The American Society of Appraisers (ASA) and 10 other appraisal organizations have sent a joint letter to the Internal Revenue Service and the Treasury Department expressing concern over a recent change to the way the IRS reviews appraisals prior to imposing a civil money penalty for valuation misstatements under IRC Section 6695A. This change reduces the number of individuals involved in the decision to impose the penalty and could result in a penalty being imposed without having anyone with valuation experience review the appraisal. The joint letter also takes issue with the fact that this process change was made without any stakeholder notice or engagement and was announced only to relevant IRS staff.

‘Chilling’ effects: In his regular newsletter, former IRS manager Michael Gregory (Michael Gregory Consulting LLC) points out: “Instead of five sets of eyes concurring on a penalty letter being initiated with three sets of eyes having valuation experience, now two sets of eyes having normally no valuation experience could make the decision to launch their investigation. This could have chilling effects on appraisers and valuers.”

Gregory was involved in drafting the letter with the ASA, which other appraisal groups representing business valuers and appraisers of real estate and M&E signed. In his newsletter, Gregory offers some possible language for appraisers to discuss with their attorneys for possible inclusion in engagement letters for tax-related valuations. You can sign up for his newsletter if you click here.