IRS Form 8283 is required for all non-cash contributions valued at greater than $500. While the land trust’s signature on Form 8283 does not represent agreement with the claimed value, the IRS has asked that land trusts use common sense in questioning appraisals that seem inflated and that land trusts help landowners do the right thing. Diplomatically inquire about the owners’ history with the land itself and their expectations as to easement value. If the history is short and value expectations are high, proceed with caution and additional care. Attachments to Form 8283 The IRS recommends, and in some cases requires, that landowners attach the following fully and correctly completed substantiation documents to all correctly completed Form 8283 filings: 1. Correct supplemental statement (see instructions) 2. Qualified appraisal for every easement (required for values of $500,000 and greater and for historic preservation easements) 3. Copy of recorded easement (or a full and detailed description) (required) 4. Compelling and complete baseline documentation report 5. Contemporaneous written acknowledgement (cwa gift letter) 6. Correct mortgage subordination Remember, failure to attach the required documentation or correctly complete the form is the basis for a full denial of the entire deduction. By including all documents on the IRS checklist, the IRS agent is more likely to limit further inquiry. Every document must be correctly prepared. While donors are legally responsible for substantiating donations, land trusts have an ethical duty that extends beyond their legal obligations to ensure there is no tax fraud. Court decisions highlight the importance of land trusts helping donors understand the law, without giving legal advice. Additional Details 1. The land trust signs Form 8283 only if the information in Section B, Part 1, “Information on Donated Property,” and Part 3, “Declaration of Appraiser,” is complete. 2. Form 8283 must be signed by the individual appraiser or appraisers if more than one appraiser worked on the appraisal, not just the appraiser’s firm 3. Form 8283 must be signed by the donee organization or all donees if more than one. A power of attorney might be sufficient if properly worded. 4. A sufficiently detailed “supplemental statement” may be many pages. Revenue agents may never have seen a conservation easement. Make their job and your experience easier by providing more correct and complete information early. 5. A property address is not an adequate “description of donated property.” 6. Form 8283 is not a contemporaneous written acknowledgement substantiation letter. That letter must be separate, contemporaneous and have the appropriate goods and services language. General Guidelines for Land Trusts in Reviewing 8283s and the Appraisal 1. Early Warning System. Follow the advice of Practice 10B and explain to the landowner early in the process, preferably in writing, that if the land trust believes that the donation does not conform to tax laws, it may refuse to sign the Form 8283. Request a copy of the appraisal from the landowner (not the appraiser). Consider asking the landowner to have the appraiser add the land trust as an intended user. If the land trust is unable to obtain the appraisal from the landowner, keep documentation of your request. 2. Confidentiality Agreements. The confidential economic information contained in appraisals and on the Form 8283 is of concern to some donors and appraisers. The land trust may be asked to sign a confidentiality agreement by the landowner’s representatives. Appraisals and Forms 8283 should be kept in accordance with a land trust’s records policy for confidential materials. 3. Three Tier System of Appraisal Review. To avoid feeling the necessity to comment on the specifics of an appraisal, think about the appraisal review as a three-tier system: a. Generally in line with the expected value and is not missing any essential elements: Form 8283 may be signed by the land trust without reservation. b. Aggressive in its conclusion of value and/or missing a key element: the land trust might sign Form 8283 but the land trust should consider sharing its concerns regarding the appraisal in writing with the donor. Remember that this writing is discoverable by the IRS. c. Indefensible as to its value conclusion in light of local land values, or the land trust believes no gift was made, or the gift described in the appraisal is not the gift received, or an appraisal that is, or borders on being, fraudulent: may refuse to sign the Form 8283. If you suspect b or c, above, contact your legal counsel immediately on what action to take, how best to respond and how to communicate your concerns to the donor. 4. Avoid Being an Editor. Do not edit the appraisal; that may create the impression that if the appraiser makes all of the changes requested by the land trust, then the land trust has approved the appraisal and therefore the appraisal should be valid and accurate. Write your comments carefully and thoughtfully; direct landowners or their advisors to an issue for them to resolve. 5. Avoid Giving Advice. The land trust should refrain from making statements that appear to be legal advice; instead suggest that the donor and advisors review the Code and Regulations regarding appraisal requirements or additional justification of values, comparables, assumptions or methodology. A land trust may also wish to refrain from writing an opinion about an appraisal that creates evidence that the IRS can obtain in the event of an audit or trial. The land trust should have a written policy to guide decisions and actions regarding signing the Form 8283 and sending cautionary letters. 6. Explain any Decision to not Sign. If the land trust and its advisors determine that the land trust cannot sign Form 8283 (it did not receive a gift, the gift received is not described accurately or the value is so overstated as to be fraudulent), then the land trust and its attorney should write a letter clearly explaining why it cannot sign.
RESOURCES Internal Revenue Code §170 and Treas. Reg. §1.170A-13. Schrimsher v. Commissioner, TC Memo 2011-71. Rally 2009 and 2010 Summaries of IRS Panel Questions and Answers. IRS Form 8283 and Instructions to IRS Form 8283. Practical Guidance for Dealing with IRS Form 8283 Issues. Larry Kueter and Mark Weston, 2005 Rally Presentation. Tax Benefits and Appraisals of Conservation Projects. Larry Kueter and Mark Weston, (S. Bates ed.), 2007.
If a person or an estate makes a noncash charitable contribution greater than $500, IRS Form 8283 must be included with his, her or its tax return. If the property is not publicly traded stock that may be valued on an exchange and exceeds $5,000 in value ($10,000 for closely held stock), a qualified appraisal is required. The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions).
