Appraisal requirement for charitable deduction.

• Author: Berger, Harvey

Many donors transfer appreciated securities to nonprofit organizations to satisfy their charitable commitments. Donors can benefit from this if the organization is a public charity and the gain from the securities (if sold by the donor) would have been characterized as long-term capital gain; the fair market value (FMV) of the property (rather than its tax basis) would be deductible. Such treatment provides a much greater benefit than selling the property and donating the proceeds.

However, Regs. Sec. 1.170A-13 provides strict requirements for obtaining a full deduction, including a property appraisal showing that the property is worth more than $5,000. A summary of that appraisal must be attached to the donor's tax return. For stock that is not publicly traded, the requirement applies to donations worth $10,000 or more. No appraisal is needed for publicly traded stocks.

In John T. Hewitt, 109 TC 258 (1998), the donor donated nonpublicly traded stock; the IRS challenged his deduction, which was based on the stock's FMV. Hewitt was a founder of the tax preparation firm Jackson-Hewitt...