Do the appraiser/appraisal penalties apply to E & G?

BVWireIssue #53-2
February 14, 2007

Taxpayer penalties are nearly automatic under IRC §6662, when the valuation claimed exceeds the “correct” valuation by 150% or more in income tax cases, and when the value is 65% or 40% less than the “correct” valuation in transfer tax cases. But in the latter context, does IRC §6695A make these same penalties applicable to the appraiser? The question came up in several sessions at the L.A. Symposium. Apparently, the Service first took the position that the penalties do apply, then reviewed several authorities and changed its opinion, according to Woolbert. But now “we’ll pursue penalties on a §6695 basis and see what happens.”

“It’s on the table,” agrees Chuck Morris, Esq., Western States Territory Manager for the IRS Estate and Gift Tax program. “Our instructions from on high are to pursue and utilize this penalty.” Compared to the “aiding and abetting” penalties of §6701, generally limited to $1,000, these new penalties have some “teeth” to them, Woolbert adds, as they are based on the economic benefit to the appraiser. Changes to §6701 also reduce the applicable standard from “actual knowledge” to whether the appraiser “knew or should have known” the appraisal would be used in connection with a substantial or gross misstatement of valuation on a tax return.

For a comprehensive overview of the PPA and related penalties, click here for a recent ABA article by Steve R. Akers of Bessamer Trust Co., also a panelist on BVR’s recent telephone conference on the McCord Reversal and the Future of Marketability Discounts.

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