On behalf of the Appraisal Institute, Past President Terry Dunkin, MAI, urged the Internal Revenue Service to develop a meaningful oversight and enforcement system to take action against appraisers operating outside of their professional ethical obligations.
His comments came during a Feb. 18 hearing at the IRS offices just outside Washington, D.C., in response to the agency’s request for feedback on changes to its regulations regarding the process for assessing civil money penalties against appraisers for valuation misstatements.
“We are concerned the penalties against appraisers under section 6695A of the Internal Revenue Code will implicate the good appraisers with the bad ones without the due process deserved,” Dunkin said in his prepared statements. “The process for bringing a penalty against an appraiser as outlined (by the IRS) is tantamount to a ‘guilty until proven innocent’ standard in the realm of appraisal, in our view.”
According to Dunkin, the Appraisal Institute is concerned this “guilty until proven innocent” standard will dissuade many of the most qualified appraisers from providing important valuation services when it comes to appraising noncash charitable contributions. The organization fears that appraisers may be falsely accused of inaccurate valuations, despite a lack of peer review that considers the factors that led to the appraiser’s opinion of value.
“The issue is made more complex by the nature of appraisal, which expresses an opinion of value following extensive research, analysis and professional judgment,” Dunkin said. “It is critical for the work of appraisers to be reviewed thoroughly by a professional peer, and preferably in accordance with the Uniform Standards of Professional Appraisal Practice. Without this, we see the possibility of appraisers being wrongfully caught in the middle of cases between IRS agents and taxpayers, and potentially without the appraiser’s knowledge or permission.
To remedy the problem, Dunkin suggested the IRS establish a screening process that will effectively insulate appraisers from being falsely accused. Under the Appraisal Institute’s scenario, senior IRS appraisers would serve as a committee to review cases of potential valuation misstatements, while the qualified appraisers running the committee would ensure someone who understands USPAP and its application would be making the decisions.
Dunkin was joined at the hearing by Appraisal Institute President Leslie Sellers, MAI, SRA, and Appraisal Institute Director of Government and External Relations Bill Garber.
“The Appraisal Institute looks forward to working with the IRS to establish a sound review process that is fair and reasonable to the appraisers and the public they serve,” Dunkin said.