023-34, references Treasury regulations that interpret the statutory definitions of qualified appraisal and a qualified appraiser. 1
A qualified appraisal is “with respect to any property, an appraisal of such property which —
(I) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and
(II) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I).”
The regulations state that a qualified appraisal is a document that is, among other aspects, related to “an appraisal that is made not earlier than 60 days prior to the date of contribution” as well as “prepared, signed, and dated by a qualified appraiser.” A qualified appraisal must include, in part:
- A “description of the property in sufficient detail for a person who is not generally familiar with the type of property to ascertain that the property that was appraised is the property that was (or will be) contributed.”
- The “physical condition of the property” (if tangible property).
- The “date (or expected date) of contribution to the donee.”
- The “name, address, and […] the identifying number of the qualified appraiser.”
- The “qualifications of the qualified appraiser who signs the appraisal, including the appraiser’s background, experience, education, and membership, if any, in professional appraisal associations.”
- A “statement that the appraisal was prepared for income tax purposes.”
- The “date (or dates) on which the property was appraised.”
- The “appraised fair market value […] of the property on the date (or expected date) of contribution.”
- The “method of valuation used to determine the fair market value.”
A qualified appraiser is “an individual who —
(I) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary,
(II) regularly performs appraisals for which the individual receives compensation, and
(III) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.”
A qualified appraiser must also demonstrate “verifiable education and experience in valuing the type of property subject to the appraisal” and not have been prohibited from practicing before the IRS during the three years ending on the date of the appraisal.
Further, as part of the appraisal summary, a qualified appraiser must declare that he or she (i) “either holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis;” (ii) is “qualified to make appraisals of the type of property being valued;” (iii) is not an excluded person based upon certain other regulations; and (iv) “understands that an intentionally ‘false or fraudulent’ overstatement of the value of the property […] may subject the appraiser to a civil penalty.” 2
Why run the risk of having a charitable contribution deduction disallowed?
The CFGI Valuation Team consists of qualified appraisers with decades of experience preparing valuations that have withstood the scrutiny of the IRS.
1 See 26 U. S. C. §170(f)(11)(E)(i).
2 See Treas. Reg. § 1.170A-13(c)(5)(i).
