Posted 12-3-08.

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Personal Inspection Not Required by IRS

Before discussing the various types of federal tax liability appraisals, we should take a moment to discuss the need (or lack thereof) for the appraiser to personally inspect the property that is the subject of a federally-related appraisal report. This topic is covered in some detail in Lesson 3 “Inspection vs. Non-Inspection” and in Lesson 5 “Using Photographs to Appraise When a Hands-On Inspection is Not Possible,” but I want to briefly touch on the issue here in order to give you the IRS’ perspective on the matter.

Recall that, as mentioned in Lesson 3, USPAP does not require an inspection by the appraiser of the subject property even though an inspection is most often done. What USPAP requires is that the appraiser identify the characteristics of the property that are relevant to the type of value that is being determined. The appraiser often personally inspects the property in order to obtain this information, but that is not the only way such information can be obtained. The appraiser might instead make use of input from other professionals, appraisers or experts; or maybe the appraiser is forced to make use of client-provided photographs and descriptions such as for an item that was lost in a fire. See Lesson 3 “Inspection vs. Non-Inspection” for more on the appraiser’s USPAP responsibility for identifying the relevant property characteristics (i.e., the quality characteristics and value-relevant attributes) of the property.

In a similar way to USPAP, the IRS also does not require a personal inspection of the subject property being appraised for tax liability purposes. After all, they themselves work mostly from photographs since it would be too burdensome for them to travel and look at every item that comes before them (or, worse, to have everything sent to their office for examination!)

Issues of condition and possibly authenticity are critical relevant characteristics of most appraised properties; therefore, when conducting an appraisal that makes use of photographs or digital images in lieu of a personal inspection by the appraiser, the IRS suggests that the appraiser clearly state that photos were used and that the property was not personally inspected. The IRS also suggests that the appraiser clearly state all extraordinary assumptions made such as to condition and authenticity (if relevant) and the basis for same (e.g., clearly shown in photographs or exhibition catalogs, described in conservator’s condition report, results of an authentication report, etc.)

Appraisers should be aware that IRS reviewers may do a little fact checking of their own. A simple telephone call by them to the donee can reveal the true condition and authenticity of the donated property that is the subject of the appraisal under review.