Appraisers' Free Forum

Edd Gillespie · by **Edd Gillespie** on Fri Aug 17, 2007 8:25 pm

Jim Plante wrote:I agree with most of your points. I think the determinant is the agreed SOW. What does the client (or his agent) tell you he wants to do with the report? Mine's CPA said, "Send to IRS with estate tax return." So IRS is an intended user in that case.

In the donated property used as deduction, I wouldn't list them. The HO will probably use it to substantiate his deduction, and IRS won't see it unless he's audited. And in audits, the question is asked by the auditor, "Why did you deduct this much for old T-shirts?" The taxpayer responds, "Because I had'em appraised. Here's the report that I relied on."

In my case, the CPA *knows* the IRS is going to scrutinize the report. In your personal property scenario, there's an outside chance that they'll see it, and even then, it won't be actually USED by IRS to calculate the tax, as it will in an estate situation.

If an intended user becomes such only by virtue of the client's nomination, then I suspect a lot of appraisal reports have been used correctl;y by some sho have not been properly nominated. 'course there is someting about the type of intended user.

Jim, if the lender regulatory agencies are looking to see if the intended user correctly relied on the appraisal is not that an intended use? I suspect that lenders would order very few of these for lending puposes, so the underlying use is to pass inspection, just like the IRS.

Ter Shields · by **Ter Shields** on Sat Aug 18, 2007 2:02 pm

would you also list the IRS as a potential user of the report knowing it was being done for estate tax purposes?

No, unless the client names them as intended users. However, the purpose of the appraisal would likely involve setting the value of an estate for tax calculations purposes. In most states that would include the state tax commissioner as well as IRS.

You value the whole under the unit rule which is explained in the Yellow book, then apportion the various interests accordingly. (i.e.- you should not disclaim mineral rights for instance but appraise the fee simple, and if mineral rights have a value and are otherwise absent, discount the fee simple for that condition.)

Edd Gillespie · by **Edd Gillespie** on Sat Aug 18, 2007 2:23 pm

Ter Shields wrote:
would you also list the IRS as a potential user of the report knowing it was being done for estate tax purposes?
No, unless the client names them as intended users. However, the purpose of the appraisal would likely involve setting the value of an estate for tax calculations purposes. In most states that would include the state tax commissioner as well as IRS.

You value the whole under the unit rule which is explained in the Yellow book, then apportion the various interests accordingly. (i.e.- you should not disclaim mineral rights for instance but appraise the fee simple, and if mineral rights have a value and are otherwise absent, discount the fee simple for that condition.)

Actually, USPAP seems to place the onus of naming intended users on the appraiser. Now if your appraisal is goning to be used for tax puposes, why in the world would you fail to name the tax authorities as iontended users?

Steve Owen · by **Steve Owen** on Sat Aug 18, 2007 2:45 pm

Edd Gillespie wrote:If an intended user becomes such only by virtue of the client's nomination, then I suspect a lot of appraisal reports have been used correctl;y by some sho have not been properly nominated. 'course there is someting about the type of intended user.

[font=Century Gothic]I am not certain that I would agree that intended useers become such only by client nomination. Even if it says that in USPAP, and I don't remember a place that does right off the top of my head, there is still the issue of client education. As an appraiser it is part of our job to ensure that the client "nominates" the right intended users. How I remember USPAP saying it was something along the lines of "the appraiser must identify any intended users." Certainly, the client has a place in this process.

By type: I think it would be fine to add "taxing authorities" or some such language to the intended user list. That would cover Ter's comment about state authorities. Although, in all likelihood, they will simply have a line item that is some percentage of the Fed tax liability determination.[/font]

Ter Shields · by **Ter Shields** on Sun Aug 19, 2007 8:44 pm

You are not doing this for the IRS. Your obligation is "limited to addressing their requirements as identified by the clientat the time the appraiser accepts the assignment." ST 9 USPAP.

If the client does not identify the use, then yes as a backdoor analysis, you could argue that you are obliged to squeeze the crap out the client until he hollars calf rope. That is you have to communicate with the client until you have a clear understanding of the scope, intended use, etc.

The IRS does not review your appraisal unlike when the situation is a gifting which they are claiming. You fill out a form, you swear an oath, you put your burro on the line. They examine the value offered by the taxpayer to see if its reasonable and if they have a question they send their own appraiser out and take you to tax court.

Jim Plante · by **Jim Plante** on Sun Aug 19, 2007 10:30 pm

Ter,
That's one of the inconsistencies of USPAP that irks me no end. Assignments have a way of morphing from one thing into another. I started out last June doing "an" estate appraisal. Wound up doing "two" estate appraisals. Got a good initial SOW to start with, and everything was "identified by the client at the time the appraiser accept[ed] the assignment." But the requirements changed when I talked to the CPA. So the scope got modified. What had been "Identified by the client" at the time I accepted the assignment changed, and SMT 9 doesn't allow for that. One seems to be stuck with what one starts with.

Oh, and IRS does not take you to tax court. They send you deficiency notices and you take THEM to tax court. The petition reads that you want the TC "to redetermine the deficiency alleged by the respondent." Which, of course, places the burden of proof on the taxpayer instead of on the IRS where it belongs. So much for a voluntary assessment system.

Hamlet · by **Hamlet** on Thu Aug 23, 2007 2:54 pm

Is this the treasury definitions you are looking for?

Property includible in a decedent's gross estate is generall included at its fair market value on the date of the decedent's death. Treas. Reg. section 20.2031 - 1(b); Estate of Titus v. Commissioner, T.C. Memo. 1989-466.

Fair market value is "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having rasonable knowledge or relevant facts." Treas. Reg. section 20.2031 - 1(b); United States v. Cartwright, 411 U.S. 546, 551 (1973).

These are definitions given to me by my mentor and are what I am planning to use.

Steve Owen · by **Steve Owen** on Thu Aug 23, 2007 5:18 pm

Steve Owen wrote:This is the def IRS used to require for donations:

"The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts."

The necessity of using that definition caused me (and probably other apprisers) to point out that several things were missing. There is no mention of exposure or marketing time in the def, there is no discussing of financing or being a cash sale, and, although it is implied, there is no specific prohibition of influence from related parties.

I wrote a rather lengthy letter to an attorney describing the economic necessity of such considerations, and that, together with other comments from other appraisers, may have been what prompted the ASB to write AO-8 (now retired). My understanding was that the reason they retired AO-8 was because the IRS adopted the FASB definition. Did I miss something?

I have never heard that the IRS required the above def for estate stuff. (I'm pretty sure that the IRS does not actually know what they require... and the answer may be different on different days.) In the past, I always used MV for estate work, but a couple of years ago, I started using the FASB def because that is what I was told to do. I've never had one of these come back, but then who knows? It might just depend on which IRS reviewer you draw.

Intended user:

I always include the IRS as an intended user. They are going to physically recieve a copy of the report (unlike the banking regulators, who will only see it if the audit the bank). Similarly, for divorce work, I include the court of jurisdiction. Basically, I think anyone you know is going to get a copy and rely on the report should be an intended user. IMHO, including FDIC would be overkill.

Donna, I posted that def here, but did not include the referrence. Thanks for posting it. I also wanted to bring my post forward to stimulate further discussion on two main points. First, the definition seems to be lacking in several economic necessities for the sale of real estate not to be considered as "quick sale value."

Secondly, and maybe more importantly (becasue I might be wrong), it was my understanding that the IRS requires this definition to be used for donations, but wants the FASB def for estate work. Anyone have anything definitive on that?

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