The Charitable Appraisal

http://www.appraisingplus.com/ Video Posted on homepage

I thought I would share a few comments regarding the process of creating a charitable appraisal for a client.  I often get phone calls from individuals who have an interest in donating a “collectible” to a university, charity or church.  For illustration purposes, I will discuss a recent appraisal I did for a client who donated a Steinway piano.  I filmed a YouTube presentation regarding this donation.  (If you would like to watch it, please go to www.appraisingplus.com and click on the video link to view it).

The first thing to consider is whether or not there is a real need to have an appraisal done. The most important factor is to figure out the approximate value of the item(s).  Clients can easily do this by searching the Internet.  If, after doing some research, you find that “like type” items are selling for over $5000, you may want to consider retaining the appropriate appraiser. If you feel the charitable deduction amount will be greater than $5000, you are required to obtain a qualified appraisal.  It is important to note that what someone is selling an item for is not necessarily what the fair market value of that item is. The qualified appraisal is a written report that proves the fair market value of the donated item.  The IRS has rules that must be followed.  You can review the instruction sheet to IRS Form 8283 to get a better understanding on what is being asked of you.   

Gift of a Steinway Piano, Model 45 (summary of actual gift):

A parishioner donated a Steinway piano to her church in Atlanta.  What a wonderful gift!  The parishioner even paid for a Steinway technician to go to the church to tune it and value it.   The technician gave the client a one-page hand-written document that said the piano resale value is $15,000.  Everything seemed in order.  She was happy and her church was ecstatic about the donation.  However, several months later, her accountant indicated that she needed to get a qualified appraisal.  Though the technician was far more knowledgeable on Steinways than me, he did not provide the client with a qualified appraisal.  The $15,000 suggested resale price given by the technician was not supported.  Should his evaluation be challenged by the IRS, the client would most likely loose.  While the Steinway technician gave a realistic value based on his understanding of the market place for this type of Steinway, the IRS requires all value assertions to be supported by current realized sales.  In addition, a report that is USPAP compliant needs to be written.  The technician made the assumption, because of his experience in the Steinway piano industry, that the piano was worth $15,000, but what the IRS is looking for is documentation supporting that value conclusion.   If the expert provided some recent sales of “like type” pianos that have sold for that amount, the technician would be in a stronger position should the IRS contest the charitable deduction.  In addition to having supporting documentation to support any value conclusions drawn, the technician needed to write a qualified appraisal, which he was not trained to do. 

I was brought in to solve a problem.  The parishioner who was elderly was irritated that she needed to get and pay for an appraisal of a donation.  She could not understand why the Steinway technician’s document listing the fair market value of $15,000 could not be used.  I certainly empathized with her and could relate to her frustration over this donation.  In her mind, she was doing a nice thing by making a donation of her piano to the church she loves.  She could not understand why the government was making it so difficult.  Her feelings at this point was why bother with the donation at all.  After a number of discussions with my client, she understood better what the IRS was looking for in a qualified charitable appraisal. 

Everything ended splendidly.   I provided her accountant with a qualified appraisal that allowed her to take a $19,000 charitable deduction, which was  $4,000 higher than the technician felt the piano was worth. A local piano store provided me with current sales documents of recent sales of “like type” pianos that I was able to use to support my value conclusions. 

Without the cooperation of the local Steinway store providing sales receipts to support my value conclusions, the fair market value would have been significantly lower than the Steinway technician thought.

For qualified appraisers who are doing their job right, the fair market value is not what the appraiser feels the value should be but what it actually is, where the value conclusions are supported by real facts.

For questions charitable gifts, please feel free to reach out to me at john@appraisingplus.com

John Kline, ISA


Comments

Popular posts from this blog

New blog!

Is “journalism” dead?