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August 20, 2008

IRS Lists Appraisal Institute Designations in Proposed IRS Qualification Requirements

The Internal Revenue Service has included specific reference to the Appraisal Institute's designations in their definition of "qualified appraiser" and "qualified appraisal" for its proposed regulations concerning substantiation and reporting requirements for cash and noncash charitable contributions.

Pursuant to the implementation of the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006, the Internal Revenue Service has issued proposed regulations that will provide guidance concerning substantiation and reporting requirements for cash and noncash charitable contributions under section 170 of the Internal Revenue Code. Specifically, the proposed regulations address the long-standing question of what constitutes a “qualified appraiser” and “qualified appraisal” before the IRS.

According to the proposed IRS regulation, a “qualified appraiser” is an individual with verifiable education and experience in valuing the relevant type of property for which the appraisal is performed. To meet this requirement, an appraiser must have successfully completed professional or college-level coursework in valuing the relevant type of property and have two or more years of experience in valuing the relevant type of property or earned a recognized appraisal designation from a recognized professional appraisal organization.

To illustrate the definition of recognized professional appraisal designation, the IRS utilized designations conferred by the Appraisal Institute, specifically, the MAI, SRPA, SRA or SREA designations. “For example, an appraiser who has earned a designation similar to the Member of the Appraisal Institute (MAI), Senior Residential Appraiser (SRA), Senior Real Estate Appraiser (SREA), or Senior Real Property Appraiser (SRPA) membership designation has earned a recognized appraisal designation,” the IRS said.

By defining “qualified appraiser,” the IRS is intending to provide guidance to individuals, partnerships and corporations that make charitable contributions. The regulations, as proposed, would thus affect any donor claiming a deduction for a charitable contribution after the date these regulations are published as final regulations in the Federal Register.

The IRS also proposed a definition of “qualified appraisal” to be an appraisal prepared by a qualified appraiser in accordance with generally accepted appraisal standards. Generally accepted appraisal standards are defined in the proposed regulations as the substance and principles of the Uniform Standards of Professional Appraisal Practice.

Terry Dunkin, MAI, SRA, immediate past president of the Appraisal Institute, had warm words for the proposed regs, saying they provide more specificity than the interim rules. "It looks like the Service is trying to upgrade the quality of the appraisals and the appraisers that are involved in doing the valuations of these [noncash] gift contributions," he told Tax Analysts news magazine. He added that the Appraisal Institute will comment on the proposed rule and that the comments are likely to be favorable.

The need for qualified and experienced appraisers is particularly important considering that many charitable gifts of real estate are significant in value, Dunkin continued. "We're not talking about a 10- or 15-year-old car; we're talking about real estate that's worth millions of dollars of tax write-offs to the taxpayer and as a consequence could have a significant impact on the federal government," he said.

Dunkin added that the Appraisal Institute and other professional appraisal organizations established a certificate program for appraisers who want to do valuations of conservation easements. Approximately seven hundred real estate appraisers have earned the certificate, and the course has been well received by the land trust community (see Certificate Registry article below). For the complete language of the proposed rulemaking, visit www.federalregister.gov/OFRUpload/OFRData/2008-17953_PI.pdf.


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