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Insight · IRS Tax Compliance

When the IRS requires a qualified appraisal for gifts, donations, private stock, and real estate.

Taxpayers often use the word appraisal loosely, and the IRS does not. The qualified-appraisal rules govern who can sign, what content is required, and what timing applies, and a technically defective appraisal can disqualify the deduction even when the underlying value is correct.

This article is valuation commentary. It is not legal, tax, accounting, or investment advice. Specific engagements depend on facts and applicable professional standards.

Why “appraisal” is a loose word the IRS uses strictly

Taxpayers often use the word “appraisal” loosely, but the IRS does not. For federal tax purposes, what counts as an appraisal ranges from a basic fair-market-value estimate with supporting records to a formal, rule-driven qualified appraisal that has to be performed by a qualified appraiser, attached to specific tax forms, and signed within specific timing windows. The distinction matters most when the asset is hard to price, the deduction or transfer is material, and the filing may be examined years later.

This article walks through where qualified-appraisal rules apply, what makes an appraisal qualify, and what taxpayers should expect to assemble before engaging a valuation firm. None of this is tax advice; specific filings should always go through tax counsel.

When a qualified appraisal is required

Several federal tax filings can trigger qualified-appraisal requirements. The most common:

Charitable Contributions
Non-cash gifts above specified thresholds.
Triggers
  • Property gifts > $5,000
  • Real estate gifts of any size
  • Closely held stock gifts > $10,000
  • Conservation easements (any size)
Form
  • Form 8283 with Section B
AuthorityIRC §170(f)(11); Treas. Reg. §1.170A-17
Estate & Gift
Form 706 estate filings; Form 709 gift filings above exclusion.
Triggers
  • Estate above filing threshold
  • Gifts of closely held stock or real estate
  • Generation-skipping transfers
Form
  • Form 706 / Form 709
AuthorityIRC §§2031, 2512; Rev. Rul. 59-60
Other
Various IRC provisions requiring fair-market-value support.
Triggers
  • Section 351, 721, 1031 like-kind exchanges
  • Reorganization basis allocations
  • S-corp built-in-gains analyses
  • ESOP transactions (DOL adequate consideration)
Form
  • Various
AuthorityIRC and DOL ERISA framework

What makes an appraiser qualified

For charitable contributions, IRC §170(f)(11) and Treas. Reg. §1.170A-17 spell out the qualified-appraiser standard. The appraiser has to:

  • Hold an appraisal designation from a recognized professional organization, or meet minimum education and experience requirements specified in the regulation
  • Regularly perform appraisals for which compensation is received
  • Demonstrate verifiable education and experience in valuing the type of property being appraised
  • Not be excluded by relationship to the donor, donee, or transaction (the regulation lists specific disqualifying relationships)
  • Sign the qualified appraisal and provide the required identification information

For real estate, the qualified appraiser is typically a Certified General Real Estate Appraiser (state-licensed). For closely held businesses, qualifying credentials include ASA (Accredited Senior Appraiser), ABV (Accredited in Business Valuation, AICPA), and CVA (Certified Valuation Analyst, NACVA).

What makes an appraisal qualified

A qualified appraisal has specific content requirements under Treas. Reg. §1.170A-17. It has to include:

  • A description of the property in detail sufficient for someone unfamiliar with it to identify it
  • The condition of the property at the time of contribution
  • The date of the contribution
  • The terms of any agreement entered into by the donor or donee that relates to the property
  • The name, address, and identifying number of the qualified appraiser
  • The qualifications of the appraiser, including their relevant background, experience, education, and membership in professional appraisal associations
  • A statement that the appraisal was prepared for income-tax purposes
  • The date (or dates) on which the property was appraised
  • The appraised fair market value of the property at the time of contribution
  • The method of valuation used to determine the fair market value
  • The specific basis for the valuation, including any specific comparable sales transactions or similar evidence
  • The date the appraisal was signed (which has to be within 60 days before the contribution date and before the due date of the return)

An appraisal that’s missing any of these elements may not qualify, even if performed by a credentialed appraiser. The IRS has disallowed deductions for technical defects in qualified-appraisal compliance, even when the underlying valuation was reasonable.

