IRS issues first penalties against appraisers

BVWireIssue #56-2
May 9, 2007

The Internal Revenue Service has just assessed its first penalties ever against appraisers, according to Brenda Woolbert, IRS Engineering Team Manager, who spoke at the New York ASA’s “Current Topics in Business Valuation” conference last Friday.

As a result of investigations prior to the enactment of the 2006 Pension Protection Act (see BVWire #54-1), two real estate appraisers have received a total of four penalties for “aiding and abetting” under IRC §6701.   (The pre-PPA version required actual knowledge that their appraisals would be used in a tax return and would result in a material misstatement of value.)  The financial penalty is not huge: The maximum for a corporate-related return is $10,000 and for a personal return, $1000.  More importantly, the cases have been sent to the Office of Professional Responsibility for determination of sanctions, which could bar the appraisers from performing IRS-related services.

More bad news: Woolbert anticipates increasing appraisal investigations—and penalties, especially as the PPA relaxed the “knowledge” requirement of §6701 penalty assertions, and there is no statute of limitations.  (Application of IRC §6695A penalties to transfer tax cases is still “uncertain,” she says.)  The good news: Woolbert, who has become an essential liaison between the BV community and the IRS, doubts that §6701 penalties will be triggered when the Service simply disagrees with a standard BV practice, such as when the appraiser tax-affects an S corporation.   (All of Woolbert’s statements represent her opinions and not those of the IRS.) For a recent summary by the American Bar Association on the PPA and potential IRC §6695A appraisal penalties, click here.

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