I’m proud & pleased to present a guest article with this reprint of the President’s Message from the Sept 2010 newsletter of the American Society of Appraisers NorCal Chapter. Thanks, Bob, for allowing us to share your message on our blog!
President’s Letter: IRS & Qualified Appraisers
At a recent Northern California ASA meeting, I sat next to a retired IRS appraisal reviewer who answered the on-going question of qualified appraisers rather succinctly.
Off the record, he said, the IRS has such respect for the American Society of Appraisers designation that very few ASA-submitted appraisals are required to be passed up the chain for higher review.
In business valuation (“BV”—my own discipline), the Small Business Administration’s SOP 50-10 (5), released in August 2008 and effective on October 1, 2009, mentions the Accredited Senior Appraiser as first among four recognized credentials. Earlier editions of the SBA guidelines for lender and development company real estate and business loan programs clearly specified the requirement to comply with “USPAP” (the Uniform Standards of Professional Appraisal Practice) – which only the ASA clearly embraces as policy.
As for the IRS? In Internal Revenue Bulletin 2006-46 covering primarily Guidance regarding Appraisal Requirements for Noncash Charitable Contributions, the Internal Revenue Code, in Section 170(f)(11)(E)(i) provides that the term “qualified appraisal” means an appraisal that is (1) treated as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and (2) conducted by a “qualified appraiser” in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the Secretary.
Section 170(f)(11)(E)(ii)(I), which further provides for the term “qualified appraiser,” means an individual who (has):
(1) Appraisal designation. An appraiser will be treated as having earned an appraisal designation from a recognized professional appraiser organization within the meaning of § 170(f)(11)(E)(ii)(I) if the appraisal designation is awarded on the basis of demonstrated competency in valuing the type of property for which the appraisal is performed.
(2) Education and experience in valuing the type of property. An appraiser will be treated as having demonstrated verifiable education and experience in valuing the type of property subject to the appraisal within the meaning of § 170(f)(11)(E)(iii)(I) 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. See also § 1.170A-13(c)(5).
Section 170(f)(11)(E)(iii) further provides that an individual will NOT be treated as a “qualified appraiser” unless that individual (1) demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and (2) has not been prohibited from practicing before the Internal Revenue Service by the Secretary under § 330(c) of Title 31 of the United States Code at any time during the three-year period ending on the date of the appraisal.
Now here’s the “kicker.” Section 1219 of the PPA (Pension Protection Act of 2006) also adds a new (as of November, 2006) penalty provision. If the claimed value of property based on an appraisal results in a substantial or gross valuation misstatement under § 6662, a penalty is imposed by new § 6695A on any person who prepared the appraisal and who knew, or reasonably should have known, the appraisal would be used in connection with a return or claim for refund.
Curiously, the IRS and the taxpayer may together reach a conclusion of appraisal value without input from the appraiser . . . yet the appraiser is liable for the penalty. Little if any due process is granted to the appraiser, as the IRS and the taxpayer agree on the settlement.
So getting the most complete education, passing the required tests and peer review, and earning the highest designation recognized by the IRS and others may well be in your own best long-term interest.
In the prescient words of our ASA International President for 2010-2011, Rob Schlegel:
“If you consider yourself an appraiser . . . and are not primarily a broker, accountant, actuary, advocate, analyst, advisor, intermediary, surveyor or other vocation . . . but an appraiser, then Welcome Home to the American Society of Appraisers!
“In the ASA we stand up for our integrity, objectivity and standards. Many other valuation practitioners pretend to be appraisers, but really aren’t. We in the American Society of Appraisers occupy a cherished role.”
The ASA professional is the Gold Standard in valuation, a qualified appraiser by any standard.
Republished with permission of author Robert P. Lentz III, ASA
Thanks again, Bob!
Jack Young, ASA, CPA
NorCalValuation.com
