The IRS Clarifies When an Appraisal is Required for a Charitable Donation
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Tuesday, October 15, 2019 in Education
by Kirsten Rabe Smolensky, JD, ISA CAPP
If you've been reading the personal property appraisal blogs recently, you may have seen that the Internal Revenue Service (IRS) recently clarified what "similar items" are when writing an appraisal report for an IRS charitable contribution. In response to specific questions raised by Mr. John Russell on behalf of ASA, the IRS verbally clarified what dissimilar items means. Mr. Russell summarized these clarifications as follows:
- Dissimilar items must be handled separately on separate Forms 8283, but can be in one Appraisal Report as long as they are in separate "chapters" or "sections." Publication 561 (under the heading "Deductions of More than $5,000" on page 9) explains what is meant by "similar Items." It identifies examples of items specifically not considered "similar" and separates these items by commas. For example, china cannot be considered together with everyday kitchenware, and prints cannot be considered together with paintings.
- When dealing with two or more items, where each item is BELOW the $5,000 threshold AND the items are NOT "similar," the taxpayer can submit Form 8283 without an appraisal performed to support the claimed deductions. Therefore, the term "aggregate" does not apply to dissimilar items.
- When dealing with two or more items, where each item is ABOVE the $5,000 threshold AND the items are NOT "similar," the taxpayer MUST obtain an appraisal that includes the items above the threshold, and have the appraiser(s) sign a Form 8283 for each item. However, this can be done in a single Appraisal Report if the items are going to ONE donee on the SAME effective date (the date of title transfer).
- When dealing with two or more items, where each item is BELOW the $5,000 threshold BUT are "similar" to each other and, in the aggregate, EXCEED $5,000, an appraisal must be performed of the "similar" items and the appraiser(s) must sign Form 8283 (and, in the case of multiple donees, separate 8283's for each donee). An appraisal is needed, even when the items are going to separate donees but the aggregate is over $5,000.1
So, what exactly does all of this mean?
Well, grab a cup of coffee, an 8283 form, and IRS Publication 561. Let's dig in.
Before we begin, I would like to start with a basic premise: there is still a lot of gray in the personal property appraisal profession AND there is ALWAYS a lot of gray in the law. Statutes, regulations, and IRS publications are all written with the best intentions, but these documents cannot anticipate every issue that might arise in the future or every possible interpretation of the language used.
As professional appraisers, we all want black and white answers. We all want to be "right" and "do the best job." That is what makes ISA appraisers some of the best in the world. Unfortunately, the "correct" approach in any given situation is not always clear, and we are simply left with trying to do our best given what we have. So, that is what I will attempt to do here. The explanations below represent my best efforts at interpreting the plain language of the 8283, IRS Publication 561, and the IRS's recent clarification written above. There is likely room for disagreement or differing interpretations, and that is fine. At the end of the day, these debates can only be officially settled by a court of law.
Donations to Multiple Institutions
Some of the IRS's recent clarification is straightforward. If a client is donating a collection to multiple institutions, then an appraisal report needs to be written for each institution. Publication 561 provides the following example:
"If you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return." IRS Pub. 561, pg. 9 (April 2007).
Why? Primarily because the effective date of the appraisal (i.e., the date of donation) will likely be different for each institution. Note that the date of donation is the date that the institution officially accepts the gift and issues a receipt (commonly called a deed of gift). I'm often asked whether appraisers must include the deed of gift in their appraisal report. I know of no rule requiring that the deed of gift be included, but it is not a bad business practice. If a client provides me with a copy, I will often reference next to the item description and include a copy or photo of the deed of gift in the appraisal report's addendum.
Lesson #1 (which we already knew): Different institutions mean different appraisal reports EVEN IF the items are of the same type.
Donations to a Single Institution
But what if a collection of items is being donated to the same institution on the same day? Assume a client has donated the following group of items to the local museum and that you've determined the following fair market values (FMVs):
Painting #1 (FMV $18,000)
Painting #2 (FMV $1,000)
Antique kitchenware (FMV $400 total)
A late 19th c. Meeks parlor set (FMV $8,000)
A coin collection (FMV $4,500)
A sterling silver presentation trophy ($3,000)
A sterling silver flatware service for 24 with serving pieces ($4,000)
Before we start sorting out what we need an appraisal for, let's talk about related use. I often get questions on how an appraiser should determine related use. In my opinion, related use is a legal question that should be addressed by the taxpayer's attorney or accountant. While there are some clear examples of what does or does not constitute a related use in the case law, there are still many gray areas. It is my opinion that as an appraiser we should be in a position to alert our clients to the "related use issue," but that we should not be providing legal advice as to what constitutes a related use. For purposes of the above example, assume that all of these items meet the related use test as the institution plans to use them to teach visitors about 19th century life which is a central purpose of the museum's mission.
