Qualified Appraisal

A qualified appraisal is an appraisal document defined by Internal Revenue Code section 170(f)(11)(E) and Treasury Regulation 1.170A-17: one prepared by a qualified appraiser, in accordance with generally accepted appraisal standards, that meets the regulation's content and timing rules. It exists to substantiate the claimed value of donated property. The companion term, a qualified appraiser, is the individual the same rules require, someone with verifiable education and experience in valuing that type of property. The phrase is a term of art: an appraisal a reader might casually call "professional" is not a qualified appraisal unless it satisfies every element the statute and regulation lay out.

What makes an appraisal "qualified" breaks into standards, content, timing, and the fee. The appraisal must be prepared in accordance with generally accepted appraisal standards, which the regulation defines as "the substance and principles of the Uniform Standards of Professional Appraisal Practice, as developed by the Appraisal Standards Board of the Appraisal Foundation" (a deliberately looser test than certifying full USPAP compliance), and it must include a defined set of information: a description of the property, the valuation method and basis, the appraiser's qualifications, the date of the appraisal, a statement that it was prepared for income tax purposes, and a specific declaration in which the appraiser acknowledges exposure to penalties for a misstatement. On timing, the appraiser must sign no earlier than 60 days before the date of the gift and no later than the due date, including extensions, of the return on which the deduction is first claimed. And the fee cannot be contingent: a fee based to any extent on the appraised value disqualifies the appraisal.

What makes an appraiser "qualified" is verifiable education and experience in valuing the specific type of property, shown either by completing relevant coursework plus two or more years of experience valuing that type of property, or by earning a recognized appraiser designation from a professional appraiser organization. The regulation also lists who cannot serve: the donor, the charity, a party to the transaction in which the donor acquired the property (unless the gift is made within two months of acquisition and the appraised value does not exceed the acquisition price), anyone related to those parties, an appraiser regularly used by them who does not perform most appraisals for others, and anyone barred from practicing before the IRS under 31 U.S.C. 330(c) at any time in the three years ending on the date the appraisal is signed.

The point of all this is trust in the number. A valuation of donated property is easy to inflate, so the law surrounds it with independence, credentials, and a signed declaration backed by the section 6695A appraiser penalty. It also makes the appraisal the donor's own defense, and the shape of that defense is narrower than it looks. Section 6664(c)(3) removes the ordinary reasonable-cause defense for an underpayment traceable to a valuation overstatement on charitable deduction property, then restores it for a substantial overstatement (a claimed value 150 percent or more of the correct value, penalized at 20 percent) only where two things are true: the claimed value rested on a qualified appraisal by a qualified appraiser, and the donor also made a good-faith investigation of the value. For a gross overstatement (200 percent or more of the correct value, penalized at 40 percent) the defense is unavailable at all, however good the appraisal.

This page covers what a qualified appraisal is; when one is required, generally for property gifts above $5,000, and how it is reported on Form 8283 belong to the rules for noncash charitable contributions, and the exception that spares publicly traded securities from the appraisal requirement belongs to the gift of appreciated stock.

Obtaining a qualified appraisal follows a defined sequence:

1. Determine that an appraisal is required, generally for a gift of property other than publicly traded securities valued above $5,000, measured per item or per group of similar items across all charities in the year.

2. Engage a qualified appraiser with education and experience in that type of property, and who is not a prohibited party.

3. Have the appraisal prepared to generally accepted standards and signed within the window: no earlier than 60 days before the gift and no later than the return's due date with extensions.

4. Attach the appraisal summary on Form 8283, and for gifts above $500,000 attach the full appraisal, then retain the appraisal with your records.

A hypothetical shows why the fee rule bites. Marcus donates a coin collection appraised at $12,000, so a qualified appraisal is required. He finds an appraiser who offers two arrangements: a flat $600 fee, or a fee of 5 percent of the appraised value, which also comes to $600 on this collection. The dollar amounts are identical, but only the flat fee produces a qualified appraisal. A fee based to any extent on the appraised value disqualifies the appraisal, so choosing the percentage option would cost Marcus the deduction even though he paid the same money.

Pros

• Substantiates the value of a property gift, which is the deduction's most challenged element.
• Is one of the two conditions section 6664(c)(3) sets for a reasonable-cause defense to a substantial valuation overstatement penalty; the donor's own good-faith investigation of value is the other.
• A credentialed, independent valuation is harder for the IRS to dispute.

Cons

• Costs money, sometimes hundreds or thousands of dollars, which reduces the net benefit of the gift.
• The timing and content rules are strict, and a technical slip can void the deduction entirely.
• Finding an appraiser qualified for an unusual type of property can be difficult.
• It is required even when the donor is confident of the value, adding friction to larger property gifts.