*IRS Defines Qualified Appraisal and Qualified Appraiser
On October 20, 2006, the IRS unveiled transitional guidance that it will use to determine if an appraisal can be considered a “qualified appraisal” for purposes of substantiating the value of a non-cash charitable contribution.
The recently-passed Pension Protection Act of 2006 (Pub. L. No. 109-280, 120 Stat.780 (2006)) establishes new substantiation requirements for the allowance of deductions for non-cash charitable contributions of greater than $5,000. These include new statutory definitions of “qualified appraisal” and “qualified appraiser” for appraisals prepared with respect to returns filed after August 17, 2006.
The new law contemplates that the Secretary of the Treasury will issue regulations establishing the requirements for a “qualified appraisal” and a “qualified appraiser.” In the interim, the IRS has released transitional guidance (Notice 2006-96) which taxpayers may rely on to comply with the new provisions until the new regulations are issued. See note (1)
New Requirements – Qualified Appraisal
Under the transitional guidance, a “qualified appraisal” means an appraisal that is conducted by a “qualified appraiser” in accordance with generally accepted appraisal standards. An appraisal will be treated as having been conducted in accordance with generally accepted appraisal standards if, for example, the appraisal is consistent with the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP), as developed by the Appraisal Standards Board of the Appraisal Foundation. Additional information on USPAP is available at www.appraisalfoundation.org.
New Requirements – Qualified Appraiser
A “qualified appraiser” is an individual who has earned an appraisal designation from a recognized professional appraiser organization, if the designation is awarded on the basis of demonstrated competency in valuing the type of property for which the appraisal is performed, or has otherwise met minimum education and experience requirements set forth by the Secretary. An appraiser will be treated as having demonstrated verifiable education and experience in valuing the type of property subject to the appraisal if the appraiser makes a declaration in the appraisal that, because of the appraiser’s background, experience, education, and membership in professional associations, the appraiser is qualified to make appraisals of the type of property being valued.
An appraiser of real property will be treated as having met minimum education and experience requirements if she is licensed or certified in the state in which the appraised real property is located.
For property other than real property, the appraiser will be treated as having met minimum education and experience requirements, for returns filed after February 16, 2007, if she has (A) successfully completed college or professional-level coursework that is relevant to the property being valued, (B) obtained at least two years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and (C) fully described in the appraisal the appraiser’s education and experience that qualify the appraiser to value the type of property being valued.
An additional requirement to being a qualified appraiser is that the individual regularly performs appraisals for which she receives compensation. Furthermore, the individual will not be treated as qualified if she has been prohibited from practicing before the IRS at any time during the three year period ending on the date of the appraisal. The determination of whether an appraiser is qualified must be based on the appraiser’s qualifications as of the date the appraisal is made.
Additional Appraiser Declaration
For returns filed after February 16, 2007, the appraiser must include in her declaration an additional statement that the appraiser understands that a substantial or gross valuation misstatement resulting from an appraisal of the value of property that the appraiser knows, or reasonably should have known, would be used in connection with a return or claim for refund, may subject the appraiser to a civil penalty under Sec. 6695A.
The Bottom Line
The IRS is getting more serious about the quality and reliability of appraisals submitted with tax returns. It behooves taxpayers and tax practitioners to also pay attention to the quality and reliability of the appraisers selected to prepare these appraisals.
Qualified appraisal. An appraisal will be treated as qualified appraisal within the meaning of § 170(f)(11)(E) if the appraisal complies with all of the requirements of § 1.170A-13(c) of the existing regulations (except to the extent the regulations are inconsistent with § 170(f)(11), and is conducted by a qualified appraiser in accordance with generally accepted appraisal standards. See sections 3.02(2) and 3.03 of this notice.