Changes to the Pension Protection Act and Fractional Donations?

After years of very little change within the appraisal profession the Pension Protection Act of 2006 (PPA) came along and brought more change than many of us would like to have seen. Many aspects of the PPA impacted appraisers and our appraisals, including more defined penalties, stricter qualified appraisal requirements, qualified appraiser requirements, and some substantial changes in donation tax code. While I believe many portions of the PPA add credibility and professionalism to the personal property appraising field, some portions of the code also hinder.

In codifying the PPA, the area of charitable donations was impacted perhpas more than any other area. This included charitable donations of household items of $500.00 needing an appraisal.

Another, and perhaps more importantly was restricting fractional donations. According to a recent Wall Street Journal article because of the PPA and its restrictions on fractional giving, museums have seen a noticeable reduction in donations of fine and decorative arts. If collectors are not donating, then appraisers may not be appraising. It appears the PPA in some cases aids the cause of professionally trained appraisers, but at the same time, it appears to be taking away business as well, especially within the upper markets.

All is not lost, it seems the big museums and their donors are lobbying Congress seeking to change some of the new PPA more restrictive sections on fractional gifts. The basics of fractional giving in the PPA is that the property must be delivered to the institution within 10 years of the gift, the value must be determined at the time of the gift, and the donation amount spread out over the pledged time of not more than 10 years. Should the donor die the gift automatically and immediately goes to the receiving institution. Also and perhaps most importantly, the value of the item is frozen at the time of the gift. Therefore, if the item is valued at $100,000.00 at the time of the gift, the term is 10 years, that is $10,000.00 deduction per year. But if the art increases in value over that term, the deduction remains the same, frozen at the initial $100,000.00

Where do we stand now? Well, it appears that Senator Grassley (IA), the driving force behind the PPA and Sen Schumer (NY) have a new plan. It eases some of the restrictions of the PPA, but it also adds some new wrinkles as well. Of course the more complicated the code, probably the better for the appraisal industry. One part of the plan may be allowed again but require that the appreciation amount be automatically be reviewed by the IRS Art Review Panel. This step I would assume means obtaining an appraisal documenting the appreciation which would then be reviewed by the IRS ARP. In the new plan also may require museums to report fractional gifts to the IRS as well. Sort of like a bank reporting the interest earned in an account. Another part of the Grassley/Schumer plan calls for only allowing percentages of appreciation, and the further away from the gifting date, the less the appreciated amount would be allowed.

According to the WSJ, in a statement, Sen. Schumer said the plan would "restore the incentive for collectors to make donations to museums." Sen. Grassley, in his own statement, defended the stricter provisions passed in 2006 but signaled he was open to changes. He stressed that the process for codifying any fractional-giving reforms is "far from over." The New York Times quotes Sen. Schumer as saying “I think we’ve worked out a fair compromise that will allow donors to give works of great art to museums and yet at the same time preserve the integrity of the tax code.” I would think we personal property appraisers wish to see the volume of charitable donations increase. Perhaps the Grassley/Schumer Plan will do that.

For more information and thw WSJ click HERE and a NY Times Article HERE