THE IMPORTANCE OF QUALIFIED APPRAISALS
Appraisals are very important for a variety of reasons depending on their purpose. For the most part, they are very informative and often used to make good business decisions, whether to buy or sell, or whether to liquidate a business, or even to provide investor information to regulatory bodies such as the Securities Exchange Commission (SEC) or the Internal Revenue Service (IRS). They are also necessary in dispute resolutions and in litigation. As such, there are many appraisals performed routinely by management, appraisers, experts and people alike, who need to make informed decisions or to assist others in making such informed decisions. One important aspect of appraisal today is that the IRS has issued a bulletin in 2006 to address the importance of appraisals and the need to support non cash contributions or gifts by obtain a qualified appraisal from a qualified appraiser when reporting to the government.
Internal Revenue Bulletin 2006-46 was issued in November 2006 which provides such guidance on these two very important considerations when reporting on noncash charitable contributions. In general, a deduction for charitable contributions is generally permitted under the Internal Revenue Code, subject to certain limitations depending on the type of taxpayer, the nature of the property contributed, and the type of donee organization. However, when a noncash charitable contribution is made and where taxpayer deductions of more than $5,000 is claimed, the Code stipulates reporting and substantiation requirements relating to the allowance of these. In such cases, the taxpayers are required to obtain qualified appraisals which typically are attached to the tax returns.
Under these circumstances, the term “qualified appraisals” and "qualified appraisers" must be met by the IRS in order for the deduction to be a qualified deduction. "Qualified appraisals" means appraisals that are treated as qualified appraisals under regulations or other guidance prescribed by the Secretary, AND conducted by “qualified appraisers” in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed by the Secretary.
“Qualified appraisers” means individuals who possess appraisal designations from one or more recognized professional appraiser organizations or have otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary. Such persons must regularly perform appraisals for which they receive compensation, and meets such other requirements as may be prescribed by the Secretary in regulations or other guidance.
More importantly, an individual will not be treated as a qualified appraiser unless that individual demonstrates verifiable education and experience in valuing the type of property subject to the appraisal, and has not been prohibited from practicing before the Internal Revenue Service at any time during the 3-year period ending on the date of the appraisal.
Where the claimed value of property based on an appraisal results in a substantial or gross valuation misstatement, a penalty will be imposed 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.
The determination of whether an appraiser is qualified must be based on the appraiser’s qualifications as of the date the appraisal is made. An appraisal will be treated as a qualified appraisal if the appraisal is 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 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.
A qualified appraiser is a person who has earned an appraisal designation from a recognized professional appraiser organization and the appraisal designation is awarded on the basis of demonstrated competency in valuing the type of property for which the appraisal is performed and the 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 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.
Such appraisers will be treated as having met the minimum education and experience requirements if —
For real property, the appraiser is licensed or certified for the type of property being appraised in the state in which the appraised real property is located.
For property other than real property — the appraiser has successfully completed college or professional-level coursework that is relevant to the property being valued, obtained at least two (2) years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and
fully described in the appraisal the appraiser’s education and experience that qualify the appraiser to value the type of property being valued.
Core Valuation LLC
312.801.0100 | email@example.com
1245 S Michigan Ave, Suite 190, Chicago, IL 60605
Core Valuation LLC is a full-service business valuation and valuation consulting firm that provides end-to-end business services for a range of purposes, including estate and tax planning, financial reporting, litigation, arbitration and transaction advisory, among others.