Last month, the IRS issued final regulations entitled “Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions,” codified as Treasury Regulation Sections 1.170A-15 (cash), -16 (noncash), -17 (qualified appraisals and appraisers), and -18 (clothing and household items).
For those of us who advise clients with regard to large noncash gifts—and conservation easements in particular—the most noteworthy changes to the existing regulations are:
Substantiation of Noncash Gifts: 1.170A-16.
- A new section addresses noncash contributions of more than $500,000. This section requires the full appraisal to be attached to the tax return filed for the year of the gift and for any carryover years in which the deduction will be claimed. See 170A-16(e).
- The regulations include a specific statement that Form 8283 does not need to be completed before the donee signs it. The following information may be excluded: appraiser information, manner and date of acquisition, cost basis in the property, appraised fair market value of the property, and amount of charitable contribution. See 170A-16(d)(5). Note regardless, the Land Trust Alliance requires its member organizations to obtain this information prior to signing Form 8283 as a donee.
Qualified Appraisals and Appraisers: 1.170A-17
- To be qualified, an appraisal must be prepared in accordance with generally accepted appraisal standards, which are defined as the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP), as developed by the Appraisal Standards Board of the Appraisal Foundation.
- To be qualified, an appraiser must have the education and experience in valuing the type of property to be appraised. This means the individual has either (i) successfully completed professional or college-level coursework for valuing that type of property and has 2+ years of experience in valuing that type of property, or (ii) the appraiser has earned a recognized appraiser designation by a generally recognized professional appraiser organization due to demonstrated competency.
- Form 8283 and the appraisal must include the fair market value as of the “valuation effective date” rather than the contribution date. This makes sense because the appraisal is permitted to predate the contribution by 60 days and, if the report does predate the contribution, the appraiser, unless psychic, is usually unable to guess what the precise value will be on the exact date of contribution.
- The donor is permitted to use “the approximate date” of the original property acquisition, rather than “the date” of the acquisition. A good change, because some long-time property owners may not have the records to determine the exact day the property was acquired.
- The regulations now contain specific reference to Form 8283, rather than an appraisal summary on a form to be created by the IRS—for obvious reasons, since Form 8283 is said appraisal summary that the IRS has since developed.
A minor revision was also made to the conservation easement regulations at Section 1.170A-14 to clarify that the existing substantiation rules in 1.170A-13 apply to conservation easements donated on or before July 30, 2018, while the new substantiation rules in 1.170A-16 apply to donations after July 30, 2018, and the new 1.170A-17 appraiser rules apply to donations after January 1, 2019. However, because the new regulations implement the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006, a taxpayer may elect to have the new A-16 rules apply to donations made after June 3, 2004, and the new A-17 rules apply to donations made after August 17, 2006.
Substantiating charitable gifts can be quite complicated. An attorney or accountant familiar with the Treasury’s requirements should be consulted prior to claiming a charitable deduction for high value contributions, such as conservation easements.