Non-Cash Charitable Donation Artful Appraisals

Since the IRS has buckled down and made the rules for Non-Cash Charitable Contributions tougher, I have been getting more calls to do appraisals for this function. I even got a call from an individual that had hired an appraiser to prepare a charitable donation of a hot air balloon that was donated to the Smithsonian last year. The appraiser completed the research and the report, but when the appraiser learned that the IRS wouldn't recognize him as being qualified (no formal education in appraisal methodology) that appraiser had to withdraw from the job. The client bought the work that he had completed and called me. I explained that I would certainly review the appraisal but that I would have to do my own research and come to my own value conclusions.

I have also gotten several calls from appraisers asking for guidance regarding these type of appraisals and I refer them to the IRS publication 526 that clearly spells out what the requirements are. You can go to the following IRS website and read the publication and print it for you files. http://www.irs.gov/pub/irs-pdf/p526.pdf

The reasons for the IRS changes (below) is best told in the newspaper article in the Los Angeles Times

Inflated art appraisals cost U.S. government untold millions

LACMA

Federal authorities are investigating an alleged tax fraud scheme in which Thai antiquities such as this bell, were appraised at inflated values and donated to local museums.

The IRS audits few artwork donations claimed on tax returns that yield $1 billion in write-offs a year. Data suggest overvaluation is rampant.

By Jason Felch and Doug Smith, Los Angeles Times Staff Writers
March 2, 2008

An alleged tax-fraud scheme involving donations of overvalued art to four local museums is part of a larger, unchecked problem with inflated art appraisals that has cost the federal government untold millions, a Times analysis has found.

Each year, the Internal Revenue Service audits donations claimed on only a handful of the 100,000 or more tax returns that allow art donors to reap nearly $1 billion in tax write-offs. Half of the donations checked over the last 20 years had been appraised at nearly double their actual value.

To read the rest of the article click on: http://www.latimes.com/news/local/la-me-irs2mar02,0,262168,full.story