IRS Audits of Noncash Charitable Gifts Now Turn on Appraisal and Paperwork Defects

The IRS has stepped up examinations of noncash charitable contributions, and its agents are increasingly winning those cases on procedure rather than valuation. A roundup published August 4 by McDermott Will & Schulte reports that examiners are focusing on hard-to-value property such as art, intellectual property, interests in private companies and medical supplies, and that they are looking first for defects in appraisals, substantiation and filing deadlines. Taxpayers claimed more than $160 billion in noncash charitable deductions in 2023, with high-income filers accounting for much of that total.

What changed

Valuation fights are slow and expensive for the government. They require competing experts and often end in a negotiated number. A missing signature, a late appraisal or an incomplete form, by contrast, can sink a deduction outright, regardless of what the property was worth. The roundup describes that shift in approach and ties it to the administration's broader priority of scrutinizing tax-exempt organizations and charitable abuses.

The practical effect is that a donor can give away genuinely valuable property, have a sound valuation, and still lose the deduction because the paperwork did not follow the rules to the letter.

Who is affected

The exposure is greatest for donors who give property other than cash or publicly traded securities. That includes founders donating pre-IPO shares, collectors donating artwork, owners contributing interests in family partnerships or real estate, and inventors donating patents. Donors who use donor-advised funds are not exempt, because the substantiation rules apply to the donor's deduction regardless of the recipient.

The rules examiners are checking

The Form 8283 instructions set out the thresholds that most often trip up donors:

• Form 8283 at $500. A donor must file the form for any noncash contribution deducted at more than $500, and similar items are grouped together to test the threshold.
• Qualified appraisal above $5,000. Section B of the form, which applies to items or groups of similar items claimed at more than $5,000, requires a written qualified appraisal by a qualified appraiser. Publicly traded securities are reported in Section A regardless of value.
• A tight timing window. The appraisal may be signed and dated no earlier than 60 days before the contribution, and it must be received before the due date of the return, including extensions.
• Attachments for large gifts. A complete signed appraisal must be attached for art valued at $20,000 or more and generally for any deduction over $500,000.
• Signatures from both sides. The appraiser signs a declaration, and the charity signs the donee acknowledgment in Part V. If the charity sells certain tangible property within three years, it must file Form 8282, which can bring the gift back to the IRS's attention.

The after-tax math

Example, illustrative round numbers and an assumed 40% combined federal and state marginal rate: a founder donates private company shares appraised at $2 million. If the deduction is allowed, it reduces tax by about $800,000. If the appraisal was signed 75 days before the gift, outside the 60-day window, an examiner can argue it was not a qualified appraisal. If the deduction is denied, the $800,000 benefit disappears, interest runs from the original due date and an accuracy-related penalty may be asserted. The shares are already gone, so the donor bears the full economic cost of the gift with none of the tax benefit.

Moves to discuss with your advisor

• Scheduling the appraisal so that it is dated within 60 days before the transfer and delivered well before the return is filed.
• Confirming the appraiser's credentials and that the report contains the elements the regulations require, rather than a summary letter.
• Checking that Form 8283 is complete, including the charity's acknowledgment, and that attachments are included when thresholds are crossed.
• Keeping the chain of documents, including transfer records and correspondence with the charity, for as long as the return can be examined.

Donors with pending or recent gifts of complex property may find it worthwhile to have a CPA or tax attorney review the file before an examiner does.

What to watch

If the procedural approach continues to succeed in court, examiners are likely to apply it more widely, including to gifts of cryptocurrency, conservation easements and closely held stock. Any IRS or Treasury guidance on appraisal standards, and additional Tax Court opinions on substantiation, will signal how strictly the rules will be enforced in coming filing seasons.

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