Internal Revenue Service IRS Real Estate Appraisals

Appraisers often complete appraisal reports / valuations for the purpose of meeting IRS requirements.  When real property changes ownership the sales price usually determines tax impacts, but there are many other events, like death, partial transfers, bankruptcy, divorce, probate, condemnation, gifts, donations and trust conveyances to name a few when the IRS wants to know what the value of a property was as of a date certain.

Appraisals are thus often completed as of a retrospective date or as of a “date-of-death.”  It is important for appraisers to ask and for clients to advise an appraiser that a report is required as of a date other than the current date.  Having to appraise a property over as of another date is like having to do it entirely over again because the economy and the real estate market can change dramatically in 6-months.

Appraisers can protect themselves from having to do an appraisal over again as of a different appraisal date, one that was not disclosed, by simply having an engagement letter.  If you advised a client to be sure they have the correct date and then memorialize it in the engagement letter it is easier to deal with when you have proof of the valuation date agreed to in writing.  This is also important to have when dealing with attorneys who often have 3 or 4 dates related to a case in their mind when talking to you and then forget that they gave you a different date than the one that they actually need.

The IRS in 2006 noted that a “qualified appraisal” is an appraisal that 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 the appraisal is consistent with the substance and principles as established by the Uniform Standards of Professional Appraisal Practice (USPAP).

Real property or real estate appraisers are deemed “qualified appraisers” if they have earned an appraisal designation from a recognized professional appraiser organization or if the designation is awarded on the basis of demonstrated competency in valuing the type of property for which the appraisal is performed, or has otherwise met minimum education and experience requirements.

A real property appraiser is 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.

Appraisers are generally careful to not claim experience appraising properties that they have no experience with so simply asking an appraiser about their experience with a certain type and location of an assignment is helpful.

An appraiser can be prohibited from practicing before the IRS and must include a declaration that states 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 Sec. 6695A.”  (Hempstead & Co., LLC)

Appraisers must consider the fact that the IRS has effectively moved the bar and that it now puts them in peril of penalties when it comes to being responsible to the IRS for their appraisal reports.  Most appraisers will however have no problems completing reports that are sent to the IRS if they are already designated, taking only assignments that they are qualified to complete, using accepted appraisal methodologies and already following USPAP guidelines.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Estate-and-Probate-Appraisals/4645-Internal-Revenue-Service-IRS-Real-Estate-Appraisals.html