Service issues transition guidance on appraisal requirements for noncash charitable contributions.

• Author: Royalty, Phillip

In Notice 2006-96, the Service issued transition guidance on the new definitions of "qualified appraisal" and "qualified appraiser" in Sec. 170(f)(11) and new Sec. 6695A on substantial and gross valuation misstatements attributable to incorrect appraisals, as added by the Pension Protection Act of 2006 (PPA '06).

Background

Sec. 170(f)(11)(C) requires taxpayers to obtain a qualified appraisal for donated property for which a deduction exceeding $5,000 is claimed. Sec. 170(f)(11)(D) provides that, in certain cases, the qualified appraisal must be attached to the return. For appraisals prepared for returns filed before Aug. 18, 2006, existing regulations provide definitions for the terms "qualified appraisal" and "qualified appraiser" for Sec. 170(f)(11) purposes. PPA '06 Section 1219 amended Sec. 170(f)(11)(E) and provided statutory definitions of "qualified appraisal" and "qualified appraiser" for appraisals prepared for returns filed after Aug. 17, 2006.

Qualified appraisal, Sec. 170(f)(11) (E)(i) provides that a "qualified appraisal" means an appraisal (1) treated as a qualified appraisal under regulations or other IRS guidance; and (2) conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any IRS regulations or other guidance.

Qualified appraiser: Under Sec. 170(f)(11)(E)(ii), "qualified appraiser" means an individual who (1) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations; (2) regularly performs appraisals for which the individual receives compensation; and (3) meets such other requirements as may be prescribed in IRS regulations or other guidance. Sec. 170(f)(11)(E)(iii) further provides that an individual will not be treated as a qualified appraiser unless he or she (1) demonstrates verifiable education and experience in valuing the type of property subject to the appraisal and (2) has not been prohibited from practicing before the Service by the Secretary under 31 USC Section 330(c) at any time during the three-year period ending on the appraisal date.

PPA '06 Section 1219 also added a penalty provision. Under new Sec. 6695A, if the claimed value of property based on an appraisal results in a substantial or gross valuation misstatement under Sec. 6662, a penalty will be imposed on any person who prepared the appraisal and who knew (or reasonably should have...