On February 18, 2010, Hugh Drake, Vice Chair of the RPTE Business Planning Group, presented a position statement at an IRS hearing considering appraiser penalties under Internal Revenue Code Section 6695A. Section 6695A provides for penalties if an appraisal results in a substantial or gross valuation misstatement under section 6662. A penalty is imposed by the IRS on any person who prepared the appraisal and who knew, or reasonably should have known, the appraisal would be used in connection with a return or claim for refund. The IRS invited leaders from the appraisal profession, as well as AICPA and ABA RPTE, to the hearing to present their concerns and recommendations.
Each organization had its own particular opinions and recommendations; however, there was overwhelming agreement on a few key points. Areas of substantial agreement included:
- The urgent need for the IRS to clearly define the term “any person” to know whether it includes someone who is not an appraiser by profession but who is required to report the value of assets on a tax return (personal representatives, attorneys, CPAs, etc.).
- The need to clearly define the "more likely than not" exception to the penalty.
- A concern that the current rules lack "due process" principles.
- The need to clarify the relationship between the determination of value in the underlying tax matter and the appraiser penalty matter, which the IRS proposes to conduct completely independently of the underlying tax matter.
- The lack of clarity in the current rules as to the definition of "proper value" in connection with determining the applicability and amount of a penalty.
At the conclusion of the hearing, several IRS representatives commented on how much they appreciated the input from the organizations. They indicated that there were issues expressed that they were not aware of and that these concerns would be taken into consideration in drafting regulations and procedures to implement the penalty program.