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Tax Court Rules For Taxpayer Who Failed To Get A Qualified Appraisal When One Was Needed

Qualified Appraisal

The Tax Court ruled for the taxpayer in a case where the taxpayer failed to get a qualified appraisal when one was needed.

In this case the taxpayer donated and sold 65 acres to a local government and took a charitable deduction to reflect the “part gift” status of the transaction.  Within the correspondence, the city administrator reflected that the property had recently been appraised for nearly $3 million.  The taxpayer sold the property to the city for $1.55 million and took a charitable deduction for $1.4 million.  The IRS saw this transaction and pursued according to statute.

Within the Internal Revenue Code, any time a taxpayer claims a charitable deduction for property donated above $500,000, a qualified appraisal must be attached to the income tax return. In this case, it was not.  The IRS claimed the deduction could not be taken because no qualified appraisal was attached and furthermore, the land was worth a mere $600,000.  The taxpayer countered that this had been done in good faith because the taxpayer’s accountant gave the taxpayer the advice that the city appraisal was fair enough and needed nothing more.  The Tax Court was satisfied with this answer and ruled that the deduction was allowed due to reasonable cause.

Editor’s Comment

This case is important not because the taxpayer got the deduction, but to reflect the peril the taxpayer had placed himself into in not getting a qualified appraisal.  Whenever donations of property are made (not cash donations), an appraisal should be done exactly according to statute.  Here, had the taxpayer spent $2500 on an appraisal, he would have avoided $20,000 in legal expenses and a lot of unneeded heartache.  Had the taxpayer lost, it would have been potentially a life altering event.  Get a qualified appraisal where needed and for the benefit of your estate and business.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors