Publication 561
Determining the Value of Donated Property
(Revised: 2/2000)

Qualified Appraisal

Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser and you must attach an appraisal summary to your tax return. See Deductions of More Than $5,000, earlier.

A qualified appraisal is an appraisal document that:

1. Relates to an appraisal made not earlier than 60 days prior to the date of contribution of the appraised property,
2. Does not involve a prohibited appraisal fee,
3. Includes certain information (covered later), and
4. Is prepared, signed, and dated by a qualified appraiser (defined later).

You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed.

An appraisal summary (discussed later) must be attached to your tax return. Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law. If you donated art valued at $20,000 or more, however, you must attach a complete copy of the signed appraisal. See Paintings, Antiques, and Other Objects of Art, discussed earlier under Valuation of Various Kinds of Property.

Prohibited appraisal fee.    Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value. However, appraisals are not disqualified when an otherwise prohibited fee is paid to a generally recognized association that regulates appraisers if:

• The association is not organized for profit and no part of its net earnings benefits any private shareholder or individual,
• The appraiser does not receive any compensation from the association or any other persons for making the appraisal, and
• The fee arrangement is not based in whole or in part on the amount of the appraised value that is allowed as a deduction after an Internal Revenue Service examination or otherwise.

Information included in qualified appraisal.    A qualified appraisal must include the following information:

1. A description of the property in sufficient detail for a person who is not generally familiar with the type of property to determine that the property appraised is the property that was (or will be) contributed,
2. The physical condition of any tangible property,
3. The date (or expected date) of contribution,
4. The terms of any agreement or understanding entered into (or expected to be entered into) by or on behalf of the donor that relates to the use, sale, or other disposition of the donated property,
5. The name, address, and taxpayer identification number of the qualified appraiser and, if the appraiser is a partner, an employee, or an independent contractor engaged by a person other than the donor, the name, address, and taxpayer identification number of the partnership or the person who employs or engages the appraiser,
6. The qualifications of the qualified appraiser who signs the appraisal, including the appraiser's background, experience, education, and any membership in professional appraisal associations,
7. A statement that the appraisal was prepared for income tax purposes,
8. The date (or dates) on which the property was valued,
9. The appraised FMV on the date (or expected date) of contribution,
10. The method of valuation used to determine FMV, such as the income approach, the comparable sales or market data approach, or the replacement cost less depreciation approach, and
11. The specific basis for the valuation, such as any specific comparable sales transaction.

Art objects.    The following are examples of information that should be included in a description of donated property. These examples are for art objects. A similar detailed breakdown should be given for other property. Appraisals of art objects - paintings in particular - should include:

1. A complete description of the object, indicating the:
   1. Size,
   2. Subject matter,
   3. Medium,
   4. Name of the artist (or culture), and
   5. Approximate date created.
2. The cost, date, and manner of acquisition.
3. A history of the item, including proof of authenticity.
4. A photograph of a size and quality fully showing the object, preferably a 10 × 12 inch print.
5. The facts on which the appraisal was based, such as:
   1. Sales or analyses of similar works by the artist, particularly on or around the valuation date.
   2. Quoted prices in dealer's catalogs of the artist's works or works of other artists of comparable stature.
   3. A record of any exhibitions at which the specific art object had been displayed.
   4. The economic state of the art market at the time of valuation, particularly with respect to the specific property.
   5. The standing of the artist in his profession and in the particular school or time period.

Number of qualified appraisals.    A separate qualified appraisal is required for each item of property that is not included in a group of similar items of property. You need only one qualified appraisal for a group of similar items of property contributed in the same tax year, but you may get separate appraisals for each item. A qualified appraisal for a group of similar items must provide all of the required information for each item of similar property. The appraiser, however, may provide a group description for selected items, the total value of which is not more than $100.

Qualified appraiser.    A qualified appraiser is an individual who declares on the appraisal summary that he or she:

• Holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis,
• Is qualified to make appraisals of the type of property being valued because of his or her qualifications described in the appraisal,
• Is not an excluded individual, and
• Understands that an intentionally false overstatement of the value of property may subject him or her to the penalty for aiding and abetting an understatement of tax liability.

An appraiser must complete Part III of Section B (Form 8283) to be considered a qualified appraiser. More than one appraiser may appraise the property, provided that each complies with the requirements, including signing the qualified appraisal and appraisal summary.

Excluded individuals.    The following persons cannot be qualified appraisers with respect to particular property:

1. The donor of the property, or the taxpayer who claims the deduction.
2. The donee of the property.
3. A party to the transaction in which the donor acquired the property being appraised, unless the property is donated within 2 months of the date of acquisition and its appraised value does not exceed its acquisition price. This applies to the person who sold, exchanged, or gave the property to the donor, or any person who acted as an agent for the transferor or donor in the transaction.
4. Any person employed by, married to, or related under section 267(b) of the Internal Revenue Code, to any of the above persons. For example, if the donor acquired a painting from an art dealer, neither the dealer nor persons employed by the dealer can be qualified appraisers for that painting.
5. An appraiser who appraises regularly for a person in (1), (2), or (3), and who does not perform a majority of his or her appraisals made during his or her tax year for other persons.

In addition, a person is not a qualified appraiser for a particular donation if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser to falsely overstate the value of the donated property. For example, if the donor and the appraiser make an agreement concerning the amount at which the property will be valued, and the donor knows that such amount exceeds the FMV of the property, the appraiser is not a qualified appraiser for the donation.

