Hoensheid v. Comm'r: The Importance of Engaging a Qualified Appraiser in Tax Planning

Hoensheid v. Commissioner (T.C. Memo 2023-34) underscores the significance of timing and proper appraisal in tax planning, particularly concerning charitable contributions.

In the complex realm of tax planning, adherence to IRS regulations and accurate valuation are imperative. Hoensheid v. Commissioner exemplifies the consequences of overlooking these fundamental principles. This paper delves into the case's intricacies, highlighting the importance of employing qualified appraisers to navigate tax complexities effectively.

Background of Hoensheid v. Commissioner:

Hoensheid v. Commissioner centered on Scott Hoensheid's attempt to donate shares of Commercial Steel Treating Corp. (CSTC) to Fidelity Charitable, aiming to minimize capital gains tax. However, due to timing misjudgments and an inadequate appraisal performed by an investment banker, the endeavor resulted in a disallowed charitable deduction and added capital gains tax liability.

Importance of Engaging a Qualified Appraiser:

1. Compliance with IRS Regulations:

Engaging a qualified appraiser ensures compliance with IRS regulations governing charitable contributions. The IRS mandates appraisals to meet rigorous criteria, including the appraiser's credentials, experience, and adherence to professional standards. Qualified appraisers, such as CPAs/ABVs, possess the necessary expertise and knowledge to conduct thorough valuations in accordance with IRS guidelines.

2. Accuracy in Valuation:

Accurate valuation is essential in determining the fair market value (FMV) of donated assets. Qualified appraisers possess the detailed knowledge and expertise to consider various factors such as market conditions, financial performance, and industry trends. While investment bankers may provide insights into value, they often lack the comprehensive reporting knowledge required to properly document valuations and reduce tax risks.

3. Mitigation of Tax Risks:

   Engaging a qualified appraiser helps taxpayers mitigate tax risks associated with charitable contributions. By providing reliable valuations supported by comprehensive documentation, taxpayers can substantiate their deductions and navigate IRS examinations with confidence. In Hoensheid's case, the absence of a proper appraisal heightened tax risks, leading to adverse outcomes despite the taxpayer's efforts to consult with financial professionals.

4. Maximization of Tax Benefits:

   Proper appraisal facilitates the maximization of tax benefits associated with charitable contributions. Qualified appraisers possess the expertise to optimize deductions while ensuring compliance with IRS guidelines. In contrast, relying on inadequately qualified individuals may result in missed opportunities to leverage tax benefits effectively, as demonstrated in Hoensheid's case.

Hoensheid v. Commissioner underscores the critical importance of engaging a qualified appraiser, such as a CPA/ABV, in tax planning endeavors, particularly concerning charitable contributions. By adhering to IRS regulations, ensuring accuracy in valuation, and mitigating tax risks, taxpayers can safeguard their interests and maximize tax benefits. This case serves as a poignant reminder of the indispensable role of professional expertise and diligence in navigating complex tax scenarios, ultimately fostering compliance and financial prudence.

Anthony Venette, CPA/ABV is a Senior Manager, Business Valuation & Advisory, DeJoy & Co., CPAs & Advisors in Rochester, New York. He provides business valuation and advisory services, including valuations to document non-cash gifts, to corporate and individual clients of DeJoy.