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New IRS Rules relating to non cash contributions. Now a requirement.


IRS Requires New Appraisal Standards

The IRS released Notice 2006-96 as guidance for defining a qualified appraiser. The interim guidelines specifically refer to USPAP (Uniform Standards of Professional Appraisal Practice) for appraisals relating to non-cash charitable donation, decedent estate 706 tax returns.  In the past, the IRS has avoided blessing any particular professional association or standard. USPAP will set the benchmarks going forward. The federal law, Pension Protection Act of 2006, defines “qualified appraiser and appraisals,” which includes personal property appraisers who appraise for charitable donations. It imposes penalties for “gross misstatements” of valuations on tax returns. This is the first time a tax law has made specific reference to appraisal standards. Traditionally, the Congressional Act does not spell out such details, but leaves to the federal agency the duty to write and publish in the federal register the appropriate rules implementing the law. The IRS Revenue Rules regarding valuations for decedent estates have been in place for decades.

Antique dealers and auctioneers often provide appraisals unaware of the national appraisal standards of practice. In the last year, there has been a rise in law suits against appraiser/dealers primarily caused by negligence. However, others like the “donate-your-car-to-charity” promotion were particularly targeted. Congress saw abuses in the car donation/charities and changed the law regarding charities and appraisers. The IRS may have targeted the automobile donation, but spread a wider net in seeking to fine and penalize taxpayer advisors. In IRS Circular 230 the IRS directly warns attorneys, accountants and appraisers of fines and penalties for aiding and abetting tax reduction schemes in decedent estate, trust, gift tax, and charitable donation work.

In re Med Diversified, Inc. a bankruptcy case the judge commented on an appraiser’s testimony.  I have a discreet understanding of my limitations, but I also have an understanding of what my experience tells me in having listened for the past 30 years to appraisers. I have yet to find an appraiser of non-real estate that ever says anything that’s cogent and persuasive. Go ahead. I’m always willing to be persuaded. I’d love to finally have found an appraiser who convinces me that through a rigorous application of a methodology, that person can effectively value… several have tried”.

If you are going to hold yourself out as an appraiser, you owe it to yourself to be aware of, understand, and correctly employ these National Standards of Practice. Get the knowledge! USPAP is not complicated or difficult to follow. Antique dealers and auctioneers who provide appraisals for estates or donation should become proficient with the Uniform Standards of Professional Appraisal Practice (USPAP). All professional appraisal groups agree to practice according to USPAP and a year ago the National Auctioneers Association made it a part of their personal property appraisal designation.

IRS Part III - Administrative, Procedural, and Miscellaneous

Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions Notice 2006-96.


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.

Penalty for aiding and abetting understatement of tax

A penalty is imposed on a person who: (1) aids or assists in or advises with respect to a tax return or other document; (2) knows (or has reason to believe) that such document will be used in connection with a material tax matter; and (3) knows that this would result in an understatement of tax of another person. In general, the amount of the penalty is $1,000. If the document relates to the tax return of a corporation, the amount of the penalty is $10,000.

An appraiser who aids or assists in the preparation or presentation of an appraisal will be subject to disciplinary action if the appraiser knows that the appraisal will be used in connection with the tax laws and will result in an understatement of the tax liability of another person. The Secretary has authority to provide that the appraisals of an appraiser who has been disciplined have no probative effect in any administrative proceeding before the Department or the IRS.

Qualified appraisals

Present law requires a taxpayer to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return [Sec. 170(f)(11)]. Treasury Regulations state that a qualified appraisal means an appraisal document that, among other things: (1) relates to an appraisal that is made not earlier than 60 days prior to the date of contribution of the appraised property and not later than the due date (including extensions) of the return on which a deduction is first claimed under section 170; (2) is prepared, signed, and dated by a qualified appraiser; (3) includes (a) a description of the property appraised; (b) the fair market value of such property on the date of contribution and the specific basis for the valuation; (c) a statement that such appraisal was prepared for income tax purposes; (d) the qualifications of the qualified appraiser; and (e) the signature and taxpayer identification number of such appraiser; and (4) does not involve an appraisal fee that violates certain prescribed rules [Treas. Reg. sec. 1.170A-13(c)(3)].

Qualified appraisers

Treasury Regulations define a qualified appraiser as a person who holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis, is qualified to make appraisals of the type of property being valued (as determined by the appraiser’s background, experience, education and membership, if any, in professional appraisal associations), is independent, and understands that an intentionally false or fraudulent overstatement of the value of the appraised property may subject the appraiser to civil penalties [Treas. Reg. sec. 1.170A-13(c)(5)(i)].

Appraiser oversight

The Secretary is authorized to regulate the practice of representatives of persons before the Department of the Treasury (“Department”) [31 U.S.C. § 330].   After notice and hearing, the Secretary is authorized to suspend or disbar from practice before the Department or the Internal Revenue Service (“IRS”) a representative who is incompetent, who is disreputable, who violates the rules regulating practice before the Department or the IRS, or who (with intent to defraud) willfully and knowingly misleads or threatens the person being represented (or a person who may be represented).  The Secretary also is authorized to bar from appearing before the Department or the IRS, for the purpose of offering opinion evidence on the value of property or other assets, any individual against whom a civil penalty for aiding and abetting the understatement of tax has been assessed. Thus, an appraiser who aids or assists in the preparation or presentation of an appraisal will be subject to disciplinary action if the appraiser knows that the appraisal will be used in connection with the tax laws and will result in an understatement of the tax liability of another person. The Secretary has authority to provide that the appraisals of an appraiser who has been disciplined have no probative effect in any administrative proceeding before the Department or the IRS.

