§ 14.6 - Valuation and Gift Substantiation Requirements

• Jurisdiction: Washington

§14.6 VALUATION AND GIFT SUBSTANTIATION REQUIREMENTS

For gifts of property in excess of $5,000, the donor must obtain a written "qualified appraisal" performed by a "qualified appraiser" supporting the claimed value of the donation. Treas. Reg. § 1.170A-13(c). The appraisal must be attached to the donor's federal income tax return if the claimed deduction exceeds $500,000. I.R.C. § 170(f)(11)(D).

Taxpayers claiming deductions for charitable donations of conservation easements also must have a fair valuation of the property at the time of donation. Treas. Reg. § 1.170A-14(i). The long-standing rule for valuation of a conservation easement is that its value equals the difference between the fair market value (FMV) of the unencumbered land (before the easement) and the FMV of the encumbered land (after the easement). Treas. Reg. § 1.170A-14(h)(3); see Rev. Rul. 73-339, 1973-2 C.B. 68; Thayer v. Comm'r, 36 T.C.M. (CCH) 1504 (1977). But if a substantial record of comparable marketplace sales exists, the value of the conservation easement is based on such comparable sales. Treas. Reg. § 1.170A-14(h)(3).

The federal tax regulations governing the deductibility of conservation easement gifts require the appraiser to consider the effect that the easement may have in enhancing the value of other noneasement property in the vicinity that is owned by a donor or a relative of the donor. Treas. Reg. § 1.170A-14(h)(3). The value of the conservation easement must be reduced to compensate for any such enhancement in value.

The federal tax regulations governing the deductibility of conservation easement gifts also require the appraiser, where the easement covers a portion of contiguous property owned by the donor and the donor's family, to measure the value of the easement as the value of the entire contiguous property before the easement minus the value of the entire contiguous property after the easement. Reg. § 1.170A-14(h)(3). This rule is not the same as the "enhancement" rule described above. See I.R.S. Chief Couns. Memo. 201334039 (Aug. 23, 2013) (Valuing Conservation Easements under § 1.170A-14(h)(3) of the Income Tax Regulations), available at http://www.irs.gov/pub/irs-wd/1334039.pdf.

The Pension Protection Act of 2006, Pub. L. No. 109-280, 120 Stat. 780 (codified in scattered statutes of 29 U.S.C.), defines "qualified appraiser" and "qualified appraisal." Under I.R.C. § 170(f)(11)(E), as amended by the Pension Protection Act of 2006, a "qualified appraiser" is an appraiser who (1) has earned an appraisal designation from a...