An appraisal is an expert assessment of the value of a particular asset at a given time. Many factors involved in the appraisal of a property can easily distort its value–overvaluing or undervaluing it.
The IRS uses appraisals in the process of assessing property taxes, which requires the appeal of experts in the subject. As such, the IRS’s Art Appraisal Services’ (AAS) job consists of assessing the value of works of art for tax purposes. Our New York estate planning lawyers work with families who have valuable art collections and whose tax burden is significantly affected by these appraisal services.
A recent article in Accounting Today discusses the IRS’ need to improve its appraisal of the value of art and the Government Accountability Office (GAO) report on the matter.
The GAO report set the spotlight on the lack of comprehensive quality review and continuing education requirement for the IRS’ appraisers, which consistently result in a misstated and most times unfavorable appraisal for the taxpayer.
The report examined not only the appraised values of artwork but also other categories of property such as real estate, automobile and businesses, reaching the conclusion that the burden on taxpayers could be reduced and selected practices improved.
Concerning art appraisals, the report found that the valuation of the property has a huge impact on the tax liabilities of individuals who make non-cash charitable donations or who receive inheritances or gifts of property. Appraisers’ task requires them to be familiar with the subject matter and be able to note any factors that may affect the value of the property (e.g., location, surrounding area and condition of the property). But, some properties such as art, real estate, businesses and easements have very unique characteristics, making an independent appraisal essential to determine exactly how much the taxpayer should report to the IRS.
The GAO recommended that the IRS offer a continuing education program to its appraisers, along with a comprehensive quality review program, specifically for the AAS staff. They also suggested that Congress should consider raising the dollar threshold at which qualified appraisals are required for noncash contributions to reflect inflation.
The IRS having agreed with the GAO’s recommendations, we should be expecting some changes which may have ramifications for future New York estate plans.
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