The Appraisers Association of America recent USPAP re-certification course held in Chicago was outstanding! The laws affecting personal property appraisal have changed and become much more strict. The information below clearly defines what is and is not a "Qualified Appraisal" and who is a "Qualified Appraiser"
On August 17, 2006 Congress passed the Pension Protection Act or PPA (P.L. No 109-280 Stat. 708 [2006]) amended section 1219 of the PPA (
http://wjlaw.com/PensionProtectionActFinal.htm).
The PPA also amended four sections of the Internal Revenue Code (I.R.C. or "The Code") sections 170, 6662, 6664 and 6696 and
added a penalty specifically targeted at appraisers (i.e. valuation services) who prepare appraisals aid and abet taxpayers in underpaying their taxes (I.R.C. 6695A).
The PPA enacted new definitions for "qualified appraisal" and "qualified appraisers". The PPA also reduced the threshold for substantial and gross valuation misstatements for taxpayers who include on their tax returns any misstatements of property, both real and personal, that result in underpayments of income tax and changed the threshold for valuation understatements of items reported on estate and gift tax returns.
Qualified Appraisal [I.R.C. Section 170 (f)(11) and Treas. Reg. 1.170A-13(c)]:
Please read carefully. This section defines who renders a "Qualified Appraisal".(1) Qualified appraisal. An appraisal will be treated as a qualified appraisal within the meaning of section 170(f)(11)(E) if the appraisal complies with all of the requirements of section 1.170A- 13(c) of the existing regulations (except to the extent the regulations are inconsistent with section 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.
(2) Generally accepted appraisal standards. An appraisal will be treated as having been conducted in accordance with generally accepted appraisal standards within the meaning of section 170(f)(11)(E)(i)(II) 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 is available at
http://www.appraisalfoundation.org.
Qualified Appraiser [treasury Regulation 1.170A-13(c)(5)(i)]:
Please read carefully. This section defines who is a "Qualified Appraiser"..03 Transitional terms -- qualified appraiser
(1) Appraisal designation. An appraiser will be treated as having earned an appraisal designation from a recognized professional appraiser organization within the meaning of section 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 section 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 section 1.170A-13(c)(5).
(3) Minimum education and experience. An appraiser will be treated as having met minimum education and experience requirements within the meaning of section 170(f)(11)(E)(ii)(I) if --
(a)
For real property (i) For returns filed on or before October 19, 2006, the appraiser is qualified as a "qualified appraiser" within the meaning of section 1.170A-13(c)(5) to make appraisals of the type of property being valued.
(ii) For returns filed after October 19, 2006, the appraiser is licensed or certified for the type of property being appraised in the state in which the appraised real property is located.
(b)
For property other than real property --(i) For returns filed on or before February 16, 2007, the appraiser is qualified as a "qualified appraiser" within the meaning of section 1.170A-13(c)(5) to make appraisals of the type of property being valued.
(ii) For returns filed after February 16, 2007, the appraiser 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.
I.R.C. Section 6695A: Civil Penalties to Appraisers and those providing Valuation Services.
Sec. 6695A. Substantial and gross valuation misstatements attributable to incorrect appraisals
(a) Imposition of Penalty.--If--(1) a person prepares an appraisal of the value of property and such person knows, or reasonably should have known, that the appraisal would be used in connection with a return or a claim for refund, and
(2) the claimed value of the property on a return or claim for refund which is based on such appraisal results in a substantial valuation misstatement under chapter 1 (within the meaning of section 6662(e)), or a gross valuation misstatement (within the meaning of section 6662(h)), with respect to such property, then such person shall pay a penalty in the amount determined under subsection (b).
(b) Amount of Penalty.--The amount of the penalty imposed under subsection (a) on any person with respect to an appraisal shall be equal
to the lesser of--
(1) the greater of--
(A) 10 percent of the amount of the underpayment (as defined in section 6664(a)) attributable to the misstatement described in subsection (a)(2), or
(B) $1,000, or
(2) 125 percent of the gross income received by the person described in subsection (a)(1) from the preparation of the appraisal.
(c) Exception.--No penalty shall be imposed under subsection (a) if the person establishes to the satisfaction of the Secretary that the value established in the appraisal was more likely than not the proper value.
The Secretary of the Treasury is also authorized to regulate the practice of any taxpayer representatives (e.g. accountants, attorneys and
appraisers) before the Department of the Treasury ("Department"). After notice and hearing, the Secretary is authorized to suspend or disbar from practice before the Department or the Internal Revenue Service ("IRS") any representatives who:
1. Incompetent or disreputable.
2. Violates rules or practice before the Department or the IRS; or
3. Willfully and knowingly (with intent to defraud) misleads or threatens the person being represented.
Disciplinary Proceedings against Appraisers: Section 1219 of the PPA extends these sanctions to appraisers after notice and a hearing. Before a civil penalty is assessed against the appraiser, disciplinary action may include:
1. Suspending or barring an appraiser from:
a. Preparing or presenting appraisals on the value of any property to the Department or the IRS;
b. Appearing before the Department or the IRS to offer opinion evidence on the value of any property; and
2. Providing that the appraisals of any appraiser who has been disciplined have no probative effect in any administrative proceedings before the Department or the IRS.
IRS Notice 2006-96:
The noose tightens around appraiser's necks! If you still doubt the veracity of the law, then please feel free to read it yourself. (
http://www.irs.gov/pub/irs-drop/n-06-96.pdf).