Assuming there is no related use problem, the first thing to do is determine what is "similar" and what is "dissimilar." According to IRS Publication 561, the phrase "similar items" means:
"Property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paint-ings [sic], photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, cloth-ing [sic], jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchen-ware [sic], china, crystal, or silver." IRS Pub. 561, pg. 9 (April 2007).
The clarification adds that if there is a comma between the words, then the items are dissimilar and it specifically distinguishes everyday kitchenware from china as a result.
So, given our list of donated items, I would break them down as follows:
Paintings: Painting #1 (FMV $18,000) and Painting #2 (FMV $1,000)
Kitchenware: Antique kitchenware (FMV $400 total)
Furniture: A late 19th c. Meeks parlor set (FMV $8,000)
Coins: A coin collection (FMV $4,500)
Silver: A sterling silver presentation trophy ($3,000) & a sterling silver flatware service for 24 with serving pieces ($4,000)
Alternatively, I could see an argument that the kitchenware I have listed is not "everyday kitchenware," but instead falls into the category of "Antiques", which form 8283 classifies as "Fine Art". See the checkboxes in Section B, Part I (4) of the 8283 and note the little asterisks which lead to the following notes:
*Art includes paintings, sculptures, watercolors, prints, drawings, ceramics, antiques, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and other similar objects.
**Collectibles include coins, stamps, books, gems, jewelry, sports memorabilia, dolls, etc., but not art as defined above.
This language seems to directly contradict the language in Publication 561. So, again, we have gray. An alternative listing might be:
Paintings: Painting #1 (FMV $18,000) and Painting #2 (FMV $1,000)
Antiques: Antique kitchenware (FMV $400 total) and a late 19th c. Meeks parlor set (FMV $8,000)
Coins: A coin collection (FMV $4,500)
Silver: A sterling silver presentation trophy ($3,000) & a sterling silver flatware service for 24 with serving pieces ($4,000)
In either event, the resulting appraisal would only be a little different. Under the first scenario, the appraiser would have to appraise both paintings because they are of the same type and together total $5,000 or more. They could skip the "kitchenware" and "coins" because each is a category all its own and under $5,000 (the aggregate amount of $5,000 does not apply to dissimilar items). The furniture would be appraised because it is over $5,000. The silver would all be appraised because while each item is under $5,000, the aggregate of the similar items (ie., silver items) is over $5,000.
Under the second scenario, the only difference would be that if you group the antique kitchenware and Meeks parlor set under the heading "antiques," then you would also have to appraise the kitchenware because it was in a group of similar items whose total was $5,000 or more.
So, which choice do you make? I would likely ask the client, accountant or attorney involved. If they throw it back to you, the safe bet is to over appraise. In other words, choose the second scenario.
Note that the IRS says this appraisal can be done in one document, IF:
- The items are going to the same donee/institution, AND
- They are all donated on the SAME date (e.g., the effective date).
The only additional stipulation is that you group the items by category in your appraisal report. For example, you would put all of the silver under a heading called "SILVER" in the body of your report, and so on.
If you want to learn more or have questions, please join me and ISA's Director of Education, Meredith Meuwly, ISA CAPP, at ISA's Office Hours with the Director of Education webinar on November 12 from 2-3pm central time, free to ISA members who register in advance. Questions sent in advance of the webinar are welcome and can be addressed to directorofeducation@isa-appraisers.org.
Kirsten Rabe Smolensky, JD, ISA CAPP, is the owner of Minerva Appraisal, LLC, offering a full range of professional appraisal services in the Nashville, TN area. She appraises antiques, fine art, silver, furniture, ceramics, etc. and offers appraisal services for IRS taxable estates, equitable distribution, divorce, charitable donations, insurance coverage, damage claims, and more.
1John D. Russell, JD, https://www.appraisers.org/Disciplines/Personal-Property/pp-news-and-events/2019/09/23/asa-receives-clarification-from-irs-regarding-similar-items-for-charitable-contribution-assignments (September 23, 2019).