Which of the following is a primary purpose of formal appraisals for donor's tax?

The primary purpose of formal appraisals for donor's tax is to establish fair market value for tax reporting. Accurate valuation is crucial since the IRS requires that gifts made by donors be reported at their fair market value. This value serves as the basis for calculating the amount of tax due on the gift and ensures compliance with tax regulations. A formal appraisal provides a substantiated, unbiased assessment of the value of the gift, which can help defend the reported value if the IRS scrutinizes the donor's filings.

Proper valuation through appraisals supports transparency and fairness in the tax process, effectively preventing disputes around the valuation of gifts and thus aiding administrative efficiency. This clarifies the value attributed to donations, which is vital for both donors and tax authorities in ensuring that the correct amount of taxes is levied and reported accurately.