Make No Mistake: The IRS is Serious About Qualified Appraisals and Appraisers
The IRS and the Tax Courts are serious about requiring taxpayers to properly determine the value of non-cash estate assets, gifts and charitable contributions. To avoid having the value of an inherited, gifted or donated privately-held business interest challenged or rejected by the IRS, obtain a qualified business appraisal (valuation) from a qualified business appraiser.
The IRS defines a qualified appraisal as one that:
- is performed in accordance with generally accepted appraisal standards;
- meets the relevant requirements of IRC Regulations section 1.170A-13(c)(3) and Notice 2006-96, 2006-46 I.R.B. 902;
- does not involve an appraisal fee based on a percentage of the appraised value of the property;
- includes specific information, such as a property description, terms of the sale agreement, appraiser identification information, date of valuation and valuation methods employed, among other requirements;
- in the case of a charitable donation, is made not earlier than 60 days before the property is donated, and in the case of gifted property is as of the date of gift; and
- is conducted, prepared, signed, and dated by a “qualified appraiser.” (see below)
Their definition of a qualified appraiser is an individual who:
- Has earned an appraisal designation from a recognized professional appraisal organization (such as the ASA, NACVA, IBA, or AICPA) or has met certain minimum education and experience requirements;
- Regularly prepares appraisals for which the individual is paid;
- Demonstrates verifiable education and experience in valuing the type of property being appraised;
- Has not been prohibited from practicing before the IRS under section 330(c) of Title 31 of the United States Code at any time during the three-year period ending on the date of the appraisal; and
- Is not an excluded individual (mainly, someone who is the donor or recipient of the property).
In-depth information on determining the fair market value of donated property can be found here, in IRS Publication 561. https://www.irs.gov/uac/about-publication-561
Taxpayers and tax practitioners need to pay very close attention to the credentials and experience of the business appraiser they hire, and be sure that the type of analysis and report that the appraiser intends to provide will fully comply with IRS requirements. When you need a business valuation or appraisal for a tax filing, we would be happy to help. To discuss your particular business interest and valuation needs with a qualified expert, give us a call.