As a result, Form 8283 must be completed for a gift of a life insurance policy (a noncash gift) with a fair market value in excess of $500. A separate appraisal and separate Form 8283 is required for each policy contributed. For a policy with a fair market value of $5,000 or more, an independent qualified appraiser must determine the policy’s value.
The natural choice for an appraiser of a policy is the issuing insurance company, because the insurance company is in the best and easiest position to value the policy. However, the appraisal rules require an independent appraiser. Since the insurance company is directly related to the donor and policy, it is uncertain whether or not the insurance company is independent for appraisal purposes. Therefore, the IRS may argue that the insurance company is not independent with respect to the appraisal rules.
Most charitable deductions of insurance are limited to cost basis. If the insurance company states that the cash value exceeds the cost basis, some donors and their advisors may choose to use the cost basis for the charitable deduction. This position is based on the theory that the cash value represents a portion of the underlying insurance company portfolio in public securities, and the valuation by the insurance company is similar to the valuation of mutual funds by financial services companies. However, most donors and their advisors will decide to take a more conservative position and obtain an independent appraisal.
If an independent appraisal is desired, a qualified appraisal service should be retained. Appraisers of assets other than real estate must meet several requirements. The appraiser will be qualified if he or she has an appraisal designation from a recognized organization or has otherwise met comparable education experience requirements, regularly performs and is paid for appraisals, has verifiable education and experience with the type of property appraised, has not been prohibited from practicing before the IRS and has not been excluded by Treasury regulations from serving as an appraiser. Sec. 170(f)(11)(E)(ii) and (iii).
For insurance gifts on returns filed after February 16, 2007, the appraiser must fulfill three requirements. He or she must have completed applicable “college or professional-level coursework,” must have two years of experience in buying, selling or valuing insurance and must thoroughly describe in the appraisal his or her education and qualifying experience.
Generally, appraisals will qualify if consistent with the Uniform Standards of Professional Appraisal Practice set forth by the Appraisal Standards Board of the Appraisal Foundation. Notice 2006-96, Section 3.03.
Appraisals on returns filed after Feb. 16, 2007 must also include a statement that the appraiser recognizes that a substantial or gross valuation misstatement that he or she knew or reasonably should have known would be used on a tax document could lead to a civil penalty. Sec. 6695A(b). The appraiser penalties for incorrect appraisals are the greater of $1,000 or 10% of the understatement from a substantial or gross valuation misstatement, with a cap of 125% of the appraiser’s gross income from the appraisal. Sec. 6695A(b). The IRS may also discipline appraisers after notice and a hearing. Disciplinary action may include suspending or barring an appraiser from preparing or presenting appraisals to the IRS.
IRS Form 8283 and Appraisal Rules If a person or an estate makes a noncash charitable contribution greater than $500, IRS Form 8283 must be included with his, her or its tax return. If the property is not publicly traded stock that may be valued on an exchange and exceeds $5,000 in value ($10,000 for closely held stock), a qualified appraisal is required. The appraisal must be made not earlier than 60 days prior to the gift and not later than the date the return is due (with extensions). As a result, Form 8283 must be completed for a gift of a life insurance policy (a noncash gift) with a fair market value in excess of $500. A separate appraisal and separate Form 8283 is required for each policy contributed. For a policy with a fair market value of $5,000 or more, an independent qualified appraiser must determine the policy’s value. The natural choice for an appraiser of a policy is the issuing insurance company, because the insurance company is in the best and easiest position to value the policy. However, the appraisal rules require an independent appraiser. Since the insurance company is directly related to the donor and policy, it is uncertain whether or not the insurance company is independent for appraisal purposes. Therefore, the IRS may argue that the insurance company is not independent with respect to the appraisal rules. Most charitable deductions of insurance are limited to cost basis. If the insurance company states that the cash value exceeds the cost basis, some donors and their advisors may choose to use the cost basis for the charitable deduction. This position is based on the theory that the cash value represents a portion of the underlying insurance company portfolio in public securities, and the valuation by the insurance company is similar to the valuation of mutual funds by financial services companies. However, most donors and their advisors will decide to take a more conservative position and obtain an independent appraisal. If an independent appraisal is desired, a qualified appraisal service should be retained. Appraisers of assets other than real estate must meet several requirements. The appraiser will be qualified if he or she has an appraisal designation from a recognized organization or has otherwise met comparable education experience requirements, regularly performs and is paid for appraisals, has verifiable education and experience with the type of property appraised, has not been prohibited from practicing before the IRS and has not been excluded by Treasury regulations from serving as an appraiser. Sec. 170(f)(11)(E)(ii) and (iii). For insurance gifts on returns filed after February 16, 2007, the appraiser must fulfill three requirements. He or she must have completed applicable “college or professional-level coursework,” must have two years of experience in buying, selling or valuing insurance and must thoroughly describe in the appraisal his or her education and qualifying experience. Generally, appraisals will qualify if consistent with the Uniform Standards of Professional Appraisal Practice set forth by the Appraisal Standards Board of the Appraisal Foundation. Notice 2006-96, Section 3.03. Appraisals on returns filed after Feb. 16, 2007 must also include a statement that the appraiser recognizes that a substantial or gross valuation misstatement that he or she knew or reasonably should have known would be used on a tax document could lead to a civil penalty. Sec. 6695A(b). The appraiser penalties for incorrect appraisals are the greater of $1,000 or 10% of the understatement from a substantial or gross valuation misstatement, with a cap of 125% of the appraiser’s gross income from the appraisal. Sec. 6695A(b). The IRS may also discipline appraisers after notice and a hearing. Disciplinary action may include suspending or barring an appraiser from preparing or presenting appraisals to the IRS. Potential independent advisors who offer services for insurance appraisals are available at www.charitablesolutionsllc.com and www.thebreusgroup.com.