Committee on Ways and Means

The Pension Protection Act of 2006

Detailed Summary of Charitable Provisions

Chairman Bill Thomas (R-CA) Committee on Ways and Means 07/28/2006 4:00 P.M

Qualified Conservation Contributions

The provision raises the charitable deduction limit from 30 percent of adjusted gross income to 50% of adjusted gross income for qualified conservation contributions, provided that such contribution does not prevent the use of the donated land for farming or ranching purposes. The charitable deduction limit is raised to 100% of adjusted gross income for eligible farmers and ranchers. Allows a taxpayer to carry forward the deduction for 15-years, provided the taxpayer is a farmer or rancher in the year of the carry-forward. Effective for two years through 2007.

Charitable Contributions of Facade Easements

Under the provision, a charitable deduction is allowed with respect to easements concerning buildings located in a registered historic district. The easement must provide that no portion of the exterior of the building may be changed or altered in a manner inconsistent with the historical character of the exterior. The provision also clarifies that the charitable deduction is reduced if a rehabilitation tax credit has been claimed with respect to the donated property.

Taxidermy and Substantiation of Exempt Use Property

The provision limits the basis for donated taxidermy property to the cost of preparing, stuffing and mounting an animal. The value of the deduction would be equal to the lesser of basis or fair market value.

Clothing and Household Items

The provision specifies that no deduction is allowed for charitable contributions of clothing and household items if such items are not in good used condition or better. In addition, the Secretary may deny a deduction for any item with minimal monetary value.

Modification of Recordkeeping Requirements for Certain Charitable Contributions

The provision requires that in the case of a charitable contribution of money, regardless of the amount, the donor must maintain a cancelled check, bank record or receipt from the donee organization showing the name of the donee organization, the date of the contribution, and the amount of the contribution.

Partial Interest in Donated Property

Requires that charities receiving a fractional interest in an item of tangible personal property must take complete ownership of the item within 10 years or the death of the donor, whichever is first. In addition, the donee must have (i) taken possession of the item at least once during the 10-year period as long as the donor remains alive, and (ii) used the item for the organization’s exempt purpose. Failure to comply with these requirements results in the recapture of all tax benefits plus interest and the imposition of a 10 percent penalty.

Appraisal Reform

The provision lowers the thresholds for imposing accuracy-related penalties on a taxpayer who claims a deduction for donated property for which a qualified appraisal is required. The provision also applies for purposes of estate tax appraisals and provides definitions of a qualified appraiser and qualified appraisals.

IRS and the Treasury Department Amend Circular 230 to Promote Ethical Practice by Tax Professionals

Department Circular No. 230 (Rev. 6-2005) Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service Department of the Treasury Internal Revenue Service Title 31 Code of Federal Regulations,

Subtitle A, Part 10, revised as of  June 20, 2005

Subpart C--Sanctions for Violation of the Regulations

§10.50 Sanctions.

(a) Authority to censure, suspend, or disbar. The Secretary of the Treasury, or his or her delegate, after notice and an opportunity for a proceeding, may censure, suspend or disbar any practitioner from practice before the Internal Revenue Service if the practitioner is shown to be incompetent or disreputable, fails to comply with any regulation in this part, or with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client. Censure is a public reprimand.

(b) Authority to disqualify. The Secretary of the Treasury, or his or her delegate, after due notice and opportunity for hearing, may disqualify any appraiser with respect to whom a penalty has been assessed under section 6701(a) of the Internal Revenue Code.

(1) If any appraiser is disqualified pursuant to this subpart C, such appraiser is barred from presenting evidence or testimony in any administrative proceeding before the Department of Treasury or the Internal Revenue Service, unless and until authorized to do so by the Director of Practice pursuant to §10.81, regardless of whether such evidence or testimony would pertain to an appraisal made prior to or after such date.

(2) Any appraisal made by a disqualified appraiser after the effective date of disqualification will not have any probative effect in any administrative proceeding before the Department of the Treasury or the Internal Revenue Service. An appraisal otherwise barred from admission into evidence pursuant to this section may be admitted into evidence solely for the purpose of determining the taxpayer's reliance in good faith on such appraisal.

§10.51 Incompetence and disreputable conduct.

Incompetence and disreputable conduct for which a practitioner may be censured, suspended or disbarred from practice before the Internal Revenue Service includes, but is not limited to--

(l) Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws. False opinions described in this paragraph (l) include those which reflect or result from a knowing misstatement of fact or law, from an assertion of a position known to be unwarranted under existing law, from counseling or assisting in conduct known to be illegal or fraudulent, from concealing matters required by law to be revealed, or from consciously disregarding information indicating that material facts expressed in the tax opinion or offering material are false or misleading. For purposes of this paragraph (l), reckless conduct is a highly unreasonable omission or misrepresentation involving an extreme departure from the standards of ordinary care that a practitioner should observe under the circumstances. A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted knowingly, recklessly, or through gross incompetence. Gross incompetence includes conduct that reflects gross indifference, preparation which is grossly inadequate under the circumstances, and a consistent failure to perform obligations to the client.