For years, Congress and the IRS perceived that taxpayers were overstating the value of donations for tax deduction purposes. As a result, the rules regarding valuations of charitable contributions have recently become more stringent, and they include harsher penalties for excessive valuations.

Although the new valuation rules are currently focused on charitable contributions (including conservation easements), it is widely believed that Congress and the IRS will expand the new rules to all tax valuations in general. Cautious taxpayers may want to apply the new rules to any tax-related transactions involving appraisals, such as valuations required for non-charitable gifts or a buy-sell agreement.

New Rules
The new rules generally require that you obtain a "qualified appraisal" from a "qualified appraiser" for donations of property worth over $5,000 (other than cash and publicly traded securities), and you must attach an appraisal summary (IRS Form 8283) to your tax return. These rules apply to valuations for income, gift, and estate tax purposes.

What is a Qualified Appraisal?

Generally, a qualified appraisal is:

• Made no earlier than 60 days before the donation is made, and no later than the due date of your tax return (including extensions), and
• Signed and dated by a "qualified appraiser"

Who is a Qualified Appraiser?

Generally, a qualified appraiser is an individual who:

• Has earned an appraisal designation from a recognized professional appraiser organization, or has otherwise met "minimum education and experience requirements" for valuing the type of property subject to the appraisal, and
• Regularly performs appraisals for pay

"Minimum education and experience requirements" include:

• Successfully completing college or professional level coursework that is relevant to the property being valued, and
• Obtaining at least two years of experience in the trade or business of buying, selling, or valuing the type of property being valued

The Plain English Explanation
More simply stated, to get a qualified appraisal, you must retain an appraiser who holds a professional designation, such as ISA (International Society of Appraisers), ASA (American Society of Appraisers), or AAA (Appraisers Association of America), or someone who has received the requisite schooling and experience.

While these stricter standards are meant to improve the appraisal industry, they have actually shrunk the world of qualified appraisers, for the time being at least. For example, a knowledgeable and skilled expert with years of experience at Sotheby's, but no professional designation or time in the classroom, may no longer be qualified to make appraisals under the new rules.

Further, because the meaning of the new rules needs some clarification, some appraisers may be unsure about whether they're qualified, and they may be unwilling to risk incurring potential penalties. Needless to say, finding a qualified appraiser has become a more daunting task.

Practical Guidance
Your best bet is to hire an appraiser who holds a professional designation related to the property being appraised. Contact the societies listed above for referrals. However, while it may be easy to find such an appraiser for certain types of property, like real estate, it may not be so easy for other types of property.

Here are some other tips:

• Talk to a financial or tax professional for more information
• Obtain documentation about the appraiser's education and experience, and how often he or she conducts appraisals for a fee
• Most importantly, make sure the appraiser is aware of the new appraisal rules, including what is required and the potential penalties