Wednesday, July 18, 2012
The IRS has not determined the extent to which appraisals contribute to misreporting, but data did show there was a 45% error rate on noncash charitable deductions. For every five errors that were favorable to the taxpayer, there was one error unfavorable to the taxpayer.
In 2006, the Pension Protection Act lowered the thresholds on when the IRS can considered appraisals misstated, and established a civil penalty for preparing such an appraisal.
Recently, the Government Accountability office examined appraised values of artwork and other property and found that taxpayers’ burdens could be reduced if the IRS implemented a more uniform appraisal system. The valuation of estates was the most prominent valuation in the three types of tax returns that the GAO studied. They recommended that the IRS develop a comprehensive quality review program for Art Appraisal services and establish training requirements for appraisers. The IRS agreed with the GAO’s recommendations.
See Michael Cohn, IRS Needs to Get Better at Appraising the Value of Art, WebCPA, July 7, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.