In WT Artwork Partnership LP v. Commissioner, T.C. Memo. 2025-30, a outstanding businessman, investor and philanthropist obtained an unlikely revenue tax charitable deduction by efficiently arguing the affordable trigger exception to beat his failure to acquire a professional appraisal of extremely valued Chinese language artwork.
Oscar Liu-Chen Tang is a identified collector of Chinese language artwork. For many years, Oscar has been a beneficiant supporter of New York Metropolis’s Metropolitan Museum of Artwork (the Met). Through the Nineties, Oscar, a member of the Met’s board of trustees, provided to help the Met in enhancing its assortment of early Chinese language work.
In 1997, Oscar executed a deed of promised present overlaying 11 work in favor of the museum. His plan was to retain possession of the work by way of a restricted partnership, WT Artwork, for as much as 15 years, anticipating the artwork to understand.
Throughout 2010–2012, WT Artwork donated 5 of those work to the Met, reporting mixture charitable deductions in extra of $73 million. WT Artwork hooked up value determinations to every 12 months’s tax return to substantiate the reported values of the work. All value determinations have been ready by China Guardian Public sale Co. Ltd. (China Guardian), which on the time was the second-largest artwork public sale home in China.
On examination of WT Artwork’s 2010–2012 returns, the Inner Income Service disallowed the charitable deductions. It decided that China Guardian wasn’t a professional appraiser and that WT Artwork had failed to connect to its return a professional appraisal, as required by Inner Income Code Part 170(f)(11)(C) and (D) to substantiate presents of property valued in extra of $500,000.
The instances have been consolidated, and the events largely agreed on the truthful market worth of the work. The related inquiries to be resolved have been: (1) whether or not the value determinations hooked up to the returns have been “certified value determinations” by a “certified appraiser,” and (2) if not, whether or not that lapse is excused as a result of it’s been proven that the failure to fulfill the certified appraisal necessities is because of affordable trigger and to not willful neglect.
Certified Appraisal Requirement
Part 170(a)(1) permits as a deduction any charitable contribution made inside the taxable 12 months. If a taxpayer donates property, aside from publicly traded securities, valued in extra of $500,000, the taxpayer should acquire and fasten a substantiated certified appraisal of such property to its return. Underneath Part 170(f)(11)(E)(I), an appraisal is certified if it’s performed by a professional appraiser in accordance with usually accepted appraisal requirements and meets necessities set forth in rules.
Underneath Part 170(f)(11)(E)(ii)(I), a professional appraiser is a person who’s earned a designation from a acknowledged group or has in any other case met minimal schooling and expertise necessities. The person should commonly carry out value determinations for which compensation is obtained and should meet such different necessities as could also be prescribed.
In this case, the Tax Court docket discovered that the paperwork China Guardian ready for WT Artwork weren’t certified value determinations as a result of they weren’t ready by a professional appraiser. The courtroom reasoned that neither China Guardian nor its staff met the definition of a professional appraiser. Part 170(f)(11)(E)(ii) explicitly states {that a} certified appraiser means a person and never an entity. The President of China Guardian signed the 2010-2012 value determinations, however didn’t testify at trial, and there’s no proof that she possessed the requisite schooling and expertise in valuing historic Chinese language artwork.
A person generally is a certified appraiser provided that they both maintain themselves out to the general public as an appraiser or carry out value determinations commonly. China Guardian is an public sale home. As a service to purchasers, it gives estimates of the value at which art work may promote if provided at public sale. These estimates aren’t value determinations. There’s no proof that China Guardian or its employees commonly carried out appraisal providers or held themselves out to the general public as appraisers. Actually, the value determinations China Guardian carried out for WT Artwork have been the one value determinations it carried out for compensation throughout 2010–2012. For these causes, the courtroom held that China Guardian wasn’t a professional appraiser and couldn’t produce a professional appraisal. With out a certified appraisal, Oscar’s protection claimed that noncompliance was resulting from affordable trigger.
Cheap Trigger Exception
As a rule, failure to safe a professional appraisal precludes a charitable contribution deduction. Nonetheless, Part 170 (f)(11)(E)(ii) gives an exception to this rule. It says {that a} charitable deduction gained’t be disallowed if it’s proven that the failure to fulfill such necessities is because of affordable trigger and to not willful neglect. Cheap trigger requires the taxpayer to have exercised bizarre enterprise care and prudence as to the disputed merchandise, and the willpower of whether or not a taxpayer acted with affordable trigger and in good religion is made on a case-by-case foundation, considering all pertinent info and circumstances.
Oscar had no experience in tax regulation and no information of the technical necessities concerning what made a professional appraiser. An knowledgeable in Chinese language artwork really helpful China Guardian to him for an earlier 2005 audit. At no level in the course of the 2005 audit did the examiner query China Guardian’s {qualifications}. A second knowledgeable in Chinese language artwork offered details about the work to China Guardian. Oscar’s takeaway from the decision of the 2005 examination was that the IRS regarded China Guardian as a good firm that produced dependable value determinations.
Evaluating all info and circumstances, the courtroom held that WT Artwork had affordable trigger to consider that the value determinations ready by China Guardian would adjust to all relevant reporting and substantiation necessities. Quite a few examples cited Oscar exercising care and prudence with respect to the hiring of China Guardian and their varied value determinations. The courtroom discovered that Oscar genuinely believed that China Guardian was a good agency whose value determinations have been acceptable to the IRS. Thus, the failure to safe a professional appraisal wouldn’t
trigger the disallowance of the charitable contribution deductions.
Not a Dependable Backup Plan
WT Artwork Partnership LP v. Commissioner serves for example of the obligations to report and substantiate charitable contributions, particularly with respect to extremely valued property. It’s necessary that advisors remind purchasers concerning the need of procuring certified value determinations from certified appraisers. Whereas, on this case, the affordable trigger exception offered aid, it shouldn’t be regarded as a dependable backup plan. In a Chief Counsel Memorandum, the IRS famous that this affordable trigger exception from the certified appraisal rule was meant solely to supply aid when an unsuccessful try was made in good religion to adjust to the necessities of Part 170, to not present the taxpayer with the choice to acquire a professional appraisal.