Penalties.    Any appraiser who falsely or fraudulently overstates the value of property described in a qualified appraisal or an appraisal summary that the appraiser has signed may be subject to a civil penalty for aiding and abetting an understatement of tax liability, and may have his or her appraisal disregarded.

Appraisal Summary

Generally, if the claimed deduction for an item of donated property is more than $5,000, you must attach an appraisal summary (Form 8283) to your tax return. Only a partially completed appraisal summary is required in some situations. See Deductions of More Than $5,000, earlier.

Note:    If you deduct $20,000 or more for donated art, you must attach a complete copy of the signed appraisal. See Paintings, Antiques, and Other Objects of Art, discussed earlier under Valuation of Various Kinds of Property.

Form 8283.    Section B of Form 8283 is the appraisal summary. If you do not attach the form to your return, the deduction will not be allowed unless your failure to attach it was due to a good faith omission. If the IRS requests that you submit the form because you did not attach it to your return, you must comply within 90 days of the request or the deduction will be disallowed.

You must attach a separate Form 8283 for each item of contributed property that is not part of a group of similar items. If you contribute similar items of property to the same donee organization, you need attach only one Form 8283 for those items. If you contribute similar items of property to more than one donee organization, you must attach a separate form for each donee.

Internal Revenue Service
Review of Appraisals

In reviewing an income tax return, the Service may accept the claimed value of the donated property, based on information or appraisals sent with the return, or may make its own determination of FMV. In either case, the Service may:

• Contact the taxpayer to get more information,
• Refer the valuation problem to a Service appraiser or valuation specialist,
• Refer the issue to the Commissioner's Art Advisory Panel (a 25-member group of dealers and museum directors who review and recommend acceptance or adjustment of taxpayers' claimed values for major paintings and sculptures, Far Eastern and Asian art, Primitive and Pre-Columbian art), or
• Contract with an independent dealer, scholar, or appraiser to appraise the property when the objects require appraisers of highly specialized experience and knowledge.

Responsibility of the Service.    The Service is responsible for reviewing appraisals, but it is not responsible for making them. Supporting the FMV listed on your return is your responsibility.

The Service does not accept appraisals without question.    Nor does the Service recognize any particular appraiser or organization of appraisers.

Timing of Service action.    The Service generally does not approve valuations or appraisals before the actual filing of the tax return to which the appraisal applies. In addition, the Service generally does not issue advance rulings approving or disapproving such appraisals.

Exception.    On January 16, 1996, the Service began accepting requests for a Statement of Value for a donated item of art appraised at $50,000 or more. For a request submitted as described earlier under Art valued at $50,000 or more, the Service will issue a Statement of Value that can be relied on by the donor of the item of art.

Penalties

You may be liable for a penalty if you overstate the value or adjusted basis of donated property.

20% penalty.    The penalty is 20% of the underpayment of tax related to the overstatement if:

1. The value or adjusted basis claimed on the return is 200% or more of the correct amount, and
2. You underpaid your tax by more than $5,000 because of the overstatement.

40% penalty.    The penalty is 40%, rather than 20%, if:

1. The value or adjusted basis claimed on the return is 400% or more of the correct amount, and
2. You underpaid your tax by more than $5,000 because of the overstatement.

How To Get More Information

You can order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

Free tax services.   To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.

Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can select:

• Frequently Asked Tax Questions (located under Taxpayer Help & Ed) to find answers to questions you may have.
• Forms & Pubs to download forms and publications or search for forms and publications by topic or keyword.
• Fill-in Forms (located under Forms & Pubs) to enter information while the form is displayed and then print the completed form.
• Tax Info For You to view Internal Revenue Bulletins published in the last few years.
• Tax Regs in English to search regulations and the Internal Revenue Code (under United States Code (USC)).
• Digital Dispatch and IRS Local News Net (both located under Tax Info For Business) to receive our electronic newsletters on hot tax issues and news.
• Small Business Corner (located under Tax Info For Business) to get information on starting and operating a small business.

You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703-368-9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you.

Phone. Many services are available by phone.
 

• Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current and prior year forms, instructions, and publications.
• Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
• TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829- 4059 to ask tax questions or to order forms and publications.
• TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.

Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we evaluate the quality of our telephone services in several ways.

• A second IRS representative sometimes monitors live telephone calls. That person only evaluates the IRS assistor and does not keep a record of any taxpayer's name or tax identification number.
• We sometimes record telephone calls to evaluate IRS assistors objectively. We hold these recordings no longer than one week and use them only to measure the quality of assistance.
• We value our customers' opinions. Throughout this year, we will be surveying our customers for their opinions on our service.

Walk-in. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Also, some libraries and IRS offices have:

• An extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs.
• The Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.

Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country.

• Western part of U.S.:
  Western Area Distribution Center
  Rancho Cordova, CA 95743-0001
• Central part of U.S.:
  Central Area Distribution Center
  P.O. Box 8903
  Bloomington, IL 61702-8903
• Eastern part of U.S. and foreign addresses:
  Eastern Area Distribution Center
  P.O. Box 85074
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CD-ROM. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain:

• Current tax forms, instructions, and publications.
• Prior-year tax forms, instructions, and publications.
• Popular tax forms which may be filled in electronically, printed out for submission, and saved for recordkeeping.
• Internal Revenue Bulletins.

The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at www.irs.gov/cdorders. The first release is available in mid-December and the final release is available in late January.

IRS Publication 3207, Small Business Resource Guide, is an interactive CD-ROM that contains information important to small businesses. It is available in mid-February. You can get one free copy by calling 1-800-829-3676.