What happens if the qualified-appraisal requirement isn’t met

Why this matters
A non-qualified appraisal can disallow the deduction entirely.
For charitable contributions, the qualified-appraisal requirement is substantive. If the requirement isn’t satisfied, the deduction can be disallowed in full, regardless of whether the underlying valuation was correct. The Tax Court has repeatedly disallowed deductions where the appraisal was technically defective: missing required content, signed too early or too late, performed by an unqualified appraiser, or not properly attached to Form 8283.

Conservation easements: heightened scrutiny

Conservation easement valuations have been the subject of intense IRS scrutiny since 2016. The IRS has designated certain syndicated conservation-easement transactions as listed transactions, requiring disclosure on Form 8886. Tax Court litigation has produced a long line of decisions disallowing deductions where the qualified-appraisal requirements weren’t met or where the valuation methodology didn’t survive examination.

For any conservation-easement contribution, the qualified-appraisal requirements are absolute. Even modest deductions (under the $5,000 charitable threshold) can require qualified appraisals if the donation is part of a larger easement program. The combination of qualified-appraisal compliance and defensible valuation methodology typically determines whether the deduction survives examination.

Closely held stock and Rev. Rul. 59-60

For gifts or charitable contributions of closely held stock, Rev. Rul. 59-60 sets out the analytical factors the IRS expects: nature and history of the business, economic outlook, book value and financial condition, earning capacity, dividend-paying capacity, goodwill or intangible value, prior sales of the stock, and the market price of comparable companies. A qualified appraisal of closely held stock has to address each of these factors with specificity.

For minority interests, the appraiser will typically support discounts for lack of control and lack of marketability. The IRS does not reject these discounts in concept, since they are recognized in case law and IRS guidance. What it challenges is the magnitude, the support, and whether the discounts were fact-specific or imported from unrelated cases.

What to prepare

For most qualified-appraisal engagements:

  • Description of the asset being valued: real estate address and characteristics, business name and ownership structure, security type and rights
  • Terms of the gift, sale, or transfer
  • The applicable Form 8283, 706, or 709 (or which one will be filed)
  • Three to five years of financial statements and tax returns for closely held businesses
  • Title documents and deeds for real estate
  • Recent appraisals if any
  • Recent sales or transactions of the same or similar interests
  • For partial interests: governing documents and rights description
  • Counsel contact information for coordination on legal issues

Frequently asked

My CPA prepared the valuation. Is that a qualified appraisal?
Possibly, if the CPA holds an ABV credential, has demonstrated experience valuing the type of asset in question, and produced an appraisal that meets the qualified-appraisal content requirements under Treas. Reg. §1.170A-17. A CPA without those specific credentials, or whose work product doesn’t meet the regulatory content requirements, may not produce a qualifying appraisal.
When does the appraisal have to be signed?
For charitable contributions, the qualified appraisal has to be made not earlier than 60 days before the date of contribution and signed not later than the due date (including extensions) of the return on which the deduction is claimed. Signing too early or too late can disqualify the appraisal.
Do I need a qualified appraisal for a gift of marketable securities?
No. Publicly traded securities have readily ascertainable market values. The qualified-appraisal requirement applies to assets without readily available market prices: closely held stock, real estate, art, collectibles, partial interests, and similar.
Can the same appraisal cover gift and estate purposes?
Sometimes, if the appraisal addresses the relevant valuation date and standard of value for both purposes. Often, separate engagements are needed because the dates and standards differ. Counsel typically clarifies which is needed for which filing.
What about ESOP valuations? Are those qualified appraisals?
ESOPs have their own framework under DOL ERISA rules requiring “adequate consideration.” The DOL doesn’t use the IRS qualified-appraisal terminology, but the substantive requirements are similar: a qualified independent appraiser, defensible methodology, and documentation that survives examination. Many of the same firms that perform IRS qualified appraisals also do ESOP work.
Scope a qualified-appraisal engagement
When the filing has to survive IRS examination.
LHM works with tax counsel and CPAs on qualified appraisals for charitable contributions, gifts, estates, and reorganizations. Send the basics (what is being valued, the form to be filed, and the deadline) and we will come back with a scope.
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