Various types of property require specific forms of substantiation. While the appraiser will document most substantiation requirements, it is useful to understand the general factors that apply to specific properties.
Private Company Stock
An appraiser who specializes in valuing family businesses can be extremely helpful. The valuation on the date of transfer will be based on the economic factors of the business or comparable sales. Economic factors include total sales, book value, net profits and growth history. If less than 50% of the private company is transferred to charity, then there could be a discount for a minority interest or for a lack of liquidity.
Land
The value of land is usually based on comparable sales. For residential or urban commercial property, it typically is possible to obtain multiple comparables. The appraiser will then evaluate the unique characteristics of the particular asset and determine whether the gifted property should be valued at a higher or lower level than each comparable property. Once again, the gift of less than a 50% interest in real property may result in a discount for minority interest or lack of marketability.
Some real estate appraisers are Members of the Appraisal Institute (MAI). It is not required to have this or other specific certification, but the appraiser's credibility will be considered if the IRS contests the valuation.
An additional consideration with real property is potential environmental remediation. If the property has been used for commercial or industrial purposes or there has been a history of environmental pollution in adjoining parcels, then an environmental impact survey should be completed. The presence of adverse environmental factors will invariably reduce the value.
Art and Other Tangible Personal Assets
Tangible personal property can have great value, but also may give rise to major disputes with the Service. It is essential to locate an appraiser who is qualified to evaluate the specific type of tangible personal property. Some appraisers are qualified to value art, some may be skilled in valuing stamps or coins and others may understand the valuation of boats and other vehicles.
Art is particularly subject to large value variations determined by different appraisers. Therefore, an IRS Art Advisory Panel meets regularly to evaluate gifts of art to charities. The Art Advisory Panel reduces many of the claimed deductions for gifts of art by 20% to 40%.
Donors who give tangible personal property should exercise caution in valuing the gifts. Forms 8283 and 8282 were in part developed because of excessive deductions claimed by donors for tangible personal property. High deductions for tangible personal property gifts are more likely to raise the risks of an audit by the IRS than are gifts of cash or public securities.
