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IRS Changes Raises the Bar for Qualified Appraiser and Qualified Appraisal
by David J. Maloney, Jr., AOA CM
Changes in Federal regulations (Public Law 109-280 Pension Protection
Act of 2006) (PPA) require more stringent qualification requirements
for appraisers doing appraisals for non-cash charitable donation
purposes. In addition, the new regulations (which took effect August
16, 2006) require that such appraisals now be performed in accordance
with "generally
accepted valuation standards." See IRS "Guidance Regarding Appraisal Requirements for Noncash Charitable
Contributions" (Internal Revenue Bulletin 2006-46 (IRS Notice 2006-96)) for more information regarding these changes.
In Brief
The new regulations require the appraiser doing donation appraisals to have a designation from a recognized appraisal organization or to meet certain education and experience requirements. The appraiser cannot have been prohibited from practicing before the Internal Revenue Service; is required to make certain additional declarations; and is required to prepare appraisals in accordance with generally accepted standards such as the Uniform Standards of Professional Appraisal Practice (USPAP).
In addition to raising the bar for what constitutes a "qualified appraiser" and a "qualified appraisal", the PPA (in Section 1216) addresses new issues relating to deductions for the donation of clothing and household items. (Household items are defined as furniture, furnishings, appliances, linens and similar such items but excluding gems and jewelry, collections, antiques, objects of art and paintings.) For instance, in general, deductions are not allowed for clothing or household items of minimal monetary value or that are not in good condition.
In addition, historically, taxpayers have been required to obtain a "qualified appraisal" from a "qualified appraiser" for non-cash charitable contributions only if those items (or collections of similar items) exceeded $5000 in fair market value. The PPA now also requires that qualified appraisals be done by qualified appraisers for donated "household goods" valued in excess of $500 per item if in less than good used condition. This is reflected in IRS Pub 561 (Rev. April 2007) which states: "You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. A household good that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal."
Note that though not addressed in 1216, donated household items valued under $5000 that are in good used condition continue to not require appraisals.
In Detail
These new regulations now require that a "qualified appraiser" be, among other things, one who:
"Has earned an appraisal designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised."
or
"Has met certain minimum education and experience requirements...For property other than real property, the appraiser must have successfully completed college or professional-level coursework relevant to the property being valued, must have at least 2 years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and must fully describe in the appraisal his or her qualifying education and experience."
In addition, a qualified appraiser is one who (in addition to the declaration required of Internal Revenue Code §1.170A-13(c)(5)(i) which appears in Section B of Form 8283 "Noncash Charitable Contributions"):
"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."
and makes 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 §6695A."
(Section 1219 of the Pension Protection Act of 2006 added the new §6695A to the Internal Revenue Code. §6695A is designed to halt cheating by taxpayers who use inaccurate appraisals (of securities, artwork, vehicles etc.) to avoid paying income taxes, by imposing penalties on appraisers who prepare inaccurate valuations.)
In addition, the new regulations require that qualified appraisals be 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 within the meaning of §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."
Bottom Line
What all the above boils down to is that when you are doing donation appraisals you need to be qualified to appraise the property in question; you need to prepare your appraisal in accordance with USPAP; you need to hold a designation from a recognized appraisal organization or have other suitable education and experience; and you must make an additional declaration within the appraisal report. (Note that, while focusing on donation appraisals, it is possible that these new regulations will be expanded to also cover all Federally-related appraisals including appraisals done for estate and gift tax purposes.) Below is a sample declaration which, of course, must be customized for your own use. The declaration references your professional profile which should be attached as an addenda to all appraisal reports.
I am a "qualified appraiser" within the meaning of Internal Revenue Reg. §1.170A-13(c)(5) and am not an excluded appraiser within the meaning of §1.170A-13(c)(5)(iv). I hold the [e.g., "AOA CM (Certified Member)"] designation from the [e.g., "Association of Online Appraisers"]. My background, education and experience qualify me to make appraisals of the type of property that is the subject of this appraisal. A complete list of my qualifications can be found in my Professional Profile which is attached to this report. I have not been prohibited from practicing before the IRS. I understand that a substantial or gross valuation misstatement resulting from an appraisal property that I know, or reasonably should have known, would be used in connection with an income tax return or claim for refund, may subject me to a civil penalty under Internal Revenue Code §6695A.
You should be aware of what is contained in the above referenced Internal Revenue Regs. §1.170A-13(c)(5) and §1.170A-13(c)(5)(iv).
For those conducting Federally-related personal property appraisals, it is more important than ever to maintain membership in an appraisal association that offers professional designations, to avail themselves of educational courses such as "Appraising Personal Property: A Core Course in Valuation Studies Featuring USPAP," and to write appraisals in accordance to the standard of USPAP.
© 2008 David J. Maloney, Jr., AOA CM
